This is why both Fannie Mae and Freddie Mac have announced that they will not purchase any loans that include financed, lump-sum credit insurance policies because they agree that it is such an abusive practice. This action still would allow consumers to purchase the protection at reasonable cost on a monthly outstanding balance, but would prevent unscrupulous lenders from taking advantage of unwitting borrowers. Any such law should not rely on disclosure of financed credit insurance as a substitution for their prohibition. The North Carolina law deliberately does not impose or rely upon additional disclosures to consumers. The closing of a mortgage loan is already a blizzard of paperwork that is quickly pushed past the borrower.
Additional disclosures are just more snowflakes in the storm and provide no aid to consumers.
Moreover, disclosures become a refuge and defense for lenders who point to language in one of the literally dozens of documents signed by the borrower. For instance, even though the borrower may never be told about onerous provisions of the loan, such as an exorbitantly priced credit insurance policy, the terms are contrary to what the borrower reasonably expected, the lender will claim that the terms are permissible because they were disclosed somewhere in the many loan papers. Additionally, the credit insurance policies should be closed after the loan is closed, not when the loan closes. This helps make clear to the borrower that the insurance is not required to close the loan, a pressure tactic often used by unscrupulous lenders.