The Legislature finds and declares that it is unfair for a creditor who has directly participated in, arranged, or received a commission or other compensation for the sale of credit disability insurance to the debtor, or that creditor’s successor in interest, to invoke a creditor’s remedy because of a debtor’s nonpayment of any sum which has become due during a period of disability until a reasonable time has passed for the disability insurance claim to be filed, verified and processed.
Obligations Arising From Particular TransactionsCreditor Remedies: Disability Insurance
Section § 1812.400
This law states that if a creditor has been involved in selling credit disability insurance to a debtor, it is unfair for them to demand payment from the debtor during the time the debtor is disabled. The creditor must wait a reasonable amount of time for the insurance claim to be handled before seeking payment for missed sums.
creditor credit disability insurance debtor
Section § 1812.401
This section defines key terms related to credit disability insurance in California. It explains who is considered a debtor and a creditor in the context of credit transactions involving disability insurance. It also describes what a creditor's remedy is, providing examples such as late charges and foreclosure. The 'disability claim period' is the timeframe when a debtor can claim disability coverage, starting from the missed payment date. It also specifies how a debtor should give notice to the creditor if they are claiming disability, emphasizing that written notice must be properly directed to the creditor's specified location or phone number.
For the purposes of this title:
(a)CA Civil Law Code § 1812.401(a) “Credit disability insurance” means insurance of a debtor to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is disabled as defined in the policy.
(b)CA Civil Law Code § 1812.401(b) “Creditor” means the lender of money or vendor or lessor of goods, services, property, rights, or privileges, for which payment is arranged through a credit transaction, who has directly participated in, arranged, or received a commission or other
compensation for the sale of credit disability insurance to the debtor, or any successor to the right, title, or interest of any such lender, vendor, or lessor, and an affiliate, associate, or subsidiary of any of them or any director, officer, or employee of any of them, or any other person in any way associated with any of them.
(c)CA Civil Law Code § 1812.401(c) “Debtor” means a borrower of money or a purchaser or lessee of goods, services, property, rights, or privileges for which payment is arranged through a credit transaction.
(d)CA Civil Law Code § 1812.401(d) “Creditor’s remedy” means and includes the imposition of any late charge or penalty, the acceleration of the maturity of all or any part of the indebtedness, the collection or assignment for the collection of all or any part of the indebtedness, the commencement of any action or special proceeding, or the enforcement of any security interest in any manner, including, but not
limited to, repossession, foreclosure, or the exercise of a power of sale contained in a deed of trust or mortgage.
(e)CA Civil Law Code § 1812.401(e) “Disability claim period” or “claim period” means the period beginning on the due date of the first payment not paid by the debtor for which the debtor claims disability coverage arising from a then current disability and continuing until three calendar months thereafter or until the insurer pays or rejects the claim, whichever occurs sooner.
(f)CA Civil Law Code § 1812.401(f) “Notice” to a creditor means written notice deposited in the United States mail, postage prepaid, addressed to the creditor at the location where payments on the loan or credit transaction are normally required to be sent by the debtor. A creditor may elect to require that written notice, otherwise complying with the requirements of this subdivision, be sent to a different location or may elect to accept telephonic
notice to a telephone number specified by the creditor, in either case in lieu of notice being sent to the location where payments are regularly required to be sent, if that location or telephone number is clearly and conspicuously disclosed as the proper place to direct any notice to the creditor relating to any claim of disability on each monthly billing, or on or in each payment coupon book (by adhesive attachment, republication, or otherwise), as the case may be, or (if payments are automatically deducted from an account of the debtor) on the annual statement of loan activity. In any particular instance a creditor may waive the requirement that notice be in writing and accept oral notice.
credit disability insurance debtor creditor
Section § 1812.402
This law is about how creditors and debtors interact when a debtor has credit disability insurance and becomes unable to pay their debts during a disability claim period. If you're using this insurance because of disability, your creditor can't try to collect money from you for debts that are covered. They have to give you details about how to file your claim. If approved, your insurer will make payments on your behalf, and the creditor should treat these as on-time payments. If your claim is denied, you have 35 days to pay off what's due without other penalties kicking in. Additionally, creditors should provide clear written instructions about the claims process, and debtors have the right to take legal action if their rights are violated under this law.
(a)CA Civil Law Code § 1812.402(a) No creditor, as defined in Section 1812.401, shall invoke any creditor’s remedy against a debtor because of the debtor’s nonpayment of any sum which becomes due during any disability claim period and for which credit disability insurance coverage, subject to this title, is provided.
