The proposed rule defines a CDA as a contract entered into by a bank that provides for the total or partial cancellation of the amount due under a credit extension of that bank upon the occurrence of a particular event. A DSA is also defined as a contract concluded by a bank that provides for the suspension of all or part of the repayment obligation in the context of a credit extension of that bank upon the occurrence of a particular event. [3] The OCC invites comments on Start Printed Page 19903, the definition of CDC and DSA, and in particular whether other elements should be added to cover certain products. (d) Unilateral right of modification. A debt relief agreement or debt suspension agreement does not give the bank the unilateral right to change the contract or arrangement. A SNB must establish and maintain a separately identifiable loss reserve for debt relief contracts and debt suspension agreements at a level sufficient to cover expected losses or interest payments on suspended or cancelled debts. Instead of maintaining a separate loss reserve, a national bank can obtain sufficient coverage for expected losses from a third-party insurance company. 32. Regulation Z allows a creditor to exempt from the financing fee the commission or premium paid for voluntary debt relief, provided that certain conditions are met. One of these conditions requires the consumer to initially sign or submit a positive written coverage request after receiving the disclosures required by Regulation Z, but it is not necessary for the affirmative written request to be included in a separate document. See 12 CFR 226.4(d)(3)(i)(C).
The Office of the Comptroller of the Currency (OCC) is proposing to add a new Chapter 37 to its regulations, which deals with debt relief contracts (CCDs) and debt suspension agreements (DSAs). The customer protection set out in the proposed rule is intended to make it easier for customers to make an informed decision on the purchase of DCC and DSA, based on an understanding of the costs, benefits and limitations of products and to prevent inappropriate or abusive sales practices. In addition, the proposed rule promotes safety and soundness by requiring domestic banks offering these products to maintain sufficient reserves of losses. Debt cancellation contracts do exactly what they say on the label. They cancel unpaid debts that a borrower owes to the institution when certain life events occur. This is a contract between the lender and the borrower. Debt relief products are valuable complements to protect your institution and your borrowers. This article discusses the advantages and disadvantages of Debt Cancellation Contracts (CCDs) and Debt Suspension Agreements (DSAs).
Debt relief contracts The Ordinance roughly defines debt relief contracts and debt suspension agreements. A debt relief agreement is defined as a credit condition or a contractual agreement to modify the terms of the loan, under which a bank agrees to terminate a customer`s obligation to repay a loan extension in whole or in part upon the occurrence of a particular event. A national bank must manage the risks associated with debt relief contracts and debt suspension agreements in accordance with the principles of safe and sound banking operations. As a result, a National Bank must establish and maintain effective risk management and control processes for its debt relief agreements and debt suspension agreements. These processes include the proper recognition and financial presentation of revenues, expenses, assets and liabilities, as well as appropriate treatment of all anticipated and unforeseen revenue-related losses. A bank should also assess the adequacy of its internal control and risk mitigation activities in light of the nature and scope of its debt relief and suspension programs. Debt relief and suspension products can be important tools to avoid risks due to life events. You`ll protect both your institution and your borrowers while maximizing your non-interest income and sources of income. Federal regulations do not classify debt relief products as insurance because they are offered by the lending institution for its own products.
The Office of the Comptroller of the Currency oversees the regulation of all national banks and institutions. The proposed rule also prohibits the application of two types of contractual provisions that pose a high risk of unfair treatment of customers. First, the proposal prohibits a bank from including in a CDC or DPA a clause that the bank does not consistently apply. The inclusion of such a term misleads customers and prevents them from obtaining debt relief for which they have paid. However, we recognize that a bank`s failure to enforce the contractual provisions sometimes allows the bank to work with customers in financial difficulty, so that the customer can ultimately repay the obligation to the bank in full. The proposed rule uses the word «routine, so a bank has the discretion to make exceptions in certain situations. 7. «Since domestic banks are considered federal instruments, states should not prohibit or unduly restrict their activities.
Thus, the National Bank Act takes precedence over the Commissioner`s power to prohibit the ETF from offering debt relief contracts. Id. at 778 (quotation marks omitted). The Office of the Comptroller of the Currency (OCC) will publish the attached notice and request for comment in the Federal Register on June 13, 2003. The announcement postpones the date of compliance of certain provisions of the definitive regime for Debt Relief Agreements (DCAs) and Debt Suspension Agreements (DPAs) in consumer credit operations1 where CDCs and DPAs are offered by national banks through non-exclusive, unaffiliated agents. The time required to comply applies only to the scope and types of transactions described in this notice. In all other cases, domestic banks are required to comply with the DCC/DSA rule from 16 September. June 2003, date of entry into force. The OCC is also seeking comments on a number of issues raised by national banks in connection with the sale of CDCs and DPAs related to closed consumer loans. Finally, the rule adds the new term «contract» as a less onerous abbreviated reference to a debt relief agreement or debt suspension agreement in the rest of the text of the regulation. Most state insurance departments recognize parity with federal regulations.
Therefore, they classify debt relief as a banking product, not insurance, and do not regulate it. unless expressly covered by the laws of the State. Unless federal or other state laws prevent it, states can regulate cancellation and suspension products as insurance, even if other states and the national government do not. That`s according to a result from the New York Department of Financial Services. (a) Actuarial method: a method of allocating payments made against a receivable between the amount financed and the financing costs, where a payment is first applied to the accumulated financing costs and the balance is deducted from the outstanding balance of the amount financed or a gap is added. 2. See 12 CFR 226.4(d)(3) (provides, among other things, that a bank may exclude debt relief costs from financing costs if coverage is optional for the customer; hedging fees are disclosed; the duration of coverage is disclosed (if the term is shorter than the term of the loan); and the customer specifically requests coverage in writing). The eighth disclosure requires a bank to describe the procedures a customer must follow to inform the bank that a triggering event has occurred. .