Section 12.33 - Debt Cancellation Contracts and Debt Suspension Agreements(a) Definitions. (1) "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 added to, the unpaid balance of the amount financed.(2) "Closed-end credit" means consumer credit other than open-end credit as defined in this section.(3) "Contract" means a debt cancellation contract or a debt suspension agreement.(4) "Customer" means an individual who obtains an extension of credit from a bank primarily for personal, family, or household purposes.(5) "Debt cancellation contract" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to cancel all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents.(6) "Debt suspension agreement" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to suspend all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents. The term "debt suspension agreement" does not include loan payment deferral arrangements in which the triggering event is the borrower's unilateral election to defer repayment, or the bank's unilateral decision to allow a deferral of repayment.(7) "Open-end credit" means consumer credit extended by a bank under a plan in which: (A) The bank reasonably contemplates repeated transactions;(B) The bank may impose a finance charge from time to time on an outstanding unpaid balance; and(C) The amount of credit that may be extended to the customer during the term of the plan (up to any limit set by the bank) is generally made available to the extent that any outstanding balance is repaid.(8) "Residential mortgage loan" means a loan secured by a 1-4 family, residential real property.(b) Authority, purpose, and scope. (1) Authority. A state bank is authorized to enter into debt cancellation contracts and debt suspension agreements and charge a fee therefor under Finance Code, § RSA 32.001.(2) Purpose. This section sets forth the standards that apply to debt cancellation contracts and debt suspension agreements entered into by state banks. The purpose of these standards is to ensure that state banks offer and implement such contracts and agreements consistent with safe and sound banking practices, and subject to appropriate consumer protections.(3) Scope. This section applies to debt cancellation contracts and debt suspension agreements entered into by state banks in connection with an extension of credit they make. State banks' debt cancellation contracts and debt suspension agreements are governed by this section and applicable provisions in the Finance Code, and not by state insurance laws.(c) Prohibited Practices. (1) Anti-tying. A state bank may not extend credit nor alter the terms or conditions of an extension of credit conditioned upon the customer entering into a debt cancellation contract or debt suspension agreement with the bank.(2) Misrepresentations. A state bank may not engage in any practice or use any advertisement that could mislead or otherwise cause a reasonable person to reach an erroneous belief with respect to information that must be disclosed under this section.(3) Prohibited Contract Terms. A state bank may not offer debt cancellation contracts or debt suspension agreements that contain terms: (A) giving the bank the right unilaterally to modify the contract or agreement unless: (i) the modification is favorable to the customer and is made without additional charge to the customer; or(ii) the customer is notified of any proposed change and is provided a reasonable opportunity to cancel the contract without penalty before the change goes into effect; or(B) requiring a lump sum, single payment for the contract payable at the outset of the contract, where the debt subject to the contract is a residential mortgage loan.(d) Refunds of fees on termination or prepayment. (1) Refunds. If a debt cancellation contract or debt suspension agreement is terminated (including, for example, when the customer prepays the covered loan), the bank shall refund to the customer any unearned fees paid for the contract unless the contract provides otherwise. A state bank may offer a customer a contract that does not provide a refund only if the bank also offers that customer a bona fide option to purchase a comparable contract that provides for a refund.(2) Method of calculating refund. The bank shall calculate the amount of a refund using a method at least as favorable to the customer as the actuarial method.(e) Payment of fees. Except as provided in subsection (c)(3)(B) of this section, a state bank may offer a customer the option of paying the fee for a contract in a single payment, provided the bank also offers the customer a bona fide option of paying the fee for that contract in monthly or periodic payments. If the bank offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the bank must also disclose to the customer, whether and under what terms the customer may cancel the agreement and receive a refund.(f) Disclosures. (1) Content of short form of disclosures. The short form of disclosures required by this section must include the information described in subparagraphs (A) through (F) of this paragraph that is appropriate to the product offered. Short form disclosures made in a form that is substantially similar to these disclosures will satisfy the short form disclosure requirements of this subsection. (A) This product is optional. "Your purchase of (product name) is optional. Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."(B) Lump sum payment of fee (applicable if a bank offers the option to pay the fee in a single payment, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose to pay the fee in a single lump sum or in monthly or quarterly payments. Adding the lump sum of the fee to the amount you borrow will increase the cost of (product name)."(C) Lump sum payment of fee with no refund (applicable if a bank offers the option to pay the fee in a single payment for a no-refund debt cancellation contract, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose (product name) with a refund provision or without a refund provision. Prices of refund and no-refund products are likely to differ."(D) Refund of fee paid in lump sum (applicable where the customer pays the fee in a single payment and the fee is added to the amount borrowed, prohibited where the debt subject to the contract is a residential mortgage loan). Either: (i) "You may cancel (product name) at any time and receive a refund;"(ii) "You may cancel (product name) within _______ days and receive a full refund;" or(iii) "If you cancel (product name) you will not receive a refund."