Florida's First Union Bank Will Pay to Settle Excessive Coverage Lawsuit

09/10/96

The National Underwriter Property & Casualty has reported that the First Union National Bank of Florida will pay more than $26.1 million to settle a class-action lawsuit that alleges the bank charged consumers with car and boat loans for excessive insurance through its collateral protection insurance program.

The settlement is said to be the largest of its kind in Florida, and comes after a two-year investigation by the state's Attorney General. It will affect consumers whose loans were placed in the collateral protection program between January 1, 1986 and Sept. 30, 1996.

The agreement calls for First Union to establish a $4.7 million fund to provide refunds for consumers whose loans have been retired, and to issue $19.4 million as credit refunds against existing loans. The bank also will pay $2 million in attorney fees and investigative costs.

Florida senior assistant attorney general Mary Leontakianakos said the bank's collateral program was designed to make borrowers maintain insurance coverage on their vehicle. If their coverage to lapsed, the bank would add the cost of providing insurance to the loan.

Leontakianakos said the loan contracts allowed for comprehensive and collision coverage, but that the bank added coverage for repossession expenses and the full repayment of the loan regardless of the value of the car: "They overreached with the coverage," she said.

First Union's settlement is at least the second of its kind in Florida this year. Ford Motor Credit Company agreed to pay nearly $8.5 million to 45,000 consumers and $1 million in investigative costs to settle a similar suit last summer.

Leontakianakos said several class-action suits have been filed against smaller banks. She expects more settlements associated with the insurance practice to be announced before the end of the year.

Paul Dever -- The Auto Channel