Plain English Breakdown
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AB-493: Interest on Hazard Insurance Proceeds
This law requires certain lenders to pay at least 2% simple annual interest on hazard insurance money they hold in loss draft accounts while a home is being repaired or rebuilt.
What This Bill Does
- Allows financial institutions to deposit hazard insurance proceeds into interest-bearing accounts at federally insured depository institutions, federal home loan banks, Federal Reserve Banks, or similar government-sponsored enterprises.
- Requires lenders holding these funds in loss draft accounts pending repair or rebuilding to pay borrowers at least 2% simple annual interest.
- Prohibits fees on these accounts if the total return drops below a 2% yearly rate.
- States that this rule does not apply when state or federal regulators require non-bank institutions to place funds in specific non-interest-bearing trust accounts.
Who It Names or Affects
- Financial institutions, including savings associations, that make loans on one- to four-family homes in California.
- Homeowners whose hazard insurance money is held by lenders while their property waits for repair or rebuilding.
Terms To Know
- Hazard insurance proceeds
- Money paid out by an insurance company after a home suffers damage from events like fire, wind, or storms.
- Loss draft account
- A holding account where lenders keep insurance money until the homeowner finishes repairs on their property.
Limits and Unknowns
- The law does not apply if a state or federal regulator requires non-bank institutions to place these funds in specific non-interest-bearing accounts.
- Interest starts accruing from the effective date of the bill, which is listed as immediate due to its status as an urgency statute.