| (a) Authority. Provided it complies with this section,
the Truth in Lending Act (15 U.S.C. 1601), and the applicable provisions
of Regulation Z (12 C.F.R. Part 226), a credit union may offer any
debt cancellation product, including a debt cancellation contract
(DCC) and a debt suspension agreement (DSA), a federal credit union
is permitted to offer. For the purposes of this section, a debt cancellation
product is a two-party agreement between the credit union and the
member under which the credit union agrees to waive, suspend, defer,
or cancel all or part of a member's obligation to pay an indebtedness
under a lease, loan, or other extension of credit upon the occurrence
of a specified event. Debt cancellation products are considered loan
products governed by this section and applicable provisions of the
Finance Code, not insurance products and, consequently, are not regulated
by the Texas Department of Insurance. The credit union may offer debt
cancellation products for a fee pursuant to the authority set forth
in Finance Code §123.003, relating to enlargement of powers and
parity and the authority federal credit unions have to offer such
products; the fee also is authorized by Finance Code §124.101,
relating to borrower payment of loan expenses. If the debt cancellation
product is offered for a fee, the member's participation in the debt
cancellation program must be optional, and the member must be informed
of the fee and that participation is optional.
(b) Anti-tying and Refund Rules. For any debt cancellation
product offered by a credit union:
(1) The credit union may not extend credit nor alter
the terms or conditions of an extension of credit conditioned upon
the member entering into a debt cancellation product with the credit
union; and
(2) If the debt cancellation product provides for a
refund of unearned fees, the unearned fees must be calculated using
a method that produces a result at least as favorable to the member
as the actuarial method. Before the member purchases the debt cancellation
product, the credit union must state in writing that the purchase
of the debt cancellation product is optional, the conditions for and
method of calculating any refund of the debt cancellation fee, including
when fees are considered earned by the credit union, and that the
member should carefully review all of the terms and conditions of
the debt cancellation agreement prior to signing the agreement.
(c) Notice to Department. A credit union must notify
the commissioner in writing of its intent to offer any type of debt
cancellation product at least 30 days prior to the product being offered
to members. The notice must contain a statement describing the type(s)
of debt cancellation product(s) that the credit union will offer to
its membership.
(d) Risk Management and Controls. Before offering any
debt cancellation products, each credit union's board of directors,
shall adopt written policies that establish and maintain effective
risk management and control processes for these products. Such processes
include appropriate recognition and financial reporting of income,
expenses, assets and liabilities, and appropriate treatment of all
expected and unexpected losses associated with the products. A credit
union should also assess the adequacy of its internal control and
risk mitigation activities in view of the nature and scope of its
debt cancellation program. In addition, the policies shall establish
reasonable fees, if any, that will be charged, the appropriate disclosures
that will be given, and the claims processing procedures that will
be utilized.
(e) For purposes of this section "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 is added to, the unpaid balance
of the amount financed.
(f) Best Practices. The Commission seeks to preserve
and promote parity with regard to federal credit unions, foreign credit
unions, and other depository institutions, as referenced in Finance
Code §§15.402(b) - (1) and 123.003. The National Credit
Union Administration (NCUA) has provided as guidance for federal credit
unions the standards set forth in the rules of the U.S. Office of
the Comptroller of the Currency (OCC), related to DCCs and DSAs. The
Commission, therefore, adopts by reference the guidance issued by
NCUA in May 2003 (Letter No. 03-FCU-06). Credit unions should also
look to OCC's rules, codified at 12 C.F.R. Part 37, for guidance as
to best practices in the industry regarding the offer and sale of
DCCs and DSAs. A copy of the NCUA letter and of the OCC rules may
be obtained on the Department website at: www.cud.texas.gov.
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| Source Note: The provisions of this §91.403 adopted to be effective May 13, 1999, 24 TexReg 3473; amended to be effective June 8, 2003, 28 TexReg 4411; amended to be effective March 6, 2005, 30 TexReg 1064; amended to be effective March 14, 2010, 35 TexReg 1979; amended to be effective November 5, 2018, 43 TexReg 7342 |
