Collateral Protection Program Frequently Asked Questions
Is the Creditor Collateral Protection Program (CPP) the same product as a bank’s collateral protection insurance (CPP)? No! A bank’s CPP is generally considered to be a forced-placed physical damage insurance policy added by a creditor (bank, credit union, etc.) to their customer's loan when the customer has failed to adequately insure the creditor's interest in the vehicle. The customer usually receives a new payment coupon book reflecting the new payment amount which includes the added insurance premium.
Why our CPP isn’t considered "forced-placed" insurance? Unlike a bank’s CPP, the program is actually an agreement that is accepted and signed for by the debtor. Meaning, the debtor has a choice whether the debtor wants to participate in the creditor's CPP program or not. If the debtor doesn't choose to participate in the CPP program, then the debtor remains obligated to insure the creditor's interest in the vehicle per the physical damage insurance requirement of the contract. This CPP program is, specifically, not "forced-placed".
Is this a state regulated insurance product? No, generally not, only three (3) states (Ark., Miss., Tenn.) have insurance department regulation of this product. Eight (8) other states’ (Ill., Mo., N. J., N.M., OR., Tex., Wash., W.Va.) have some form of regulation through their department of consumer credit (finance, etc.) and these are generally customer “disclosure” requirements.
Am I a creditor? If you are identified on the contract as a creditor or "seller/creditor" or enter into a contract whereby you have the vested interest in the contract and the collateral to the contract and provide for the financing and collection of said contract, then you are the creditor in the creditor/debtor relationship. This applies to a buy-here/pay-here dealer, lease-to-own dealer, finance company and etc. We'll refer to all these debtors as BHPH customers for ease of understanding.
What if I "sell" my contracts to a related finance company-can I participate in the CPP program? Yes, if you are the creditor that originated the contract, then you may allow the debtor to participate in the program.
Why should I participate in the CPP program? If you are the creditor on the contract, then you are, ultimately, the one that has the vested interest in the vehicle that collateralizes the contract. Thus, you have the vested interest in the vehicle having physical damage coverage. Typically, BHPH customers are challenged by the process of acquiring, retaining and paying for the physical damage insurance that you require per the contract. You are, in effect, telling the BHPH customer to spend money with someone else (an insurance company like State Farm, Allstate, Progressive, etc.) to protect your vested interest in the collateral. At least you hope they spend money with someone else because the alternative is your collateral isn't insured. We believe that since you require the physical damage coverage, then you should have as much control as possible of the physical damage coverage and the premiums.
What if I don't enforce the physical damage insurance requirement of my contract? Great! Then you have already calculated the physical damage losses into your business model and we can show you how to generate additional dollars for your operations on risk you have already accounted for but collected no monies.
Why should my customers participate in the CPP program? Your customers know they must provide physical damage insurance to protect your interest in the vehicle. They also know that the requirement to provide physical damage insurance will cost them (upfront, right now) a down payment to the insurance company of one-hundred dollars ($100) or more(sometimes they even have to ask you for some of their down payment money back to get the physical damage policy you require!). Then they will be required to make monthly payments to the insurance company in addition to their vehicle payment. BHPH customers find it hard to budget for monthly payments-that's why most BHPH operations structure the vehicle payment to the payday schedule of the customer. This schedule is weekly, bi- weekly, etc.; because that's the only way the customer can budget. We believe "forcing" the customer to participate in a monthly insurance payment schedule is a recipe for failure. In addition, the CPP program is often less expensive than insurance the customer can acquire. These customers don't get multi-car discounts, homeowner insurance discounts, etc. In many states the insurance companies are allowed to take into consideration the customer's credit report-which, by definition, is not conducive to reduced insurance rates. Some of your BHPH customers also have less than stellar driving records which negatively affect their insurance rates. Your customers will be excited to learn they can take delivery of their vehicle without going through the hassle of obtaining physical damage insurance because they can take advantage of the CPP program.
What is my customer's cost to participate in the CPP program? The standard program charges the customer $90 per month billed out according to the same payment schedule as the vehicle-i.e. $22.50 weekly ($3.21 a day-have 1 less beer at the bar!), $45 bi-weekly, etc. We have a $75 per month program and have created custom programs for lesser amounts with increased deductible.
Can my customers afford the CPP program? Most BHPH dealers are surprised to learn how much their customers are paying for the physical damage insurance that is required per the contract. The physical damage portion of the customer's insurance cost is often $900-$1200 per year minimum, with many of your customers paying much more. If we assume the cost is $500 every six months with $100 down payment to the insurance company and financed over 4 months then your customer is paying $100 per month. Remember, insurance companies require monthly payments and won't allow payment schedules that would better match your customers budgeting requirements. The CPP program is much more customer friendly on terms they can actually meet.
