On February 18, 2106, the Massachusetts Attorney General announced that it had entered into a settlement with HSBC over allegations regarding the bank’s force-placed insurance practices. The Massachusetts Attorney General alleged that until June 1, 2012, HSBC received commissions and kickbacks in connection with insurance policies that it force-placed to its borrowers, and that these commissions and kickbacks created an improper conflict of interest and violated state consumer financial protection laws.
An affiliate of HSBC allegedly received commissions from an insurer, Assurant, Inc., for the sale of force-placed policies, even though this affiliate did not perform any of the traditional functions of an insurance agent. HSBC’s affiliate also allegedly participated in Assurant’s quota-share reinsurance program, which allowed the affiliate to share in the profits of Assurant’s force-placed insurance business.
As part of the settlement, HSBC will provide $2.675 million in restitution to consumers and pay $1.4 million to the Commonwealth of Massachusetts. HSBC also agreed not to accept commissions, profit-sharing, or reinsurance proceeds or any free or below market value services from insurers it uses for force-placed policies on properties of Massachusetts borrowers.