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Bank partnerships have become central to how consumer finance companies grow and compete. Branded credit cards, buy-now-pay-later products, rate exportation arrangements, and full-scale Banking-as-a-Service structures have reshaped the industry over the past five or six years. What hasn’t kept pace is the insurance.

When a consumer finance company enters a bank partnership, the indemnification provisions in that agreement can dramatically expand its exposure. In a typical arrangement, the non-bank partner agrees to indemnify the bank for compliance failures, regulatory actions, consumer complaints, and operational errors, sometimes under standards that don’t require the failure to be material. Most Professional Liability and E&O policies were written around a company’s own lending activities, not the broader obligations that come with performing services on behalf of a regulated institution.

The gap shows up in two places. The first is coverage scope. Most BPL and E&O policies define professional services narrowly around the company’s own lending activities. In a bank partnership, the non-bank party is often marketing the bank’s product, managing the customer relationship, and handling compliance functions that are ultimately the bank’s regulatory obligation. Assumed liability exclusions can eliminate coverage for indemnification obligations entirely, even when the underlying loss is exactly the kind of error the policy was meant to cover.

The second is limits adequacy. The limits that made sense for a standalone lending operation may be a fraction of what a bank-level regulatory action or consumer class action can generate, and indemnification demands can quickly exceed a program never stress-tested against partnership-scale risk.

The regulatory environment is making this more urgent. The spread of DIDMCA opt-outs illustrates the point. Colorado opted out in 2023, Oregon followed this spring with a 36% rate cap on consumer loans to its residents, and other states are watching. For companies operating through rate exportation arrangements, a successful state challenge doesn’t just create a legal problem. It triggers the indemnification clause directly. The insurance program sitting behind that clause may never have been evaluated against that scenario.

Pull the indemnification language from your agreement and have it evaluated against your current program by a qualified specialist. The question is not whether you have coverage, but whether the coverage you have was designed to respond to the obligations you’ve actually assumed.

Lee Palms is Senior Vice President at HUB International and leads the firm’s Consumer Lending Practice. He works with consumer finance companies, specialty lenders, and financial institutions across the Southeast on management liability, cyber, professional lines, and financial institution insurance.