(b)CA Civil Law Code § 1812.402(b) Upon initially receiving notice, as defined in subdivision (f) of Section 1812.401, of the debtor’s claim of disability, the creditor shall inform the debtor in writing of the name, address, and telephone number of the insurer or its designated
representative from whom the debtor may obtain claim forms. Upon receiving notice of the disability claim, the insurer or its designated representative shall send necessary claim forms to the debtor. The debtor shall submit the claim to the insurer or its designated representative and shall notify the creditor, as specified in subdivision (f) of Section 1812.401, that a claim has been submitted.
This subdivision shall apply to the original creditor who sold the disability insurance and shall not apply to that creditor’s successor in interest if the successor in interest (1) is not related by common ownership or control to that creditor and (2) has no information regarding the name, address, and telephone number of the insurer or its designated representative.
(c)CA Civil Law Code § 1812.402(c) Nothing in this section prohibits a creditor from invoking any creditor’s remedy during or after the claim period for the debtor’s nonpayment
of any sum due prior to the claim period, whether or not the nonpayment is related to the claimed disability, or for the debtor’s nonpayment of any interest, finance charge, or late charge accruing during the claim period of any sum due prior to the period.
(d)CA Civil Law Code § 1812.402(d) Nothing in this section prohibits a creditor from foreclosing a lien on any property to protect that creditor’s security interest if a senior lienholder on that property (1) has initiated the foreclosure of its lien, (2) is not prohibited from continuing the foreclosure by any law or order of court, or (3) will not otherwise suspend or delay its foreclosure proceeding until after the disability claim period.
(e)CA Civil Law Code § 1812.402(e) If the insurer pays the claim within the disability claim period, the creditor shall treat each payment made by the insurer as though it were timely made by the debtor. If the insurer rejects the claim within the
disability claim period or accepts the claim within the claim period as a partial disability which results in a payment of less than the full benefit which would be paid for the total disability, the debtor shall have the opportunity to pay the entire amount which became due during the claim period or the difference between the amount which became due during the claim period and the amount paid by the insurer for the partial disability without being subject to any creditor’s remedy, except the imposition of late charges, for 35 days following the date on which the insurer sends notice of the rejection of the claim or acceptance of the claim as a partial disability. In the event the debtor does not pay the entire amount which became due during the claim period plus any accrued late charges within 35 days from that date, the creditor may then invoke any creditor’s remedy.
(f)CA Civil Law Code § 1812.402(f) The obligations of the creditor and debtor pursuant to this section
shall be disclosed in writing in at least 10-point type by the creditor to the debtor at the time the creditor sells the insurance, in the manner provided in paragraph (1), and by the insurer to the debtor at the time the insurer sends claim forms pursuant to subdivision (b), in the manner provided in paragraph (2).
(1)CA Civil Law Code § 1812.402(f)(1) The disclosure required by the creditor shall be substantially in the following form:
CLAIM PROCEDURE
If you become disabled, tell us (your creditor) right away. (We advise you to send this information to the same address to which you are normally required to send your payments, unless a different address or telephone number is given to you in writing by us as the location where we would like to be notified.) We will tell you where to get claim forms. Send
in the completed form to the insurance company as soon as possible and tell us as soon as you do.
If your disability insurance covers all of your missed payment, WE CANNOT TRY TO COLLECT WHAT YOU OWE OR FORECLOSE UPON OR REPOSSESS ANY COLLATERAL UNTIL THREE CALENDAR MONTHS AFTER your first missed payment is due or until the insurance company pays or rejects your claim, whichever comes first. We can, however, try to collect, foreclose, or repossess if you have money due and owing us or are otherwise in default when your disability claim is made or if a senior mortgage or lien holder is foreclosing.
If the insurance company pays the claim within the three calendar months, we must accept the money as though you paid on time. If the insurance company rejects the claim within the three calendar months or accepts the claim within the three calendar months as a partial disability and pays less than for a total disability, you will
have 35 days from the date that the rejection or the acceptance of the partial disability claim is sent to pay past due payments, or the difference between past due payments and what the insurance company pays for the partial disability, plus late charges. You can contact us, and we will tell you how much you owe. After that time, we can take action to collect or foreclose or repossess any collateral you may have given.
If the insurance company accepts your claim but requires that you send in additional forms to remain eligible for continued payments, you should send in these completed additional forms no later than required. If you do not send in these forms on time, the insurance company may stop paying, and we will then be able to take action to collect or foreclose or repossess any collateral you may have given.