Does the CPP cover the customer's liability insurance requirements as dictated by the state we live in? No, this is well disclosed in the notice. Just like the state has no requirement that the customer carry physical damage insurance to protect your vested interest in the vehicle, you don't have a vested interest in the customer complying with the state law to carry liability insurance (some states require verification of liability insurance at time of delivery of vehicle). Your concern is your collateral having coverage. FYI- Liability insurance costs your customers $35-$50 per month with many taking advantage of the state's high-risk pool.
How do I make money with the CPP program? 80% of all premium dollars are transferred into the creditor's owner(s) insurance position. The complete program guidelines and benefits are available upon request.
How are claims paid? The administrator adjudicates and approves all claims. Claims are paid from the insurance position with all underwriting profit remaining in the insurance position. Some creditors desire a more active role in the claims approval and payment process and those accommodations can be made. Claims are approved based on the repair invoice and subject to the actual cash value of the vehicle at time of loss. Unlike traditional customer provided physical damage insurance which never pays more than actual cash value of the vehicle, the CPP program can be structured to pay "goodwill" claims or completely extinguish the remaining payments.
What exactly does the "insurance position" mean? Our preferred structure is to form the owner(s) of the creditor an insurance company domiciled in Nevis Islands. We form the companies in Nevis for economic convenience only-i.e. it costs $5,350 to form in Nevis as opposed to upwards of several million dollars to form in a U.S. state. We then file for a tax identification number (TIN) with the Internal Revenue Service so the owners can open a bank account in the name of their newly formed insurance company, using its TIN number and the only signatory is the owner of the newly formed insurance company. Ask for our FAQ and tax bibliography on dealer-owned insurance companies.
Is this insurance company considered a foreign corporation? No, we file a 953(d) application with the Internal Revenue Service declaring the company to be a U.S. taxpaying entity owned by U.S. citizens and subject to U.S. tax laws. The Internal Revenue Service responds with the completed acceptance of the 953(d) declaring the acceptance of the insurance company as a "U.S. Domestic Taxpaying Corporation".
Is this an offshore account? No. Monies do not leave the U.S. In fact, all monies are deposited in U.S. banks, brokerages, etc. as the owners of the insurance company may choose. The owners of the insurance company do not check "subchapter F" on their personal; tax returns because the Internal Revenue Service has accepted the company as a "U.S. Domestic Taxpaying Corporation".
Why is it important for the insurance company to be subject to the U.S. tax laws? The U.S. Tax Code has several favorable taxation methods for those qualifying as insurance companies. Annual premiums of less than $600,000 allows for the filing of a 990 tax-exempt return. Annual premiums of less than $1,200,000 allows for the filing of an 831(b) election as a "Small Property and Casualty Company" whereby only the interest income earned by the premium dollars is subject to taxation.
What if I, or my accountant, desire to further investigate these insurance companies? Upon request, we will forward our frequently asked questions regarding these insurance companies and our tax bibliography. Also, we would be happy to talk to your accountant directly if you chose.
How profitable will my insurance position be? You can expect to lose $8-$12 per notice per month to payable claims. If you take advantage of the $90 per notice per month program where 80% of the premium is transferred into the position, then the position will receive $72 per notice per month minus losses of $12 per waiver per month with a remaining underwriting profit of $60 per waiver per month.
How many of my customers should I expect to enroll in the CPP program? You can expect to "signup" 40% of your customers in the initial 60-90 day period. A total of 60%-70% of your customer with outstanding notes will eventually take advantage of the CPP program.
Can I enroll previously sold customer in the CPP program? Yes, your previous customers have the same "insurance" issues and will be glad to hear that you have arranged an alternative to their acquiring physical damage insurance from an insurance company. Previous customers have issues with the insurance company monthly billing, down payment at renewal time, DUI's etc. all of which affect their ability to keep physical damage insurance in place and, thus, create an insurance tracking headache for the dealership.
How do my employees present the CPP program? There are differing opportunities as to when the CPP is presented to the customer:
When do I remit the CPP premiums? CPP premiums are remitted monthly to the administrator after the dealership has actually collected from the customers. The dealership is not required to submit premiums for notice’s on which it has not actually received payment from the customer.
Why our CPP isn’t considered "forced-placed" insurance? Unlike a bank’s CPP, the program is actually an agreement that is accepted and signed for by the debtor. Meaning, the debtor has a choice whether the debtor wants to participate in the creditor's CPP program or not. If the debtor doesn't choose to participate in the CPP program, then the debtor remains obligated to insure the creditor's interest in the vehicle per the physical damage insurance requirement of the contract. This CPP program is, specifically, not "forced-placed".
