Debt Cancellation Contracts & Debt Suspension Agreements

Question 1

Who is covered under the OCC issued regulations on debt cancellation contracts and debt suspension agreements?

Answer 1

National banks that issue debt cancellation contracts or debt suspension agreements with borrowers in connection with consumer purpose loans.

Question 2

What is a debt collection contract (DCC)?

Answer 2

A loan term or an arrangement that modifies a loan term under which a bank agrees to cancel all or part of a consumer’s loan obligation on the occurrence of a specified event. The DCC may be included as a part of the loan documents, or it may be a separate agreement.

Question 3

What is a debt suspension agreement (DSA)?

Answer 3

A loan term or an arrangement that modifies a loan term under which a bank agrees to suspend all or part of a consumer’s loan obligation on the occurrence of a specified event. The DSA

• May be a part of the loan itself or a separate agreement
• Does not include a loan payment deferral arrangement where the borrower or the bank can unilaterally defer a payment

Question 4

Can a bank extend credit or alter the terms of an existing credit conditioned on the customer’s agreement to enter into a DCC or a DSA?

Answer 4

No this is a prohibited practice. Anti-tying applies.

Question 5

A national bank may not offer DCCs or DSAs that contain what terms?

Answer 5

• A term that gives the bank a unilateral right to modify the contract, unless the modification is favorable to the customer and is made without a charge or the customer is notified of the proposed change and is given a reasonable opportunity to cancel the contract without penalty before the modification goes into effect.
• In a residential mortgage loan, a term that requires a lump-sum, single payment for the contract, payable at the outset of the contract.

Question 6

If a DCC or DSA is terminated, what must the bank do?

Answer 6

refund any unearned fees paid for the contract unless the contract provides otherwise.

Question 7

How must refunds on a terminated DCC or DSA be calculated?

Answer 7

by a method at least as favorable as the actuarial method.

Question 8

When must a bank make the short-form disclosures for a DCC or DSA?

Answer 8

orally at the time the bank first solicits the contract

Question 9

When must a bank make the long-form disclosures for a DCC or DSA?

Answer 9

in writing before the customer completes the purchase of a contract. If the solicitation occurs in person, the long-form disclosures must be provided at that time. For telephone transactions, the long form disclosures must be mailed within 3 business days, beginning on the first business day after the solicitation.

Question 10

If the contract is solicited by mail or through take one applications, the bank may provide only the ____-form disclosures in the written materials.

Answer 10

short

Question 11

What 6 things are required in the short-form disclosures?

Answer 11

• Notification that the product is optional
• Lump-sum payment of fee
• lump-sum payment of fee with no refund
• Refund of fee paid in lump sum
• Requirement for additional information before payment is made
• Eligibility requirements, conditions and exclusions

Question 12

What 9 things are required for the long-form disclosures?

Answer 12

• Notification that the product is optional
• Explanation of debt-suspension agreement
• Amount of fee
• Lump-sum payment of fee
• lump-sum payment of fee with no refund
• Refund of fee paid in lump sum
• Use of card or credit line restricted
• Termination of product
• Eligibility requirements, conditions and exclusions

Question 13

Before entering into a DCC or DSA, the bank must obtain what from the consumer?

Answer 13

Written affirmation election to enter into the contract and written acknowledgement of the receipt of the disclosures.

Question 14

ACME National Bank has a Web site that lists the bank’s products and services. On its consumer loan page it lists debt cancellation contracts as an available product. What other disclosure must the bank place on this Web page?

a. None. Because it only lists the product, nothing else is required.
b. The short-form disclosures must be on the page.
c. The short-form disclosures must be available by a conspicuous link on the page.
d. The long-form disclosures must be on the page.

Answer 14

a. None. Because it only lists the product, nothing else is required.

Question 15

Safe National Bank has a variety of consumer lending products. Among them are debt cancellation contracts that allow for the cancellation of a consumer’s debt if certain events happen. The bank solicits sales for these contracts when the consumer makes an in-person loan application. What does Safe National have to do at the time of the application and solicitation?

a. Nothing. Disclosures are required only when the contract is made.
b. Give the customer the short-form disclosures orally.
c. Give the customer the short-form disclosures in writing.
d. Give the customer the short form disclosures orally and the long-form disclosures in writing.

Answer 15

d. Give the customer the short form disclosures orally and the long-form disclosures in writing.

Question 16

ACME National bank uses telephone solicitations to sell its debt cancellation contracts. The banker explains to the borrower the nature of the contract, gives an oral short form disclosure, receives the customer’s affirmative election orally, and sends the written long form disclosures and written affirmative election within three business days. Is the bank in compliance with the telephone solicitation rules as they apply to affirmative elections?

a. Yes, the bank has fulfilled all of its requirements.
b. No, oral affirmative elections are not acceptable.
c. No, the bank also must give the customer 30 days to cancel the contract.
d. No, telephone solicitations are not allowed for debt cancellation contracts.

Answer 16

c. No, the bank also must give the customer 30 days to cancel the contract.

Question 17

For telephone solicitations, the reg permits the customer to cancel the purchase of the contract within __ days after the bank has mailed the long-form disclosures.

Answer 17

30