Q: I have auto loan on a car that has been totaled out more than 5 months ago.
Got less than 25%of the loan amount from the insurance settlement. I do not have gap insurance. I reported this to the lender but they are not ready to negotiate. I have been continuing to pay the monthly EMI all through just to maintain my credit. But now they added $4600( to my loan amount) as insurance premium for that car, that I do not have.
That said do you think it is fair and lawful? Do I have any options to either negotiate or sue this credit union?
A: It is most certainly not fair. As there is no vehicle there is nothing to insure.
Legally, you owe the lender whatever the balance is on your loan. Almost all auto loans also require you to maintain full coverage insurance on the vehicle and give the lender the authority to buy insurance and add the premium to your loan amount if you do not timely furnish proof of insurance to the lender.
Your insurance company should have made the settlement check payable to both you and your lender. You are then legally obligated to pay any difference between the settlement and the loan balance to the lender pursuant to your agreement with the lender.
Assuming that your loan agreement contains these typical provisions, I don't see any viable claim that you have against the credit union for exercising its legal rights pursuant to your agreement. What is "fair" under the circumstances is for you to pay the loan balance to the credit union promptly.
My guess is that whoever works at the lender in the section which verifies insurance coverage on loan collateral doesn't have actual knowledge that the vehicle has been totaled and that the insurance company has paid. It is not profitable for a lender to pay for insurance coverage under such circumstance as it receives no protection from insurance on a vehicle that has been totaled.
My guess is that, if you contact the right person at the lender, it will discontinue the insurance and credit your loan balance for the force-placed insurance. My guess is that they will also work with you on a payment plan, which may include a reduction in the amount, to pay off your loan balance. Finding the right person is key. If you file a complaint against the credit union (email@example.com) / (https://cud.texas.gov/contact-us), I strongly suspect the right person will contact you relatively quickly.
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