Is this a state regulated insurance product? No, generally not, only three (3) states (Ark., Miss., Tenn.) have insurance department regulation of this product. Eight (8) other states’ (Ill., Mo., N. J., N.M., OR., Tex., Wash., W.Va.) have some form of regulation through their department of consumer credit (finance, etc.) and these are generally customer “disclosure” requirements.
Am I a creditor? If you are identified on the contract as a creditor or "seller/creditor" or enter into a contract whereby you have the vested interest in the contract and the collateral to the contract and provide for the financing and collection of said contract, then you are the creditor in the creditor/debtor relationship. This applies to a buy-here/pay-here dealer, lease-to-own dealer, finance company and etc. We'll refer to all these debtors as BHPH customers for ease of understanding.
What if I "sell" my contracts to a related finance company-can I participate in the CPP program? Yes, if you are the creditor that originated the contract, then you may allow the debtor to participate in the program.
Why should I participate in the CPP program? If you are the creditor on the contract, then you are, ultimately, the one that has the vested interest in the vehicle that collateralizes the contract. Thus, you have the vested interest in the vehicle having physical damage coverage. Typically, BHPH customers are challenged by the process of acquiring, retaining and paying for the physical damage insurance that you require per the contract. You are, in effect, telling the BHPH customer to spend money with someone else (an insurance company like State Farm, Allstate, Progressive, etc.) to protect your vested interest in the collateral. At least you hope they spend money with someone else because the alternative is your collateral isn't insured. We believe that since you require the physical damage coverage, then you should have as much control as possible of the physical damage coverage and the premiums.
What if I don't enforce the physical damage insurance requirement of my contract? Great! Then you have already calculated the physical damage losses into your business model and we can show you how to generate additional dollars for your operations on risk you have already accounted for but collected no monies.
Why should my customers participate in the CPP program? Your customers know they must provide physical damage insurance to protect your interest in the vehicle. They also know that the requirement to provide physical damage insurance will cost them (upfront, right now) a down payment to the insurance company of one-hundred dollars ($100) or more(sometimes they even have to ask you for some of their down payment money back to get the physical damage policy you require!). Then they will be required to make monthly payments to the insurance company in addition to their vehicle payment. BHPH customers find it hard to budget for monthly payments-that's why most BHPH operations structure the vehicle payment to the payday schedule of the customer. This schedule is weekly, bi- weekly, etc.; because that's the only way the customer can budget. We believe "forcing" the customer to participate in a monthly insurance payment schedule is a recipe for failure. In addition, the CPP program is often less expensive than insurance the customer can acquire. These customers don't get multi-car discounts, homeowner insurance discounts, etc. In many states the insurance companies are allowed to take into consideration the customer's credit report-which, by definition, is not conducive to reduced insurance rates. Some of your BHPH customers also have less than stellar driving records which negatively affect their insurance rates. Your customers will be excited to learn they can take delivery of their vehicle without going through the hassle of obtaining physical damage insurance because they can take advantage of the CPP program.
What is my customer's cost to participate in the CPP program? The standard program charges the customer $90 per month billed out according to the same payment schedule as the vehicle-i.e. $22.50 weekly ($3.21 a day-have 1 less beer at the bar!), $45 bi-weekly, etc. We have a $75 per month program and have created custom programs for lesser amounts with increased deductible.
Can my customers afford the CPP program? Most BHPH dealers are surprised to learn how much their customers are paying for the physical damage insurance that is required per the contract. The physical damage portion of the customer's insurance cost is often $900-$1200 per year minimum, with many of your customers paying much more. If we assume the cost is $500 every six months with $100 down payment to the insurance company and financed over 4 months then your customer is paying $100 per month. Remember, insurance companies require monthly payments and won't allow payment schedules that would better match your customers budgeting requirements. The CPP program is much more customer friendly on terms they can actually meet.
Does the CPP cover the customer's liability insurance requirements as dictated by the state we live in? No, this is well disclosed in the notice. Just like the state has no requirement that the customer carry physical damage insurance to protect your vested interest in the vehicle, you don't have a vested interest in the customer complying with the state law to carry liability insurance (some states require verification of liability insurance at time of delivery of vehicle). Your concern is your collateral having coverage. FYI- Liability insurance costs your customers $35-$50 per month with many taking advantage of the state's high-risk pool.
How do I make money with the CPP program? 80% of all premium dollars are transferred into the creditor's owner(s) insurance position. The complete program guidelines and benefits are available upon request.