(2)CA Civil Law Code § 1812.402(2) The disclosure required by the insurer shall be substantially in the
following form:
CLAIM PROCEDURE
Send in the completed form to the insurance company as soon as possible and tell your creditor as soon as you do. (Your creditor has already advised you of the address or telephone number to use to confirm that you have submitted your completed form to the insurance company.)
If your disability insurance covers all of your missed payments, YOUR CREDITOR CANNOT TRY TO COLLECT WHAT YOU OWE OR FORECLOSE UPON OR REPOSSESS ANY COLLATERAL UNTIL THREE CALENDAR MONTHS AFTER your first missed payment is due or until the insurance company pays or rejects your claim, whichever comes first. Your creditor can, however, try to collect, foreclose, or repossess if you have money due and owing or are otherwise in default when your disability claim is made or if a senior mortgage
or lienholder is foreclosing.
If the insurance company pays the claim within the three calendar months, your creditor must accept the money as though you paid on time. If the insurance company rejects the claim within the three calendar months or accepts the claim within the three calendar months as a partial disability and pays less than for a total disability, you will have 35 days from the date that the rejection or the acceptance of the partial disability claim was sent to pay past due payments, or the difference between past due payments and what the insurance company pays for the partial disability, plus late charges. You can contact your creditor who will tell you how much you owe. After that time, your creditor can take action to collect or foreclose or repossess any collateral you may have given.
If the insurance company accepts your claim, but requires that you send in additional forms to remain eligible for
continued payments, you should send in these completed additional forms no later than required. If you do not send in these forms on time, the insurance company may stop paying, and your creditor will then be able to take action to collect or foreclose or repossess any collateral you have given.
(g)CA Civil Law Code § 1812.402(g) If a debtor does not make a payment for which the debtor claims disability coverage arising from a then current disability and if the creditor, after sending the debtor notice of the debtor’s delinquency, invokes any creditor’s remedy because of the nonpayment without knowledge of the debtor’s claim of disability coverage, subject to this title, the following provisions apply:
(1)CA Civil Law Code § 1812.402(g)(1) Upon receiving notice of the debtor’s claim, the creditor shall not invoke any further creditor’s remedy during the remainder of the claim period and the period provided in subdivision (e).
(2)CA Civil Law Code § 1812.402(g)(2) Upon receiving notice, as specified in subdivision (f) of Section 1812.401, of the debtor’s claim, the creditor shall rescind every creditor’s remedy that has been invoked relating to the delinquency for which coverage is claimed, except that the creditor shall not be obligated to restore property which has been sold in a bona fide lawful sale to any person not related by common ownership or control to the creditor.
(3)CA Civil Law Code § 1812.402(g)(3) The debtor shall be liable for costs and expenses actually incurred in connection with the invocation or rescission of any creditor’s remedy.
(4)CA Civil Law Code § 1812.402(g)(4) The creditor shall not be in violation of this title and shall not be liable under subdivision (i) provided the creditor complies with paragraphs (1) and (2) of this subdivision.
(h)CA Civil Law Code § 1812.402(h) The
rights and remedies afforded debtors by this title shall be cumulative to each other and to all other rights and remedies which the debtors may have under other laws.
(i)CA Civil Law Code § 1812.402(i) The debtor may bring an action for damages, equitable relief, or other relief for any violation of this title.
credit disability insurance disability claim period creditor's remedy
Section § 1812.403
If an insurance company stops disability payments to someone because they didn’t fill out the necessary forms in time, the person or business they owe money to (the creditor) can start taking steps to collect the debt after 15 days.
A creditor may invoke any creditor’s remedy 15 days after receiving notice that the insurer has ceased making payments on a credit disability insurance claim because of the debtor’s failure to timely submit any forms required by the insurer for recertification of a temporary disability.
credit disability insurance temporary disability creditor remedy
Section § 1812.404
This law applies to a creditor when they, or their predecessor, or someone representing them, is directly involved in arranging or selling credit disability insurance to a borrower, or receives compensation for doing so.
This title shall apply to a creditor only if the creditor, the predecessor to the right, title, or interest of the creditor, or the representative of either of them directly arranges or participates in the sale or receives a commission or other compensation for the sale of credit disability insurance to the debtor.
creditor involvement credit disability insurance sale participation
Section § 1812.405
This section clarifies that a creditor can still take action to collect debts when a borrower on a credit plan doesn't pay on time, even if the debtor has claimed a disability, unless the missed payment is because of a new disability that's covered by insurance. Also, the creditor can end the credit plan if the debtor doesn't meet their usual credit requirements when they report the disability. An 'open-end credit plan' is a system where the creditor expects ongoing transactions, can charge interest on what remains unpaid, and provides a flexible credit limit that the debtor can use and repay as needed.
