| (a) Definitions.
(1) "Actuarial method" means the method of allocating
payments made on a debt between the amount financed and the finance
charge pursuant to which a payment is applied first to the accumulated
finance charge and any remainder is subtracted from, or any deficiency
added to, the unpaid balance of the amount financed.
(2) "Closed-end credit" means consumer credit other
than open-end credit as defined in this section.
(3) "Contract" means a debt cancellation contract or
a debt suspension agreement.
(4) "Customer" means an individual who obtains an extension
of credit from a bank primarily for personal, family, or household
purposes.
(5) "Debt cancellation contract" means a loan term
or contractual arrangement modifying loan terms under which a bank
agrees to cancel all or part of a customer's obligation to repay an
extension of credit from that bank upon the occurrence of a specified
event. The agreement may be separate from or a part of other loan
documents.
(6) "Debt suspension agreement" means a loan term or
contractual arrangement modifying loan terms under which a bank agrees
to suspend all or part of a customer's obligation to repay an extension
of credit from that bank upon the occurrence of a specified event.
The agreement may be separate from or a part of other loan documents.
The term "debt suspension agreement" does not include loan payment
deferral arrangements in which the triggering event is the borrower's
unilateral election to defer repayment, or the bank's unilateral decision
to allow a deferral of repayment.
(7) "Open-end credit" means consumer credit extended
by a bank under a plan in which:
(A) The bank reasonably contemplates repeated transactions;
(B) The bank may impose a finance charge from time
to time on an outstanding unpaid balance; and
(C) The amount of credit that may be extended to the
customer during the term of the plan (up to any limit set by the bank)
is generally made available to the extent that any outstanding balance
is repaid.
(8) "Residential mortgage loan" means a loan secured
by a 1-4 family, residential real property.
(b) Authority, purpose, and scope.
(1) Authority. A state bank is authorized to enter
into debt cancellation contracts and debt suspension agreements and
charge a fee therefor under Finance Code, §32.001.
(2) Purpose. This section sets forth the standards
that apply to debt cancellation contracts and debt suspension agreements
entered into by state banks. The purpose of these standards is to
ensure that state banks offer and implement such contracts and agreements
consistent with safe and sound banking practices, and subject to appropriate
consumer protections.
(3) Scope. This section applies to debt cancellation
contracts and debt suspension agreements entered into by state banks
in connection with an extension of credit they make. State banks'
debt cancellation contracts and debt suspension agreements are governed
by this section and applicable provisions in the Finance Code, and
not by state insurance laws.
(c) Prohibited Practices.
(1) Anti-tying. A state bank may not extend credit
nor alter the terms or conditions of an extension of credit conditioned
upon the customer entering into a debt cancellation contract or debt
suspension agreement with the bank.
(2) Misrepresentations. A state bank may not engage
in any practice or use any advertisement that could mislead or otherwise
cause a reasonable person to reach an erroneous belief with respect
to information that must be disclosed under this section.
(3) Prohibited Contract Terms. A state bank may not
offer debt cancellation contracts or debt suspension agreements that
contain terms:
(A) giving the bank the right unilaterally to modify
the contract or agreement unless:
(i) the modification is favorable to the customer and
is made without additional charge to the customer; or
(ii) the customer is notified of any proposed change
and is provided a reasonable opportunity to cancel the contract without
penalty before the change goes into effect; or
(B) requiring a lump sum, single payment for the contract
payable at the outset of the contract, where the debt subject to the
contract is a residential mortgage loan.
(d) Refunds of fees on termination or prepayment.
(1) Refunds. If a debt cancellation contract or debt
suspension agreement is terminated (including, for example, when the
customer prepays the covered loan), the bank shall refund to the customer
any unearned fees paid for the contract unless the contract provides
otherwise. A state bank may offer a customer a contract that does
not provide a refund only if the bank also offers that customer a
bona fide option to purchase a comparable contract that provides for
a refund.
(2) Method of calculating refund. The bank shall calculate
the amount of a refund using a method at least as favorable to the
customer as the actuarial method.
(e) Payment of fees. Except as provided in subsection
(c)(3)(B) of this section, a state bank may offer a customer the option
of paying the fee for a contract in a single payment, provided the
bank also offers the customer a bona fide option of paying the fee
for that contract in monthly or periodic payments. If the bank offers
the customer the option to finance the single payment by adding it
to the amount the customer is borrowing, the bank must also disclose
to the customer, whether and under what terms the customer may cancel
the agreement and receive a refund.
(f) Disclosures.
(1) Content of short form of disclosures. The short
form of disclosures required by this section must include the information
described in subparagraphs (A) through (F) of this paragraph that
is appropriate to the product offered. Short form disclosures made
in a form that is substantially similar to these disclosures will
satisfy the short form disclosure requirements of this subsection.
(A) This product is optional. "Your purchase of (product
name) is optional. Whether or not you purchase (product name) will
not affect your application for credit or the terms of any existing
credit agreement you have with the bank."
(B) Lump sum payment of fee (applicable if a bank offers
the option to pay the fee in a single payment, prohibited where the
debt subject to the contract is a residential mortgage loan). "You
may choose to pay the fee in a single lump sum or in monthly or quarterly
payments. Adding the lump sum of the fee to the amount you borrow
will increase the cost of (product name)."
(C) Lump sum payment of fee with no refund (applicable
if a bank offers the option to pay the fee in a single payment for
a no-refund debt cancellation contract, prohibited where the debt
subject to the contract is a residential mortgage loan). "You may
choose (product name) with a refund provision or without a refund
provision. Prices of refund and no-refund products are likely to differ."
(D) Refund of fee paid in lump sum (applicable where
the customer pays the fee in a single payment and the fee is added
to the amount borrowed, prohibited where the debt subject to the contract
is a residential mortgage loan). Either:
(i) "You may cancel (product name) at any time and
receive a refund;"
(ii) "You may cancel (product name) within _______
days and receive a full refund;" or
(iii) "If you cancel (product name) you will not receive
a refund."
(E) Additional disclosures. "We will give you additional
information before you are required to pay for (product name)." If
applicable: "This information will include a copy of the contract
containing the terms of (product name)."
(F) Eligibility requirements, conditions, and exclusions.
"There are eligibility requirements, conditions, and exclusions that
could prevent you from receiving benefits under (product name)." Either:
(i) "You should carefully read our additional information
for a full explanation of the terms of (product name);" or
(ii) "You should carefully read the contract for a
full explanation of the terms."
(2) Content of long form of disclosures. The long form
of disclosures required by this section must include the information
described in subparagraphs (A) through (I) of this paragraph that
is appropriate to the product offered. Long form disclosures made
in a form that is substantially similar to these disclosures will
satisfy the long form disclosure requirements of this subsection.
(A) This product is optional. "Your purchase of (product
name) is optional. Whether or not you purchase (product name) will
not affect your application for credit or the terms of any existing
credit agreement you have with the bank."
Cont'd... |
