To amend chapter 427, by adding thereto fifteen new sections relating to collateral protection, with an effective date.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF MISSOURI, AS FOLLOWS:

     Section A. Chapter 427, is amended by adding thereto fifteen new sections, to be known as sections 427.110, 427.115, 427.120, 427.125, 427.130, 427.135, 427.140, 427.145, 427.150, 427.155, 427.160, 427.165, 427.170, 427.180 and 427.190, to read as follows:

     427.110. Sections 427.110 to 427.190 may be cited as the Collateral Protection Act. As a part of their regular audit, state regulators may audit creditors that elect coverage under sections 427.110 to 427.190; when the creditor is primarily regulated by the state, the state agency currently authorized to examine such creditor shall be the exclusive agency permitted to audit such creditor for compliance. When the creditor is chartered by the federal government or any agency thereunder, or is unregulated, the Missouri attorney general may audit such creditor for compliance and shall be the exclusive agency to monitor compliance, except it may delegate such audit power to the division of finance.

     427.115. In sections 427.110 to 427.190, unless the context otherwise requires, the following words and phrases shall mean:

     (1) "Collateral", any or all property pledged to secure payment, repayment, or performance under a credit agreement, including, but not limited to, personal property, real property, fixtures, inventory, receivables, rights or privileges;

     (2) "Collateral protection coverage":

     (a) Insurance coverage that is:

     a. Purchased unilaterally by a creditor subsequent to the date of a credit agreement;

     b. Purchased to provide monetary protection against loss of or damage to the collateral or against liability arising out of the ownership or use of the collateral; and

     c. Purchased according to the terms of a credit agreement as a result of a debtor's failure to provide evidence of insurance or failure to maintain adequate insurance to cover the collateral, with the costs of such insurance, including interest and any other charges imposed by the creditor in connection with the placement of such insurance, payable by the debtor; or

     d. Purchased to protect only the interest of the creditor or insurance coverage that is purchased to protect both the interest of the creditor and some or all of the interest of the debtor. The term of such coverage may, but need not, extend to the full term of the credit transaction;

     (b) Does not include insurance coverage that is:

     a. Purchased by the creditor and not chargeable to the debtor;

     b. Purchased at the inception of a credit transaction to which the debtor is a party or agrees, whether or not the costs are included in any payment plan under the credit transaction;

     c. Purchased by the creditor following foreclosure, repossession, or a similar event wherein the creditor gains possession or control over the collateral;

     d. Maintained by the creditor for the protection of any or all collateral which may come into the possession or control of the creditor through foreclosure, repossession, or a similar event;

     e. Credit insurance, mortgage protection insurance, insurance issued to cover the life or health of the debtor, or any other insurance maintained to cover the inability or failure of the debtor to make payment under the credit agreement, including any insurance governed by chapter 385, RSMo;

     f. Title insurance; or

     g. Flood insurance required to be placed by creditors by 42 U.S.C. 4012(a), as amended, pursuant to the National Flood Insurance Reform Act of 1994;

     (3) "Credit agreement", the written document or documents that set forth the terms of the credit transaction;

     (4) "Credit transaction", any transaction which requires the payment or repayment of money, goods, services, property, rights, or privileges, which is to be made on one or more future dates, where such obligation is secured by collateral;

     (5) "Creditor", any person, corporation, partnership, association, or other venture, which is in the business of lending money or the vendor or lessor of goods, services, property, rights, or privileges, for which repayment is arranged through a credit transaction, and includes any successor to the rights, title, interest, or liens of such lender, vendor, or lessor;

     (6) "Debtor", a borrower of money or a purchaser or lessee of goods, services, property, rights, or privileges, for which payment or repayment is arranged through a credit agreement. Debtor does not include any person who is not the primary obligor under a credit transaction or who is not jointly liable or jointly and severally liable with the debtor for the obligation.

     427.120. For protection under sections 427.110 to 427.190, a creditor may place collateral protection coverage provided the following conditions are met:

     (1) The debtor has entered into a credit transaction with the creditor;

     (2) The credit transaction has been reduced to a credit agreement, and the credit agreement requires the debtor to maintain insurance on the collateral; and

     (3) A notice substantially similar to the following has been included in the credit agreement or on a separate document provided to the debtor and to any cosigner, guarantor, or other person liable with the debtor for the obligation, at the time the credit agreement is entered: "Unless you provide evidence of the insurance coverage required by your agreement with us, we may purchase insurance at your expense to protect our interests in your collateral. This insurance may, but need not, protect your interests. The coverage that we purchase may not pay any claim that you make or any claim that is made against you in connection with the collateral. You may later cancel any insurance purchased by us, but only after providing evidence that you have obtained insurance as required by our agreement. If we purchase insurance for the collateral, you will be responsible for the costs of that insurance, including interest and any other charges we may impose in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to your total outstanding balance or obligation. The costs of the insurance may be more than the cost of insurance you may be able to obtain on your own."

     427.125. 1. Within thirty calendar days following the placement of collateral protection coverage, the creditor shall mail to the debtor and to any cosigner, guarantor, or other person liable with the debtor for the obligation, at the last known address of any such person, a notice entitled "Notice of Placement of Insurance" in a form substantially similar to the following:

"NOTICE OF PLACEMENT OF INSURANCE

     Your credit agreement with us requires you to maintain adequate insurance on your collateral until you pay off your loan. You have not given us proof that you have adequate insurance on your collateral. Under the terms of your credit agreement, we have purchased insurance at your expense to protect our interests in your collateral.

