MADISON, Wis. – The Office of the Comptroller of the Currency's recently issued release concerning the agency's rule on debt cancellation contracts and debt suspension agreements and explaining the agency's position on the products, is something national banks have been waiting for awhile. But it will still take some time, says one CU expert to discern what effect, if any, the rule has on credit unions' ability to market the products. The OCC's Sept. 17th release, "OCC Rule on Debt Cancellation Contracts and Debt Suspension Agreements Provides New Consumer Protections and Safety and Soundness Standards," clarifies that the OCC considers DCCs and DSAs to be "permissible bank products" regulated by the OCC, and not insurance products. The regulation also adds consumer protections and establishes safety and soundness standards for DCCs and DSAs offered by national banks. The rule, said Comptroller of the Currency John Hawke Jr. in an agency release, "prohibits or restricts bank practices that have the greatest potential for abuse." It also "requires banks to provide disclosures on issues that are likely to be most important to customers in deciding whether to purchase DCCs or DSAs." The disclosures, said Hawke, are based on those required by the OCC's insurance sales consumer protection regulations. The rule takes effect June 16, 2003. Among the provisions of the OCC's rule, it: * bars national banks from requiring a single lump-sum payment for a DCC or DSA purchased in connection with a mortgage loan; * prohibits making the availability of credit to a bank customer conditional on their purchase of a DCC or DSA; * prohibits national banks from engaging in misleading practices or using misleading advertising regarding DSAs or DCCs; * prohibits national banks from "retaining a unilateral right to modify a DCC or DSA, unless either the modification is favorable to the customer and is made without additional charge, or the customer is notified of the modification and had a reasonable opportunity to cancel the contract before it takes effect." In addition, since the OCC concluded that the disclosures required under Reg Z, the Truth in Lending Act may not give bank customers enough information about the particular features of a DCC or DSA that may be most important to them, the agency's rule requires national banks use several standardized disclosures when they market DCCs or DSA. The fact that there is now a regulation governing use of these products should give some comfort to other regulators and consumer groups, said CUNA Mutual Group's Keith Nelson, vice president and product manager of CU Choice Lending Protection, CMG's debt cancellation product. Nelson said he didn't doubt that the OCC's rule "will encourage more national banks to pursue debt cancellation contracts." Last month, CUNA Mutual came out with their debt cancellation product, CU Choice Lending ProtectionT. The company said it is the first debt cancellation product designed exclusively for credit unions. CMG considers debt cancellation products to be lending products, not a credit insurance product. NCUA also considers debt cancellation contracts to be a credit union product, and federal credit unions are allowed to offer the product. State chartered credit unions' ability to offer DCCs depends on their respective state regulations. Sharon Whidden, for example, administrator for the Florida Division of Banking said the state considers debt cancellation to be an insurance product and the Florida Department of Insurance has deemed debt cancellation not to be a permissible credit union activity. Whidden said any legislative effort to amend the state's credit union act to permit state-chartered credit unions to offer debt cancellation contracts would have to be made by the Florida Credit Union League, "but until we have a better understanding of the product and the risks involved, I don't know if the league would try to amend the act." "The impact of the OCC's rule on credit unions will depend on how credit union regulators respond," said Nelson. "What we know already is debt cancellation is new to the credit union market, and already there is growing interest in the product," said Nelson. "Credit unions and regulators are both asking questions." [email protected]

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