Auto Insurance Claims: Forced placed ins. policies., full coverage insurance, loan principal

Question
I'm trying to find out what kinda of laws there are for forced placed ins. I have a four year car loan with a local bank,and the loan ends in three months. I only provided ins. on the vehicle for the first year of the loan. When the insurance lapsed the bank began sending letters stating there policies in beginning the forced ins. they said I would recieve a new payment book that would reflect the cost of the ins. along with my normal monthly payments. I never recieved the payment book, nor did I acquire ins.. A month ago I called the bank to inquire about the payoff of the loan. The original amount of the loan was $9300.00. The bank informed me the payoff was $7700.00. This did not make sense being as the loan term was only a few months away from ending. They imformed me that $932.00 had been applied to my principal balance every year for the past three years. Interest was then charged resulting in the $7700.00 balance I now owe. My question is, is this legal? I take full responsibilty for not providing ins. on the property in question but can they charge interest? Should I not owe them only for the $2796.00 they payed for the insurance? I live in the sate of Tennessee. Do laws in this matter vary from state to state, or even exist at all? I have searched for answers in this matter for quite some time, with no real results besides the obvious. A detailed response, and possibly links to pages with more information would be very appreciated. Thank You.

Answer
Hi Christopher,

Unfortunately, this is legal and correct. When you finance a vehicle, you are required to carry full coverage insurance so the finance company is protected. When you fail to provide protection, the finance company has the right to purchase what is called forced placed insurance. The cost of that insurance is then added to the loan principal and becomes part of the total amount owed on the loan and interest is charged at the same rate as the loan itself. This is one of the most expensive forms of auto insurance there is.

It is legal for them to do this, however I do not know of the specific law or a link to point you to. You may try contacting your state insurance commissioners office or the department in your state that regulates banking and finance comapnies.

I hope this helps
Richard Hixenbaugh