     The insurance we purchased will pay claims made by us as the creditor. The insurance we purchased may not pay any claims made by you or against you in connection with your collateral.

     You are responsible for the costs of this insurance, including interest and any other charges we may impose in connection with the purchase of this insurance. The costs of this insurance may be more than insurance you can buy on your own.

     You still may obtain insurance of your own choosing on the collateral. If you provide us with proof that you have obtained adequate insurance on your collateral, we will cancel the insurance that we purchased and refund or credit any unearned premiums to you. If, within thirty days after the date this notice was sent to you, you provide us with proof that you had adequate insurance on your collateral as of the date we purchased insurance and that you continue to have the insurance that you purchased yourself, we will cancel the insurance that we purchased without charging you any costs, interest, or other charges in connection with the insurance that we purchased."

     2. The terms for repayment of the costs of the collateral protection coverage, which shall include interest and any other charges imposed by the creditor in connection with the placement of the collateral protection coverage, shall include one or more of the following:

     (1) Full payment within thirty days after the date of the Notice of Placement of Insurance;

     (2) A final balloon payment within thirty days after the last scheduled payment required by the credit agreement; or

     (3) Full amortization over the term of the credit transaction, the term of the collateral protection insurance policy, or the term for which amortization is used by the creditor.

     427.130. If any form of amortization is used by the creditor and a coupon book was sent to the debtor at the inception of the credit transaction, the creditor shall send to the debtor either:

     (1) A reprinted coupon book with revised calculations of the debtor's payments that includes the amortized costs of the collateral protection coverage; or

     (2) A supplemental coupon book with calculations of the debtor's additional payments based upon the amortized costs of the collateral protection coverage, for use by the debtor in addition to the original coupon book.

     427.135. A debtor may at any time cause the cancellation of collateral protection coverage by providing proper evidence to the creditor that the debtor has obtained insurance as required by the credit agreement. If, within thirty days after notice is sent pursuant to subsection 1 of section 427.125, a debtor provides the creditor with proper evidence that the debtor had insurance on the collateral as required by the credit agreement on the date the creditor purchased coverage and that the debtor continues to have insurance on the collateral as required by the credit agreement, the creditor shall cancel the coverage that it purchased and may not charge the debtor any costs, interest, or other charges in connection with the coverage.

     427.140. Upon cancellation or expiration of collateral protection coverage, the amount of unearned premiums, if any, as calculated in accordance with the policy, shall be refunded to the debtor. The amount of unearned premiums, however, may not be calculated by the rule of 78 or sum of the digits method. A refund of unearned premiums may be credited to the debtor's obligation under the credit agreement or distributed directly to the debtor by check or other means.

     427.145. Collateral protection coverage may be placed with any insurance carrier selected by the creditor that is licensed to underwrite the insurance by the department of insurance. The insurance shall be evidenced by an individual policy or a certificate of insurance.

     427.150. A creditor that places collateral protection coverage in substantial compliance with the terms of sections 427.110 to 427.190 shall not be directly or indirectly liable in any manner to a debtor, co-signor, guarantor, or any other person in connection with the placement of the collateral protection coverage. Notices and coupon books required to be mailed to a debtor under sections 427.110 to 427.190 are not required to be mailed to any person other than to the debtor, and shall be mailed first class, postage prepaid, to the debtor's last known address on file with the creditor.

     427.155. Sections 427.110 to 427.190 do not impose a fiduciary relationship between the creditor and the debtor. Placement of collateral protection coverage is for the sole purpose of protecting the interest of the creditor when the debtor fails to insure collateral as required by the credit agreement.

     427.160. A creditor is not required to purchase collateral protection coverage or to otherwise insure collateral. A creditor shall not be liable to a debtor or to any other person for failure to purchase collateral protection coverage, as a result of the amount or level of coverage of collateral protection coverage purchased by the creditor, or because the creditor purchased collateral protection coverage that protects only the interests of the creditor or less than all of the interests of the debtor. Sections 427.110 to 427.190 shall not create a cause of action for damages on behalf of the debtor or any other person in connection with the placement of collateral protection coverage, and violations of these sections shall not be deemed to violate the standard of care under any common law cause of action.

     427.165. The obligations and rights of the creditor and the debtor with respect to the collateral as provided by the uniform commercial code are not affected by sections 427.110 to 427.190.

     427.170. The provisions of sections 427.110 to 427.190 are severable under section 1.140 RSMo, and shall not impair any other remedies, rights, or options available to a creditor pursuant to any law, regulation, ruling, court order, contract, or agreement.

     427.180. If at any time after the commencement of an action to determine liability for collateral protection coverage, the party or parties defending the action file a written request for removal of the action to any other court of competent jurisdiction located in an adjacent county, such action shall, by order of the court, be removed to such court within the adjacent county. Otherwise the law applying to change of venue in civil cases shall apply to the removal of such action as are provided by law.

     427.190. An action to enforce an obligation, duty, or right to determine liability for collateral protection coverage shall be commenced within two years after the cause of action accrues. The cause of action shall accrue when such collateral protection coverage is purchased.

     Section B. The provisions of this act shall become effective on January 1, 1998.