A&B Abstract:

Under New Mexico’s Insurance Code, it has been a long-standing requirement that lenders may not condition a loan of money on the procurement of insurance from any particular insurer, agent, solicitor, or broker.  The lender is required to inform the buyer of their rights “regarding the placement of insurance on a form prescribed by the superintendent” and the borrower must “signify that he has been so informed.”  The form of the required “Freedom to Choose” is provided by regulation to the Insurance Code as follows:

FREEDOM TO CHOOSE INSURANCE COMPANY AND INSURANCE PROFESSIONAL

The undersigned person hereby acknowledges that I have been informed by (individual’s name) on behalf of (name of lender) that, although I may be required by the seller or lender to purchase insurance to cover the property that is being used as security for the loan, I may purchase that insurance from the insurance company or agent of my choice, and cannot be required by the seller or lender, as a condition of the sale or loan, to purchase or renew any policy of insurance covering the property through any particular insurance company, agent, solicitor, or broker. I hereby acknowledge receipt of a true copy of this notice on the _____day of_____________, _____.

__________________________________

(Signature of Purchaser or Borrower)

The New Mexico Financial Institutions Division (FID) issued regulatory guidance (the “Guidance”) this month as some lenders have not been completing the form correctly.  The Guidance clarifies that the “Freedom to Choose” notice requires the name of the individual providing the notice, and the FID finds the practice of providing only the company name in the blank reserved for the individual’s name as a violation of the Insurance Code.

 Takeaway:

Lenders take note as this is an easy violation to avoid.  To that end, now is a good time to review your New Mexico policies, procedures and QC reviews to ensure compliance with this requirement.  Please don’t hesitate to reach out with any questions on when the form is required and how to ensure it is completed correctly.  While the FID’s Guidance does not speak to penalties, it is worth noting that the Superintendent of the New Mexico Regulation and Licensing Department has authority to impose monetary penalties for violations of this provision, including a fine not to exceed $500 per violation. The statute also authorizes administrative penalties and civil actions.

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