How are claims paid? The administrator adjudicates and approves all claims. Claims are paid from the insurance position with all underwriting profit remaining in the insurance position. Some creditors desire a more active role in the claims approval and payment process and those accommodations can be made. Claims are approved based on the repair invoice and subject to the actual cash value of the vehicle at time of loss. Unlike traditional customer provided physical damage insurance which never pays more than actual cash value of the vehicle, the CPP program can be structured to pay "goodwill" claims or completely extinguish the remaining payments.
What exactly does the "insurance position" mean? Our preferred structure is to form the owner(s) of the creditor an insurance company domiciled in Nevis Islands. We form the companies in Nevis for economic convenience only-i.e. it costs $5,350 to form in Nevis as opposed to upwards of several million dollars to form in a U.S. state. We then file for a tax identification number (TIN) with the Internal Revenue Service so the owners can open a bank account in the name of their newly formed insurance company, using its TIN number and the only signatory is the owner of the newly formed insurance company. Ask for our FAQ and tax bibliography on dealer-owned insurance companies.
Is this insurance company considered a foreign corporation? No, we file a 953(d) application with the Internal Revenue Service declaring the company to be a U.S. taxpaying entity owned by U.S. citizens and subject to U.S. tax laws. The Internal Revenue Service responds with the completed acceptance of the 953(d) declaring the acceptance of the insurance company as a "U.S. Domestic Taxpaying Corporation".
Is this an offshore account? No. Monies do not leave the U.S. In fact, all monies are deposited in U.S. banks, brokerages, etc. as the owners of the insurance company may choose. The owners of the insurance company do not check "subchapter F" on their personal; tax returns because the Internal Revenue Service has accepted the company as a "U.S. Domestic Taxpaying Corporation".
Why is it important for the insurance company to be subject to the U.S. tax laws? The U.S. Tax Code has several favorable taxation methods for those qualifying as insurance companies. Annual premiums of less than $600,000 allows for the filing of a 990 tax-exempt return. Annual premiums of less than $1,200,000 allows for the filing of an 831(b) election as a "Small Property and Casualty Company" whereby only the interest income earned by the premium dollars is subject to taxation.
What if I, or my accountant, desire to further investigate these insurance companies? Upon request, we will forward our frequently asked questions regarding these insurance companies and our tax bibliography. Also, we would be happy to talk to your accountant directly if you chose.
How profitable will my insurance position be? You can expect to lose $8-$12 per notice per month to payable claims. If you take advantage of the $90 per notice per month program where 80% of the premium is transferred into the position, then the position will receive $72 per notice per month minus losses of $12 per waiver per month with a remaining underwriting profit of $60 per waiver per month.
How many of my customers should I expect to enroll in the CPP program? You can expect to "signup" 40% of your customers in the initial 60-90 day period. A total of 60%-70% of your customer with outstanding notes will eventually take advantage of the CPP program.
Can I enroll previously sold customer in the CPP program? Yes, your previous customers have the same "insurance" issues and will be glad to hear that you have arranged an alternative to their acquiring physical damage insurance from an insurance company. Previous customers have issues with the insurance company monthly billing, down payment at renewal time, DUI's etc. all of which affect their ability to keep physical damage insurance in place and, thus, create an insurance tracking headache for the dealership.
How do my employees present the CPP program? There are differing opportunities as to when the CPP is presented to the customer:
- When the customer signs the contract: the employee explains to the customer that "per the contract, Mr. Customer, you are required to have a physical damage insurance policy in place to protect our interest in the vehicle. This policy will more than likely require you to make $100-$150 down payment to the insurance company or you can take advantage of our physical damage program that we offer here at the dealership. If you take advantage of our program you will be required to sign the notice form today and make a payment of $22.50 next week when you make your first vehicle payment. Which do you prefer?"
- If your organization requires stipulations, that include obtaining physical damage insurance, before signing the contract, then the above word track is appropriate at the time the stipulation for insurance is presented to the customer.
- When previous customers come in to make their payments the cashier should verify insurance and then explain to the customer that "the dealership has just implemented a new physical damage program and if you would like to take advantage of our new program we can sign the notice form today and the first payment of $22.50 a week will be collected next week. Mr. Customer, you always have the option of retaining your current insurance program, but many of our customer's find our program more affordable and easier to budget for and requiring no down payment. Would you like to enroll today?"
- When the customer's insurance has lapsed, whether the dealership contacts the customer or when the customer comes in that has a lapsed policy, the cashier (or the insurance tracking personnel) can turn the negative conversation of the customer's requirement to retain physical damage insurance into a positive offer of the CPP program with the same word track in number.
When do I remit the CPP premiums? CPP premiums are remitted monthly to the administrator after the dealership has actually collected from the customers. The dealership is not required to submit premiums for notice’s on which it has not actually received payment from the customer.