COERCION IN THE SELLING OF CREDIT LIFE-INSURANCE

Credit life insurance, which repays some or all of a borrower's outstanding debt in the event of death, has been a controversial subject for many years. Critics assert that, despite regulations that limit tied sales, pressure on loan officers to generate fee income through cross selling creates an incentive for coercion of borrowers. Allegedly some sales techniques leave the consumer with the false impression that the purchase of credit insurance was necessary to obtain the loan. This article measures the frequency with which creditor efforts to sell credit insurance transform the sales message from persuasive to coercive. A methodology is developed for measuring the impact of coercive selling pressure applied to borrowers at the point of sale. Data used to measure the effect of coercive pressure are taken from an extensive survey of borrowers conducted during 1993. Not only are public policy concerns about coercion in the selling of credit insurance addressed, but more generally the article offers a methodology to quantify the influence of the customer's point-of-sale experience on the decision to purchase any financial service. (C) 1995 John Wiley & Sons, Inc.