Insurance Premium Financing Exemption
The Council successfully lobbied to get premium financing excluded from the CFPB’s final rule on Dodd-Frank’s Section 1071.
On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) issued a final rule on Section 1071 of the Dodd-Frank Act.
Section 1071 amended the Equal Credit Opportunity Act “to require financial institutions to compile, maintain, and report to the CFPB certain data on applications for women-owned, minority-owned, and small businesses.” The proposed rule would have changed how premium finance lending operates, including how a broker interacts with its client seeking such funding. However, The Council’s government affairs team, working collectively with several other insurance associations, successfully lobbied to have premium finance lending excluded from the final rule.
Premium finance lending is a way for small businesses to obtain needed insurance coverage without having to make a large, upfront premium payment. Small businesses use premium financing for varied reasons, but typically it’s to preserve capital for other business objectives or to overcome the inability to pay for adequate coverage in a lump sum.
When the CFPB released its proposed rule in September 2021, The Council’s government affairs team joined with the National Premium Finance Association (NPFA) and the Independent Insurance Agents and Brokers of America (IIABA) to submit a comment letter highlighting three reasons why premium finance lending should be exempt from the final rule: (1) insurance premium finance transactions follow a unique lending model, (2) small business owners are not subject to conventional underwriting by premium finance lenders, and (3) applying the rule would not advance the objectives set forth in Section 1071.
We also met with congressional offices to educate them on premium financing and how it differs from a typical small-business loan.
As a result, Congress further queried the CFPB about the inclusion of premium finance lending in the rule, and it was ultimately excluded. The positive outcome reinforced our position that premium finance lending is already regulated by the states, in some states barring brokers from collecting certain demographic information, and that financing relies on the underlying insurance policy between the small business and the insurer.