(E) Additional disclosures. "We will give you additional information before you are required to pay for (product name)." If applicable: "This information will include a copy of the contract containing the terms of (product name)."(F) Eligibility requirements, conditions, and exclusions. "There are eligibility requirements, conditions, and exclusions that could prevent you from receiving benefits under (product name)." Either:(i) "You should carefully read our additional information for a full explanation of the terms of (product name);" or(ii) "You should carefully read the contract for a full explanation of the terms."(2) Content of long form of disclosures. The long form of disclosures required by this section must include the information described in subparagraphs (A) through (I) of this paragraph that is appropriate to the product offered. Long form disclosures made in a form that is substantially similar to these disclosures will satisfy the long form disclosure requirements of this subsection. (A) This product is optional. "Your purchase of (product name) is optional. Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."(B) Explanation of debt suspension agreement (applicable if the contract has a debt suspension feature). "If (product name) is activated, your duty to pay the loan principal and interest to the bank is only suspended. You must fully repay the loan after the period of suspension has expired." If applicable: "This includes interest accumulated during the period of suspension."(C) Amount of fee.(i) For closed-end credit: "The total fee for (product name) is _____________."(ii) For open-end credit, either: (I) "The monthly fee for (product name) is based on your account balance each month multiplied by the unit-cost, which is _______;" or(II) "The formula used to compute the fee is ______________."(D) Lump sum payment of fee (applicable if a bank offers the option to pay the fee in a single payment, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose to pay the fee in a single lump sum or in monthly or quarterly payments. Adding the lump sum of the fee to the amount you borrow will increase the cost of (product name)."(E) Lump sum payment of fee with no refund (applicable if a bank offers the option to pay the fee in a single payment for a no-refund debt cancellation contract, prohibited where the debt subject to the contract is a residential mortgage loan.) "You have the option to purchase (product name) that includes a refund of the unearned portion of the fee if you terminate the contract or prepay the loan in full prior to the scheduled termination date. Prices of refund and no-refund products may differ."(F) Refund of fee paid in lump sum (applicable where customer pays the fee in a single payment and the fee is added to the amount borrowed, prohibited where the debt subject to the contract is a residential mortgage loan). Either: (i) "You may cancel (product name) at any time and receive a refund;"(ii) "You may cancel (product name) within ______ days and receive a full refund;" or(iii) "if you cancel (product name) you will not receive a refund."(G) Use of card or credit line restricted (applicable if the contract restricts the use of card or credit line when customer activates protection). "If (product name) is activated, you will be unable to incur additional charges on the credit card or use the credit line."(H) Termination of (product name). Either:(i) "You have no right to cancel (product name)"; or(ii) "You have the right to cancel (product name) in the following circumstances _____________:" and(I) "The bank has no right to cancel (product name);" or(II) "The bank has the right to cancel (product name) in the following circumstances ___________________."(I) Eligibility requirements, conditions, and exclusions. "There are eligibility requirements, conditions, and exclusions that could prevent you from receiving benefits under (product name)." Either: (i) "The following is a summary of the eligibility requirements, conditions, and exclusions (summary provided by bank);" or(ii) "You may find a complete explanation of the eligibility requirements, conditions, and exclusions in paragraphs _________ of the (product name) agreement."(3) Disclosure requirements; timing and method of disclosures. (A) Short form disclosures. The bank shall make the short form disclosures orally at the time the bank first solicits the purchase of a contract.(B) Long form disclosures. The bank shall make the long form disclosures in writing before the customer completes the purchase of the contract. If the initial solicitation occurs in person, then the bank shall provide the long form disclosures in writing at that time.(C) Special rule for transactions by telephone. If the contract is solicited by telephone, the bank shall provide the short form disclosures orally and shall mail the long form disclosures and, if appropriate, a copy of the contract to the customer within 3 business days, beginning on the first business day after the telephone solicitation.(D) Special rule for solicitations using written mail inserts or "take one" applications. If the contract is solicited through written materials such as mail inserts or "take one" applications, the bank may provide only the short form disclosures in the written materials if the bank mails the long form disclosures to the customer within 3 business days, beginning on the first business day after the customer contacts the bank to respond to the solicitation, subject to the requirements of subsection (g)(3) of this section.(E) Special rule for electronic transactions. The disclosure described in this section may be provided electronically in a manner consistent with the requirements of the Uniform Electronic Transactions Act, Texas Business and Commerce Code Chapter 322, and the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq.(4) Form of disclosures. (A) Disclosures must be understandable. The disclosures required by this subsection must be in plain language, i.e., conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided.