Numerous class actions have been filed against New Hampshire banks and credit insurance companies on behalf of persons who financed vehicles in New Hampshire, purchased credit life or credit disability insurance, and then paid off their loans early between 1999 and the present. The actions allege that the defendants failed to return the unused premiums in violation of New Hampshire insurance law. The actions seek compensatory damages equal to the amounts of the unearned premiums plus interest.

So far, the plaintiffs’ lawyers have settled cases against two banks and filed cases against at least five insurance carriers in state superior courts. They plan to file claims against every credit insurance company doing business in the state. Average claims may range from $100 to $200. As many as 50,000 people may be eligible to take part in the actions.

When people buy cars, the dealership makes its profit not so much by the price of the car itself but by the products that the finance and insurance department can sell to the borrower. Dealers once pushed rust-proofing, fabric protection, and other such accessories. Now, they make a significant portion of their earnings through financing. Credit insurance on those loans has proved to be both popular and profitable, as well. About three-quarters of people who buy a new or used car, truck or SUV, finance it through the dealer, according to F&I Management & Technology Magazine’s June 2, 2004, edition.

Dealers once sold credit insurance with about 90% of all vehicle loans-- Now only about 20% of vehicle loans are insured. The credit insurance covers only the amount of the loan, and remains in effect for the life of the loan, usually five years -- it is supposed to pay off the loan if the buyer dies or becomes disabled during that time. Buyers pay the entire premium in advance, and the cost is folded into the loan. Sometimes, buyers don’t even know they’ve bought the insurance. Because car dealers act as agents in selling the credit insurance, the dealership and insurer generally split the premiums.

The catch is that most people -- about 80% -- pay off their car loans early, often through refinancing. The borrower has paid in advance for coverage for the full term of the loan. Once the loan is paid, the insurance is moot. New Hampshire law requires insurance carriers to refund the balance, called “unearned premiums.” The lawsuits allege that insurance carriers and car dealers, however, have tended not to go out of their way to offer refunds, and most customers don’t think to demand it.

Many people seem not to even remember that they paid for insurance-- Even if they do remember, they are likely to assume the matter will be settled as part of their final balance. Insurance companies would have no way of knowing when a loan is paid off unless someone tells them. Since 1997, however, New Hampshire law has required lenders to notify credit insurance companies when a loan is paid off. Under state law, a bank or lender that fails to notify credit insurers when a loan is paid off can be ordered to repay all finance charges - interest and any other fees - to the borrower.

Credit insurance companies caught holding unearned premiums are required only to pay back the money with interest from the time it was due. The law allows “enhanced” penalties only if a person can prove the failure to refund the money was a deliberate scheme.