Released: May 28, 2002

South Dakota bank fined $300,000 for credit insurance sales to Minnesota consumers

(St. Paul) - Minnesota Commerce Commissioner Jim Bernstein today announced that Hurley State Bank of Sioux Falls, South Dakota has paid a civil penalty and investigative costs totaling $300,000 as a result of the Department's continuing investigation into the sale and marketing of credit insurance to Minnesota consumers. The Commissioner's Consent Order also requires Hurley to offer an estimated $159,000 in refunds to more than 4,500 Minnesota consumers who have purchased credit insurance or have been covered by a credit insurance policy since July 1999.

As Minnesota's insurance regulator, the Department of Commerce is alleging that some Hurley customers were charged for credit insurance policies that they did not want or did not sign for.

In addition, Hurley was acting as an insurance agency without a Minnesota license.

Hurley State Bank issues credit cards for a number of retailers doing business in Minnesota. The retailers include Office Max, Helzberg Diamonds, Radio Shack, Goodyear, United Airlines, American Airlines, Laura Ashley, The Children's Place, Gateway, Shop at Home, House2Home, CareCredit, MedCash, Furniture Row, NTB, Tractor Supply Co., Hifi.com, Cambridge Sound Works, West Marine, Roger's Jewelers, Catherine's, PS Plus Sizes, The Answer, Added Dimensions, JC Keepsake, America's Diamond & Gold, Paul Harris, Krigel's Jewelers, Ultra, Premier, B. Moss, Winston Tire, Kelly, Associate Brands, Dunlop, Jewelry 3, Betaseron and Zales.

Credit insurance was offered for sale by the retailers at the point of purchase and by Hurley in the billing statements it sent to Minnesota customers. The credit life, credit disability, and involuntary unemployment policies covered a portion of the outstanding balance for customers enrolled in the program.

The insurance policies sold by Hurley and its retailers were issued by American Bankers Insurance Group (ABIG) of Florida. In February 2002, the Department issued a Statement of Charges against ABIG citing a continuing pattern of non-compliance and multiple violations of Minnesota insurance law. Commissioner Bernstein is seeking sanctions and significant civil penalties against ABIG. A hearing is pending. Hurley has agreed to cooperate with the Department in its ongoing investigation and enforcement actions against ABIG.

Hurley and ABIG have entered into an Insurance Services Agreement. Hurley agrees to bill and collect credit insurance premiums and then remit them to ABIG. In return, ABIG is responsible for complying with Minnesota law. However, the insurance forms designed by ABIG and distributed by Hurley do not include basic coverage information nor are they separate from the billing statement as required by law. The forms have not been filed or approved by the Department.

On billing statements, customers found charges for "CHARGEGARD 3000 / CREDIT PROTECTION." These charges were for credit insurance premiums. Customers were confused because "insurance" or "credit insurance" was not mentioned.

In a sample of Hurley customers, 26 did not sign the credit insurance application or signed "no" and were still enrolled and charged for coverage. In one case, a customer called Hurley to inquire about CHARGEGUARD and was told that "they just automatically add it." In another case, two retired customers were sold disability and unemployment insurance. When asked to provide applications for 45 Radio Shack customers, Hurley was unable to locate 28 documents.

Hurley, while not admitting or denying the Department's allegations, has paid a civil penalty and investigative costs totaling $300,000, will offer refunds to Minnesota consumers who have purchased or have been covered by credit insurance since July 1999, and will cease selling credit insurance to Minnesota customers until it complies with Minnesota insurance law.

The Department is continuing its investigation of the sale and marketing of credit insurance:

• In November 2001, Commissioner Bernstein announced a settlement with Circuit City of Richmond, VA. Circuit City - while not admitting or denying any guilt - paid a civil penalty of $335,000 stemming from the sale of credit insurance at their 10 Minnesota stores. Circuit City also offered premium refunds to customers who purchased credit insurance in the previous 2 years.
• In November 2001, Commissioner Bernstein charged the Zale Corporation, Irving, Texas with allegedly violating numerous Minnesota insurance laws. The 195 count Statement of Charges includes allegations involving the sale of credit life and credit disability insurance policies to Minnesota consumers. A hearing is pending
• In February 2002, the Department issued a Statement of Charges against American Bankers Insurance Group (ABIG) of Florida alleging a continuing pattern of non-compliance and multiple violations of Minnesota insurance law. Commissioner Bernstein is seeking sanctions and significant civil penalties.
• In May 2002, the Department announced a $125,000 civil penalty against American General Assurance Company of Schaumburg, Illinois. The company failed to pay at least 85 claims in a timely manner and did not pay interest on money it owed to policyholders on 17 of those claims.
• In May 2002, the Department announced that JMIC Life Insurance Company of Deerfield Beach, FL, Union Security Life Insurance Company of Atlanta, GA, and Universal Underwriters Life Insurance Company of Overland Park, KS have been ordered to appear at separate hearings to determine if the Commissioner should withdraw approval of the premium rates. An actuarial review determined the premium rates currently being charged to Minnesota consumers are excessive when compared to policy benefits.

Credit insurance background

• Credit insurance is sold to consumers as part of another purchase.
• The price of the policy is added to a loan or credit agreement.
• The lender can be a retail merchant (auto, electronics, furniture, etc) or a financial institution.
• The majority of the credit insurance market is dominated by credit life and credit disability products. In both cases, the insurance pays the lender, not the consumer, in the event of a loss.
  • Credit Life - pays off the consumer's remaining debt on a specific loan or credit card account if the borrower dies during the term of the coverage.
  • Credit Accident and Health (Credit Disability/Unemployment) - pays a limited number of monthly payments on a specific loan or credit card account if the borrower becomes disabled or unemployed during the term of coverage.
• Minnesotans paid $98.6 million for credit insurance in 2001 and received $33.5 million in benefits, for a "loss ratio" of 34%. Commissioner Bernstein favors a minimum 60% ratio, similar to other life and disability insurance products.

The Department of Commerce regulates the financial services industries in Minnesota including insurance, state chartered banks, securities and real estate. It also regulates the energy and telecommunications industries.