(b) Purpose. This Part sets out the standards applicable to debt relief agreements and debt suspension agreements concluded by national banks. These standards aim to ensure that national banks offer and implement contracts and arrangements that comply with sound and safe banking practices and are subject to adequate consumer protection. (d) Contract means a debt termination agreement or a debt suspension agreement. The Office of the Comptroller of the Currency (OCC) is proposing to add a new Chapter 37 to its regulations, which deals with debt relief contracts (CCDs) and debt suspension agreements (DSAs). The customer protection set out in the proposed rule is intended to make it easier for customers to make an informed decision on the purchase of DCC and DSA, based on an understanding of the costs, benefits and limitations of products and to prevent inappropriate or abusive sales practices. In addition, the proposed rule promotes safety and soundness by requiring domestic banks offering these products to maintain sufficient reserves of losses. (b) Purpose. The purpose of this Part is to establish the standards applicable to the settlement of debts by a National Bank Home Printed page 19906 Termination agreements and debt suspension agreements, improving consumer protection for customers who purchase debt relief contracts or debt suspension agreements from national banks, and ensure that national banks offering debt relief contracts or debt suspension agreements do so on a safe and sound basis.
The proposed rule defines a CDA as a contract entered into by a bank that provides for the total or partial cancellation of the amount due under a credit extension of that bank upon the occurrence of a particular event. A DSA is also defined as a contract concluded by a bank that provides for the suspension of all or part of the repayment obligation in the context of a credit extension of that bank upon the occurrence of a particular event.  The OCC invites comments on Start Printed Page 19903, the definition of CDC and DSA, and in particular whether other elements should be added to cover certain products. (1) That the consent to a loan extension and the terms of such an extension are not subject to the purchase of a debt relief contract or debt suspension agreement by the customer from the bank; (g) `debt suspension agreement` means a loan term or contractual agreement modifying the terms of the loan under which a bank agrees to suspend, in whole or in part, a customer`s obligation to repay a credit extension of that bank upon the occurrence of a particular event. The agreement may be separate or part of other credit documents. The term “debt suspension agreement” does not include loan deferral agreements where the triggering event is the borrower`s unilateral decision to defer repayment or the bank`s unilateral decision to allow repayment to be deferred. (a) Anti-coupling. A SNB may neither grant loans nor change the terms of a loan extension linked to the conclusion of a debt relief agreement or a debt suspension agreement with the bank. (c) Conditions that are not systematically applied. A debt cancellation agreement or a debt suspension agreement must not contain a clause that the bank systematically fails to apply. A SNB must establish and maintain a separately identifiable loss reserve for debt relief contracts and debt suspension agreements at a level sufficient to cover expected losses or interest payments on suspended or cancelled debts. Instead of maintaining a separate loss reserve, a national bank can obtain sufficient coverage for expected losses from a third-party insurance company.
(c) `debt relief contract` means a contract concluded by a bank which provides for the total or partial cancellation of the amount due under a credit extension by that bank on the occurrence of a specific event. 3. This definition does not apply to so-called “payment hopping” agreements, which are part of a loan agreement and allow a customer to skip a certain number of loan payments at the customer`s choice, without referring in the contract to a specific triggering event and without incurring default fees or other penalties. 2. See 12 CFR 226.4(d)(3) (provides, among other things, that a bank may exclude debt relief coverage fees from financing costs if coverage is optional for the customer; coverage fees are disclosed; the term of coverage is disclosed (if the term is shorter than the term of the loan); and the customer specifically requests coverage in writing). [Applicable if the contract includes a debt suspension function] The eighth disclosure requires a bank to describe the procedures a customer must follow to inform them that a triggering event has occurred. This information is important because a customer who wishes to activate the debt suspension or debt attainment feature of the contract must follow the procedures described in the contract. Requiring banks to disclose this information will help avoid confusion among customers. The customer must decide to purchase a debt relief contract or a debt suspension agreement.
The choice of the customer must be made in writing in a document separate from the documents relating to the credit transaction. The election may be made electronically in accordance with the requirements of the Electronic Signature in Global and National Commerce Act, 15 U.S.C. 7001 et seq. (f) Debt Relief Agreement means a credit term or contractual arrangement that modifies the terms of the loan under which a bank agrees to terminate a customer`s obligation to repay a loan extension of that bank in whole or in part upon the occurrence of a particular event. The agreement may be separate or part of other credit documents. To ensure that the supply of CCD and ODA does not excessively increase the Bank`s exposure to risk, it is necessary to build up and maintain loss reserves at an appropriate level to cover expected Losses related to CDCs and to cover debt servicing of loans during periods of debt suspension. A debtor waiver agreement (DCC) is a banking product consisting of a contract concluded by a bank that provides for the total or partial cancellation of the customer`s obligation to repay a loan extension of that bank upon the occurrence of a particular event. A debt suspension contract (DSA) is a banking product consisting of a contract concluded by a bank that provides for the suspension of all or part of the repayment obligation in the context of a credit extension of that bank when a particular event occurs. Under a CDC or DSA, the customer agrees to pay additional fees to the bank in exchange for the bank`s promise to temporarily cancel or suspend debt payments. Fees can be paid in a single lump sum or in regular instalments. A national bank must manage the risks associated with debt relief contracts and debt suspension agreements in accordance with the principles of safe and sound banking operations. As a result, a National Bank must establish and maintain effective risk management and control processes for its debt relief agreements and debt suspension agreements.
These processes include the proper recognition and financial presentation of revenues, expenses, assets and liabilities, as well as appropriate treatment of all anticipated and unforeseen revenue-related losses. A bank should also assess the adequacy of its internal control and risk mitigation activities in light of the nature and scope of its debt relief and suspension programs. (d) Unilateral right of modification. A debt relief agreement or debt suspension agreement does not give the bank the unilateral right to change the contract or arrangement. [Prohibited if the contract debt is a residential mortgage] The proposed rule also prohibits the application of two types of contractual provisions that pose a high risk of unfair treatment of customers. First, the proposal prohibits a bank from including in a CDC or DPA a clause that the bank does not consistently apply. The inclusion of such a term misleads customers and prevents them from obtaining debt relief for which they have paid. However, we recognize that a bank`s failure to enforce the contractual provisions sometimes allows the bank to work with customers in financial difficulty, so that the customer can ultimately repay the obligation to the bank in full. The proposed rule uses the word “routine, so a bank has the discretion to make exceptions in certain situations. (2) Requirement of a lump sum, one-time payment for the contract, to be paid at the beginning of the contract if the contractual debt is a mortgage loan for residential real estate.
(c) Scope. This Part shall apply to debt relief agreements and debt suspension agreements concluded by national banks in connection with loan extensions granted by them. Debt relief agreements and debt suspension agreements of domestic banks shall be governed by this Part and applicable federal laws and regulations, and not by Part 14 of this Chapter or the laws of the State. (8) A description of the procedures that a customer must follow to inform the bank that a triggering event has occurred under the debt relief agreement or the debt suspension agreement. (c) Prohibited Contractual Conditions. A national bank cannot offer debt relief or debt suspension agreements that contain conditions: proposed § 37.4 requires the customer to decide in writing in a separate document from the documents relating to the loan transaction to purchase a DCC or DSA. . . .