OCC 2002-40
OCC Bulletin

Subject:      Debt Cancellation Contracts and Debt Suspension 
              Agreements
Description:  Final Rule

Date:         September 24, 2002

TO:  Chief Executive Officers of National Banks, Department and 
     Division Heads, All Examining Personnel, and Other Interested 
     Parties

PURPOSE

This bulletin transmits a final rule on debt cancellation contracts 
(DCCs) and debt suspension agreements (DSAs) that was published in 
the Federal Register on September 19.  The effective date of the 
rule is June 16, 2003.

SUMMARY

The Office of the Comptroller of the Currency (OCC) is publishing a 
final rule that adds a new part 37 to the OCC’s rulebook that 
governs DCCs and DSAs.  The purpose of the final rule is to 
establish standards governing these products in order to ensure that 
national banks provide such products consistent with safe and sound 
banking practices and subject to appropriate consumer protections.  

The final rule defines a DCC as a loan term or contractual 
arrangement under which a bank agrees to cancel all or part of a 
customer’s obligation to repay a loan from that bank upon the 
occurrence of a specified event.  A DSA is defined as a loan term 
or contractual arrangement under which a bank agrees to suspend all 
or part of a customer’s obligation to repay a loan from that bank 
upon the occurrence of a specified event. 

The final rule codifies the OCC’s longstanding position that DCCs 
and DSAs are permissible banking products and states that they are 
governed by new part 37 and applicable federal law and regulations, 
and not by the OCC’s insurance sales consumer protection regulations 
or by state law.

The final rule prohibits the following practices by banks that 
provide DCCs or DSAs:

· Tying the approval or terms of an extension of credit to a 
  customer’s purchase of a DCC or DSA;
· Engaging in misleading advertisements or practices;
· Retaining a right to modify a DCC or DSA unilaterally, unless the 
  modification benefits the customer, or the customer has a 
  reasonable opportunity to cancel without penalty; and
· Charging a single, lump-sum fee for a DCC or DSA offered in 
  connection with a residential mortgage loan.

The final rule imposes the following limitations on banks that 
provide DCCs or DSAs:

· A bank may offer a DCC or DSA that makes no provision for a refund 
  of the fees but, if the bank does so, it also must offer the 
  customer a bona fide option to buy the product that includes a 
  refund feature; and 
· For loans other than residential mortgage loans, the bank may 
  offer the customer the option of paying the fee in a single, lump 
  sum, but if it does, it also must offer a bona fide option of 
  paying the fee for that contract in monthly or other periodic 
  payments.

The final rule requires national banks to disclose certain key 
information to their customers.  The disclosure requirements are 
structured to accommodate the methods that national banks typically 
use to market DCCs and DSAs by permitting the use of abbreviated 
disclosures in certain marketing circumstances – including telephone 
solicitations and “take one” applications – where full disclosure 
of the terms most relevant to the customer’s decision to purchase 
is not practicable.

Among other requirements, national banks must:

· Tell customers of the prohibition on tying.
· Explain that a DSA, if activated, does not cancel the debt, but 
  only suspends requirements to make payments.
· Disclose the amount of the fees charged.
· Make customers aware of the option to pay in a lump sum or 
  periodic installments.
· Disclose their refund policy if the fee is paid in a single 
  payment and added to the amount borrowed.
· Tell customers whether they would be barred from using the credit 
  line if the DCC or DSA was activated.
· Explain eligibility requirements, conditions, and exclusions that 
  might affect a customer’s ability to purchase or obtain benefits 
  under a DCC or DSA.

Sample disclosures are attached to the final rule.  The sample forms 
are not mandatory, but banks that make disclosures in a form 
substantially similar to those provided will be deemed to satisfy 
the disclosure requirements.

The final rule also requires that a national bank, generally, obtain 
the customer’s written acknowledgment of his or her receipt of the 
required disclosures and an affirmative election to purchase the 
DCC or DSA before completing the sale.  Like the disclosure 
requirements, these provisions are also tailored to accommodate the 
use of sales methods – such as by telephone – where immediate 
receipt of a written acknowledgment is not practicable.

The final rule requires that the disclosures, acknowledgement, and 
affirmative election be presented in a form that is simple, direct, 
readily understandable, and designed to call attention to the nature 
and significance of the information provided.  Disclosures must also 
be meaningful.

Finally, the rule contains a safety and soundness requirement that 
a national bank that offers DCCs or DSAs must manage the risk 
associated with these products in accordance with safe and sound 
banking principles.  The rule also requires a bank to establish and 
maintain effective risk management and control processes.

For further information, contact Jean Campbell, attorney, 
Legislative and Regulatory Activities Division at (202) 874-5090; 
Suzette Greco, special counsel, Securities and Corporate Practices 
Division at (202) 874-5210; or Rick Freer, compliance specialist, 
Compliance Division at (202) 874-4862, Office of the Comptroller of 
the Currency, 250 E Street, SW, Washington, DC 20219.


___________________________________ 
Julie L. Williams
First Senior Deputy Comptroller and Chief Counsel 

Attachment – 67 FR 58962
           [http://www.occ.treas.gov/fr/fedregister/67fr58962.pdf]