This title shall not prohibit a creditor from invoking any creditor’s remedy as a result of a debtor’s nonpayment when due of any amount obtained under an open-end credit plan, as hereafter defined, after the debtor has given notice of a disability claim unless the nonpayment is related to a covered disability then affecting the debtor other than the disability previously claimed. The creditor’s termination of the open-end credit plan because the debtor does not meet the creditor’s customary credit standards at the time the debtor notifies the creditor of the disability claim is not a creditor’s remedy.
An
“open-end credit plan” means credit extended by a creditor under a plan in which the creditor reasonably contemplates repeated transactions, the creditor may impose a finance charge from time to time on an outstanding unpaid balance, and the amount of credit that may be extended to the debtor during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.
creditor's remedy nonpayment disability claim
Section § 1812.406
This section outlines situations where certain consumer protection laws related to credit insurance do not apply. First, it excludes credit disability insurance required by a creditor for a loan of $25,000 or more if a 'key person,' vital to the business's success, is involved. Second, it does not apply to long-term loans over ten years secured by property, unless the loan is for construction or improvement of small residential properties and related documents indicate this purpose. However, this exception does not apply to certain debtors unless they have received specific notices from creditors and had the opportunity to cancel insurance.
(a)CA Civil Law Code § 1812.406(a) This title does not apply to credit disability insurance covering a key person, as hereinafter defined, which a creditor requires as a condition to making a loan of at least twenty-five thousand dollars ($25,000) to be used in the operation of a business in which the key person is employed or has an ownership interest.
For the purposes of this subdivision, a “key person” is a person who the creditor and the debtor or debtors mutually agree must be involved in the operation of the business to assure its success.
(b)CA Civil Law Code § 1812.406(b) This title does not apply to a loan or other credit transaction (including an open line of credit) of more than 10 years’ duration which is secured by a mortgage or deed of trust unless (1) the principal purpose of the loan or credit transaction is for the construction (other than initial construction), rehabilitation, or improvement (including “home improvement” as defined in Section 7151 of the Business and Professions Code) of real property consisting of four or fewer residential units, and (2) any document incident to the loan or credit transaction at the time the loan or extension of credit is made, or any course of dealing between the creditor and a contractor or material supplier assisting the borrower in obtaining the loan or extension of credit, would indicate that purpose.
(c)CA Civil Law Code § 1812.406(c) Subdivision (b) shall not apply to debtors who were entitled to receive notice from the creditor
pursuant to subdivision (f) of Section 1812.402 on or after January 1, 1984, and prior to the effective date of the act which added this subdivision, unless the debtor receives written notice that the remedies provided in this title are revoked, the debtor is given an opportunity to cancel the coverage, and no claim has been made or notice provided as specified in Section 1812.401. If the debtor fails to cancel the insurance following receipt of the notice required under this subdivision, subdivision (b) shall apply to that policy upon payment by the debtor of the next installment of premium, whether to the insurer or to a creditor pursuant to a premium finance agreement.
credit disability insurance key person loan condition
Section § 1812.407
This law says that the rules in the title apply to any unpaid money that became due starting April 1, 1984, if the person who owes the money is claiming they can't pay because of a disability.
The provisions of this title shall apply to the nonpayment of any sum which becomes due on or after April 1, 1984, and for which the debtor claims disability coverage.
nonpayment debtor due date
Section § 1812.408
If you owe a debt, you cannot give up your rights under this law, and any attempt to do so is invalid.
Any waiver by the debtor of the provisions of this title shall be void and unenforceable.
debtor rights waiver void unenforceable agreement
Section § 1812.409
This law protects people who buy or place a lien on a debtor's property, as long as they pay a fair price and are unaware of any legal violations by the creditor.
This title shall not affect or defeat an interest in the debtor’s property, acquired after the creditor invokes a creditor’s remedy in violation of this title, by a bona fide purchaser or encumbrancer for value and without notice of facts that constitute a violation of this title.
creditor's remedy debtor's property bona fide purchaser
Section § 1812.410
This law basically says that if a part of this law is found to be unconstitutional (essentially illegal under the Constitution), that doesn't mean the entire law is thrown out. The rest of the law still stands and can be applied to other people or situations.
If any provision of this title or the application thereof to any person or circumstance is held to be unconstitutional, the remainder of the title and the application of the provision to other persons and circumstances shall not be affected thereby.
unconstitutional provision severability title application
