Texas Court Halts Sale of Unauthorized Auto Insurance

Travis County, Texas, District Judge Suzanne Covington issued a permanent injunction on Nov. 15 barring SideCars Inc. of Joplin, Mo., from marketing and selling a form of limited physical damage insurance to used car dealers until the company obtains a license from the Texas Department of Insurance.

TDI reported that SideCars Inc. marketed and sold a program called “Collateral Protection Coverage.” The program was offered by used car dealers to customers as an alternative to traditional physical damage insurance. The program required the customer to pay the dealer a total of $90 per month in exchange for the dealer’s agreement to indemnify the buyer for loss or damage to the vehicle. The indemnification was subject to certain limits of liability based on the dealer’s financial interest in the vehicle.

Dealers typically offered this program to individuals who are unable to obtain auto financing from traditional sources. Instead of making monthly payments to a bank or other traditional lender, these consumers made weekly or bi-weekly payments at the dealership. Since consumers “buy” the car at the used car dealership and typically “pay” on the loan at the dealership, these dealers have become known as “buy here, pay here” dealers.

The permanent injunction granted by Judge Covington does not prohibit the lawful sale of collateral protection insurance issued and sold by authorized insurers. If required by their retail installment contract, consumers need to buy physical damage insurance from an insurance company licensed to do business in Texas.

TDI continues to investigate how many Texas consumers may have purchased the unauthorized coverage.

Source: Texas Department of Insurance

Topics Texas Auto