Illinois

The relevant statute is the Collateral Protection Act, Ill. Rev. Stat. ch. 815 §§180/1 et seq. (“IL-CPA”).

A. Actions lender may take:

(1) IL-CPA §180/5 - Collateral protection insurance is coverage that lenders unilaterally purchase according to the terms of a credit agreement to protect against collateral loss or damage or liability arising from the collateral's ownership or use, after a borrower fails to maintain or provide evidence of adequate insurance. Collateral protection insurance includes insurance coverage that is purchased to protect only the interest of the lender and insurance coverage that is purchased to protect both the interest of the lender and some or all of the interest of the borrower. Collateral protection insurance does not include insurance that lenders purchase or maintain after foreclosure or flood insurance that the lender is required to place under federal law.

(2) IL-CPA §§180/10, 180/35 - Lenders may place collateral protection insurance with any insurance carrier licensed by the Illinois Department of Insurance, if:

(i) the credit agreement requires that the borrower maintain insurance on the collateral, and

(ii) a prescribed statutory notice (see B., below) was included in the credit agreement or on a separate document provided to the borrower and any cosigners or guarantors at the time the parties entered the loan agreement.

(3) IL-CPA §180/15(b) - The lender must provide for one or more of the following repayment terms for collateral protection insurance, including interest and any other charges imposed by the lender in connection with the placement of such insurance:

(i) full payment within 30 days after the date of the notice of placement of insurance;

(ii). a final balloon payment within 30 days after the last scheduled payment required by the loan agreement; or

(iii) full amortization over the term of the loan agreement, the term of the collateral protection insurance policy, or the term for which amortization is used by the lender.

(4) IL-CPA §§180/25, 180/30 - Lenders must refund any unearned premiums for collateral protection insurance upon cancellation or expiration of such insurance. The lender must calculate the amount of any unearned premiums in accordance with the insurance policy, but may not use the Rule of 78ths method to calculate the refund. Refunds may be credited to the loan obligation or distributed directly to the borrower by check or other means. A borrower may cancel collateral protection insurance at any time by providing the lender with proper evidence that the borrower has obtained the insurance required by the credit agreement. If, within 30 days after the notice of placement of insurance is sent (see B.3., below), the borrower provides the lender with evidence that the collateral was insured as required by the credit agreement on the date the lender purchased collateral protection insurance, and that such insurance remains in effect, the lender must cancel the insurance that it purchased. Upon cancellation, the lender may not charge the borrower any costs, interest or other charges in connection with the insurance it purchased.

B. Notices required:

(1) IL-CPA §180/10 - To obtain force-placed insurance, lenders must include the following notice in the loan agreement or on a separate document provided to the borrower and to any cosigners and guarantors at the time the parties enter the loan agreement:

“Unless you provide us with evidence of the insurance coverage required by your agreement with us, we may purchase insurance at your expense to protect our interests in your collateral. This insurance may, but need not, protect your interests. The coverage that we purchase may not pay any claim that you make or any claim that is made against you in connection with the collateral. You may later cancel any insurance purchased by us, but only after providing us with evidence that you have obtained insurance as required by our agreement. If we purchase insurance for the collateral, you will be responsible for the costs of that insurance, including interest and any other charges we may impose in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to your total outstanding balance or obligation. The costs of the insurance may be more than the cost of insurance you may be able to obtain on your own.”

(2) IL-CPA §§180/15(a), 180/40 - Lenders must mail the following notice by first class mail, postage prepaid, to the borrower and any cosigner or guarantor at their last known address within 30 calendar days after purchasing collateral protection insurance:

“NOTICE OF PLACEMENT OF INSURANCE

Your credit agreement with us requires you to maintain adequate insurance on your collateral until you pay off your loan. You have not given us proof that you have adequate insurance on your collateral. Under the terms of your credit agreement, we have purchased insurance at your expense to protect our interests in your collateral.

The insurance we purchased will pay claims made by us as the creditor. The insurance we purchased may not pay any claims made by you or against you in connection with your collateral.

You are responsible for the costs of this insurance, including any interest and other charges that we may impose in connection with the purchase of this insurance. The initial premium payment for this insurance will be (amount), which may or may not include any interest or other charges that we may impose. The costs of this insurance will be added to your payment obligations and may be more than for insurance you can buy on your own.

You still may obtain insurance of your own choosing on the collateral. If you provide us with proof that you have obtained adequate insurance on your collateral, we will cancel the insurance that we purchased and refund or credit any unearned premiums to you.

If, within 30 days after the date this notice was sent to you, you provide us with proof that you had adequate insurance on your collateral as of the date we also purchased insurance and that you continue to have the insurance that you purchased yourself, we will cancel the insurance that we purchased without charging you any costs, interest, or other charges in connection with the insurance that we purchased.”

(3) IL-CPA §§180/20, 180/40 - If the lender uses any form of amortization and the lender sent a coupon book to the borrower at the inception of the loan agreement, the lender must mail either:

(i). a reprinted coupon book with revised calculations of the borrower's payments including the amortized costs of collateral protection insurance, or

(ii) a supplemental coupon book with calculations of the borrower's additional payments based on the amortized costs of the collateral protection insurance, for the borrower's use in addition to the original coupon book.

C. Coverage required:

(1) IL-CPA §180/5 - Collateral protection insurance includes insurance coverage that is purchased to protect only the interest of the lender and insurance coverage that is purchased to protect both the interest of the lender and some or all of the interest of the borrower.

(2) IL-CPA §180/50 - Lenders are not required to purchase collateral protection insurance, and are not liable to borrowers or other persons, because the lender did not purchase such insurance, as a result of the amount or level of coverage purchased, or because the lender purchased insurance that protects only the lender's interests or less than all of the borrower's interests. IL-CPA does not create a cause of action for damages on behalf of a borrower or any other person in connection with the placement of collateral protection insurance.

D. Charges permitted:

(1) IL-CPA §180/5 - Lenders may charge borrowers for the costs, including interest and any other charges imposed by the lender, of collateral protection insurance purchased according to the terms of the loan agreement.

(2) IL-CPA §180/25 - If, within 30 days after the notice of placement of insurance is sent (see B.3., above), the borrower provides the lender with evidence that the collateral was insured as required by the credit agreement on the date the lender purchased collateral protection insurance, and that such insurance remains in effect, the lender must cancel the insurance that it purchased. Upon cancellation, the lender may not charge the borrower any costs, interest or other charges in connection with the insurance it purchased.

E. Finance charge allowed on lender's payment: IL-CPA §180/5 - Lenders may charge borrowers for the costs, including interest and any other charges imposed by the lender, of collateral protection insurance purchased according to the terms of the loan agreement.

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