Someone is telling me that we can provide a rate discount if our customer signs up for credit insurance, but not if they sign up for debt cancellation.

I am not familiar with this issue. Has anyone heard of this rule and if so, where can I find it?

Is the bank a national bank or a state bank?

If national bank, review the OCC rules on debt cancellation contracts at 12 CFR 37.

I have a bit more clarification.

We were told that we cannot require debt cancellation, but that we could require credit insurance (if it was sold in conjunction with two other products). So what we are wanting to do is instead of requiring debt cancellation- offer a discounted rate.

We are a state bank. I did review the OCC rules, which were helpful, but I don't see anything that prohibits us from providing a discounted rate if the customer voluntarily chooses debt cancellation coverage.

Nor do I.

You will of course have to check state law, including whether the state treats it as insurance. The OCC does not.

I think I might have found it:

37.3 Prohibited practices.

(a) Anti-tying. A national 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.

(b) Misrepresentations generally. A national 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 part.

(c) Prohibited contract terms. A national bank may not offer debt cancellation contracts or debt suspension agreements that contain terms:

(1) Giving the bank the right unilaterally to modify the contract 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

(2) 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.


I am reading this to say that we can't even condition the loan differently if they have debt cancellation, which makes me think that we can't offer a discounted rate for signing up for this product.