(B) Disclosures must be meaningful. The disclosures required by this subsection must be in a meaningful form. Examples of methods that could call attention to the nature and significance of the information provided include:(i) a plain-language heading to call attention to the disclosures;(ii) a typeface and type size that are easy to read;(iii) wide margins and ample line spacing;(iv) boldface or italics for key words; and(v) distinctive type style and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.(5) Advertisements and other promotional material. The short form disclosures are required in advertisements and promotional material for contracts unless the advertisements and promotional materials are of a general nature describing or listing the services or products offered by the bank.(g) Affirmative election to purchase and acknowledgment of receipt of disclosures required. (1) Affirmative election and acknowledgment of receipt of disclosures. Before entering into a contract the bank must obtain a customer's written affirmative election to purchase a contract and written acknowledgment of receipt of the disclosures required by subsection (f) of this section. The election and acknowledgment information must be in plain language, i.e., conspicuous, simple, direct, readily understandable, and designed to call attention to their significance. The election and acknowledgment satisfy these standards if they conform with the requirements in subsection (f)(2) of this section.(2) Special rule for telephone solicitations. If the sale of a contract occurs by telephone, the customer's affirmative election to purchase may be made orally, provided the bank: (A) maintains sufficient documentation to show that the customer received the short form disclosures and then affirmatively elected to purchase the contract;(B) mails the affirmative written election and written acknowledgment, together with the long form disclosures required by subsection (f)(2) of this section, to the customer within 3 business days after the telephone solicitation, and maintains sufficient documentation to show it made reasonable efforts to obtain the documents from the customer; and(C) permits the customer to cancel the purchase of the contract without penalty not later than 30 days after the date the bank has mailed the long form disclosures to the customer.(3) Special rule for solicitations using written mail inserts or "take one" applications. If the contract is solicited through written materials such as mail inserts or "take one" applications and the bank provides only the short form disclosures in the written materials, then the bank shall mail the acknowledgment of receipt of disclosures, together with the long form disclosures required by subsection (f) of this section, to the customer within 3 business days, beginning on the first business day after the customer contacts the bank or otherwise responds to the solicitation. The bank may not obligate the customer to pay for the contract until after the bank has received the customer's written acknowledgment of receipt of disclosures unless the bank: (A) maintains sufficient documentation to show that the bank provided the acknowledgment of receipt of disclosures to the customer as required by this section;(B) maintains sufficient documentation to show that the bank made reasonable efforts to obtain from the customer a written acknowledgment of receipt of long form disclosures; and(C) permits the customer to cancel the purchase of the contract without penalty within 30 days after the bank has mailed the long form disclosures to the customer.(4) Special rule for electronic election. The affirmative election and acknowledgment may be made electronically in a manner consistent with the requirements of the Uniform Electronic Transactions Act, Texas Business and Commerce Code Chapter 322, and the Electronic Signatures in Global and National Commerce Act, RSA 7001 et seq.(h) Safety and soundness. A state bank must manage the risks associated with debt cancellation contracts and debt suspension agreements in accordance with safe and sound banking principles. Accordingly, a state bank must establish and maintain effective risk management and control processes over its debt cancellation contracts and debt suspension agreements. These 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 bank should also assess the adequacy of its internal control and risk mitigation activities in view of the nature and scope of its debt cancellation contract and debt suspension agreement programs.(i) Notwithstanding the foregoing, until further notice, compliance with the following provisions of this section will not be required when a state bank, in connection with closed-end consumer credit extended by the bank (other than a residential mortgage loan), offers a debt cancellation contract or debt suspension agreement through an unaffiliated, non-exclusive agent: (1) the requirement set forth in subsection (e) of this section to offer a periodic payment option;(2) the requirement set forth in subsection (d)(1) of this section that a bank offering a customer a debt cancellation contract or debt suspension agreement without a refund provision also must offer the customer an option to purchase a comparable debt cancellation contract or debt suspension agreement that provides for a refund;(3) the long-form disclosure requirement set forth in subsection (f)(2) of this section;(4) the second short form disclosure set forth in subsection (f)(1)(B) of this section, informing the customer that he or she has the option to pay the fee in a single lump sum or in periodic payments;(5) the third short form disclosure set forth in subsection (f)(1)(C) of this section, informing the customer that he or she has the option to purchase a debt cancellation contract or debt suspension agreement with a refund provision;(6) the fifth short form disclosure set forth in subsection (f)(1)(E) of this section, indicating that the customer will receive additional information before being required to pay for the debt cancellation contract or debt suspension agreement; and(7) the requirement set forth in subsection (g)(1) of this section to obtain a customer's written acknowledgment of receipt of disclosures.7 Tex. Admin. Code § 12.33
The provisions of this §12.33 adopted to be effective May 1, 2003, 28 TexReg 3494; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective September 9, 2010, 35 TexReg 8101; Amended by Texas Register, Volume 48, Number 52, December 29, 2023, TexReg 8332, eff. 1/4/2024