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#35257 - 10/01/02 03:13 PM Debt Cancellation Final Rules 12 CFR 37
Marathon Junkie Offline
Member
Joined: Mar 2001
Posts: 50
I would appreciate some help with the following two provisions of the the new regulation regarding debt cancellation contracts.

Under the new debt cancellation requirements specifically Section 37.5 it states that "a 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 other periodic payments." Does this mean that we have to offer the customer the option to pay for the debt cancellation contract in a lump sum or in periodic payments or can we simply require the lump sum payment? If the former is correct, the accounting is a nightmare, any thoughts?

Second question, Section 37.4 states "A bank may offer a customer a contract that does not provide for a refund only if the bank also offers the customer a bona fide option to purchase a comparable contract that provides for a refund." Any thoughts as to what a comparable contract is? We offer credit life insurance and debt cancellation. But, is credit life insurance a comparable contract considering the cost and terms vary greatly between the two?

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General Discussion
#35258 - 10/01/02 03:23 PM Re: Debt Cancellation Final Rules 12 CFR 37
Gotwood Offline
Platinum Poster
Joined: May 2001
Posts: 715
I'll take a try at the second question first. I read this to mean that a comparable contract is one in which a refund is available. You could price it differently, because it has a different feature. To me, this is no different than paying more at the airline counter for a fully refundable ticket. I think a comparable product has the same features, not the same price.

Now the first. If you only offer monthly/installment payments, you don't have to offer a lump sum product. If you offer lump sum, then you also have to offer monthly/installment.

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#35259 - 10/01/02 04:07 PM Re: Debt Cancellation Final Rules 12 CFR 37
Marathon Junkie Offline
Member
Joined: Mar 2001
Posts: 50
Let me ask this further, is the financing the debt cancellation contract fee for the life of the loan considered a lump sum fee or is it deemed a monthly or periodic payment option, since they are paying for it over the life of the loan and not in actuality a lump sum?
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#35260 - 10/01/02 04:24 PM Re: Debt Cancellation Final Rules 12 CFR 37
Gotwood Offline
Platinum Poster
Joined: May 2001
Posts: 715
If I borrowed $3,000 for a DCC, in addition to the $10,000 I wanted to build a deck on my house, I paid a lump sum amount. If I wanted the coverage, but didn't want to borrow the money for it, my monthly payment would be increased by the amount it takes to pay the monthly premium.

bottom line: if you financed it, you paid for it upfront (lump sum)

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