Released: August 8, 2002

Conseco Bank and Green Tree Retail Services Bank fined $250,000 for credit insurance violations

(St. Paul) – Minnesota Commerce Commissioner Jim Bernstein today announced that Conseco Bank of Utah and Green Tree Retail Services Bank of South Dakota have paid a civil penalty of $250,000 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 Conseco and Green Tree to offer customers an opportuinity to cancel their credit insurance policies. The banks have stopped selling new policies to Minnesota residents and have offered to issue full refunds or credits to customers who purchased policies between 1998 and 2001.

As Minnesota’s insurance regulator, the Department of Commerce is alleging that some Conseco and Green Tree customers were charged for credit insurance policies that they did not want or did not sign for.

Conseco and Green Tree issued credit cards for a number of retailers doing business in Minnesota. The retailers include Select Comfort Corportation, Menards, Mars Music, Ace Hardware, Heilig-Myers, Leath, McCoy’s, HWI/Do It Best, Dick’s Clothing, U.S. Remodelers, Keynotes, Gardenway, MTD/Cub Cadet, Project Line, Bryant, Aqua Vantage, and Kinetico.

Credit insurance was offered for sale by the retailers at the point of purchase and by Conseco and Green Tree in the billing statements sent to Minnesota customers. The credit life, credit disability, and involuntary unemployment policies were sold as a package, called CHARGEGARD PLUS, and covered a portion of the outstanding balance for customers enrolled in the program.

The insurance policies sold by Conseco, Green Tree 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. Conseco and Green Tree have agreed to cooperate with the Department in its ongoing investigation and enforcement actions against ABIG.

During the market conduct investigation of ABIG, the Department requested and subpoenaed information from Conseco and Green Tree, including a sampling of credit insurance applications.

In 158 instances reviewed by Department investigators, Menards and Select Comfort customers alleged they were charged for credit insurance without their knowledge or were unaware they had applied for credit insurance. Additionally, 10 Menards and Select Comfort customers were ineligible for CHARGEGARD PLUS because they were either retired, disabled, or over the maximum qualifying age of 65 when they were enrolled. More than 30 other questionable applications could not be located by the banks, insurance company, or retailers.

According to the Consent Order, Select Comfort and Menards employees are not trained to offer credit insurance and, therefore, had no knowledge of the benefits, exclusions, or limitations of the insurance policies.

Conseco and Green Tree have stopped offering CHARGEGARD PLUS in Minnesota and have agreed to not to sell credit insurance until it has demonstrated to the Department’s satisfaction that it has established proper practices and procedures to prevent further violations of Minnesota insurance law.

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

• In June 2001, the Department ordered Econ-O-Check Corporation of Stockbridge, Georgia to cease and desist from marketing unapproved insurance policies to Minnesota consumers. The company was also fined $15,000 for selling accidental death insurance policies issued by American Bankers Insurance Group to customers of Minnesota financial institutions.
• 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 that purchased credit insurance in the previous 2 years.
• 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.
• In May 2002, Commissioner Bernstein announced a civil penalty of $300,000 against Hurley State Bank of Sioux Falls, South Dakota. The Department alleged that some Hurley customers were charged for credit insurance policies that they did not want or did not sign for and that Hurley was acting as an insurance agency without a Minnesota license. Hurley will also offer an estimated $159,000 in refunds to more than 4,500 Minnesota consumers. The insurance policies were issued by American Bankers Insurance Group.
• In July 2002, while denying Department of Commerce allegations, Zale Corporation of Irving, Texas paid a civil penalty and investigative costs totaling $115,000. Additionally, the company is offering an estimated $70,000 in refunds to approximately 5,000 Minnesota consumers who purchased credit insurance in any of its Minnesota stores in 2000 and 2001. The insurance policies were issued by American Bankers Insurance Group.

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 Minnesota Department of Commerce regulates insurance in the state. In fiscal year 2002 the department’s enforcement staff responded to more than 69,000 phone calls. In insurance alone, there were 6,665 investigative files opened, 113 enforcement actions taken, and $1.3 million in civil penalties imposed. A special Consumer Response Team is available at 651-296-2488 to help individual citizens with insurance problem.

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