R331-25. Rule Governing Debt Cancellation and Debt Suspension Agreements Issued by Depository Institutions, Who Are Under the Jurisdiction of the Department of Financial Institutions, R331. Financial Institutions, Administration, Utah Administrative Code

Utah Administrative Code (Current through November 1, 2019)

R331. Financial Institutions, Administration

R331-25. Rule Governing Debt Cancellation and Debt Suspension Agreements Issued by Depository Institutions, Who Are Under the Jurisdiction of the Department of Financial Institutions

R331-25-1. Authority, Scope and Purpose

Latest version.

(1) This rule is issued pursuant to Section 7-1-324(2).

(2) This rule governs the issuance of a debt cancellation agreement or debt suspension agreement by a depository institution under the jurisdiction of the Department of Financial Institutions.

(3) This rule establishes uniform rules for debt cancellation and debt suspension agreements by depository institutions subject to the jurisdiction of the department and minimum standards of disclosure to protect the public interest.

R331-25-2. Definitions

Latest version.

(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 is added to, the unpaid balance of the amount financed.

R331-25-3. Refunds of Fees in the Event of Termination or Prepayment of the Covered Loan

Latest version.

(1) Refunds. If a debt cancellation agreement or debt suspension agreement is terminated (including, for example, when the customer prepays the covered loan), the depository institution shall refund to the customer any unearned fees paid for the agreement unless the agreement provides otherwise. A depository institution may offer a customer an agreement that does not provide for a refund only if the depository institution also offers that customer a bona fide option to purchase a comparable agreement that provides a refund.

(2) Method of calculating refund. The depository institution shall calculate the amount of a refund using a method at least as favorable to the customer as the actuarial method.

(3) Method of payment of fees. Except as provided in R331-25-6(3)(b), a depository institution may offer a customer the option of paying the fee for an agreement in a single payment, provided the depository institution also offers the customer a bona fide option of paying the fee for that agreement in monthly or other periodic payments. If the depository institution offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the depository institution must also disclose to the customer, in accordance with R331-25-4, whether and, if so, the time period during which, the customer may cancel the agreement and receive a refund.

R331-25-4. Disclosures

Latest version.

(1) Content of short form of disclosures. The short form of disclosures required by this rule must include:

(a) a statement that the purchase of the agreement is optional and whether or not the consumer purchases the agreement will have no effect on their application for credit or the terms of any existing credit agreement;

(b) a statement that the consumer may choose to pay the fee in a single lump sum or in monthly/quarterly payments and a disclosure that adding a lump sum of the fee to the amount borrowed will increase the cost of the agreement;

(c) a statement that the consumer may choose an agreement with or without a refund provision and that the prices are likely to differ;

(d) a statement that the depository institution will provide additional information before the consumer is required to pay for the agreement.

(2) Content of long form of disclosures. The long form of disclosures required by this rule must include:

(b) an explanation that a debt suspension agreement means that the duty to pay the loan principal and interest to the depository institution or industrial loan company is only suspended and does not cancel the obligation if the agreement is activated;

(c) a statement describing the total fee for the agreement and that the consumer may choose to pay the fee in a single lump sum or in monthly/quarterly payments and a disclosure that adding a lump sum of the fee to the amount borrowed will increase the cost of the agreement plus the formula used to compute any monthly or quarterly fee payment;

(d) a statement that the consumer may choose an agreement with or without a refund provision and that the prices are likely to differ;

(e) a statement explaining the circumstances under which the consumer or the depository institution can terminate the agreement if termination is permitted during the life of the loan.

(3) Disclosure requirements; timing and method of disclosures.

(a) Short form disclosures: The depository institution shall make the short form disclosures orally at the time the depository institution first solicits the purchase of an agreement.

(b) Long form disclosures: The depository institution shall make the long form disclosures in writing before the customer completes the purchase of the agreement. If the initial solicitation occurs in person, then the depository institution shall provide the long form disclosures in writing at that time.

(c) Transactions by telephone: If the agreement is solicited by telephone, the depository institution shall provide the short form disclosures orally and shall mail the long form disclosures, and, if appropriate, a copy of the agreement to the customer within 3 business days, beginning on the first business day after the telephone solicitation.

(d) Solicitations using written mail inserts or ''take one'' applications: If the agreement is solicited through written materials such as mail inserts or ''take one'' applications, the depository institution may provide only the short form disclosures in the written materials if the depository institution mails the long form disclosures to the customer within 3 business days, beginning on the first business day after the customer contacts the depository institution to respond to the solicitation, subject to the requirements of R331-25-5(3).

(e) Electronic transactions: The disclosures described in this section may be provided through electronic media in a manner consistent with the requirements of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq.

(4) Form of disclosures.

(a) Readily Understandable: The disclosures required by this section must be conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided.

(b) Meaningful: The disclosures required by this section 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 for debt cancellation agreements and debt suspension agreements. The short form disclosures are required for advertisements and promotional material for agreements unless the advertisements and promotional materials are of a general nature describing or listing the services or products offered by the depository institution.

R331-25-5. Affirmative Election to Purchase and Acknowledgment of Receipt of Disclosures

Latest version.

(1) Affirmative election and acknowledgment of receipt of disclosures. Before entering into an agreement the depository institution must obtain a customer's written affirmative election to purchase an agreement and written acknowledgment of receipt of the disclosures required by R331-25-4(2). The election and acknowledgment information must be 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 R331-25-4(2) of this rule.

(2) Telephone solicitations: If the sale of an agreement occurs by telephone, the customer's affirmative election to purchase may be made orally, provided the depository institution:

(a) Maintains sufficient documentation to show that the customer received the short form disclosures and then affirmatively elected to purchase the agreement;

(b) Mails the affirmative written election and written acknowledgment, together with the long form disclosures required by this subsection, 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 agreement without penalty within 30 days after the depository institution has mailed the long form disclosures to the customer.

(3) Solicitations using written mail inserts or ''take one'' applications: If the agreement is solicited through written materials such as mail inserts or ''take one'' applications and the depository institution provides only the short form disclosures in the written materials, then the depository institution shall mail the acknowledgment of receipt of disclosures, together with the long form disclosures required by this subsection, to the customer within 3 business days, beginning on the first business day after the customer contacts the depository institution or otherwise responds to the solicitation. The depository institution may not obligate the customer to pay for the agreement until after the depository institution has received the customer's written acknowledgment of receipt of disclosures unless the depository institution:

(a) Maintains sufficient documentation to show that the depository institution provided the acknowledgment of receipt of disclosures to the customer as required by this subsection;

(b) Maintains sufficient documentation to show that the depository institution made reasonable efforts to obtain from the customer a written acknowledgment of receipt of the long form disclosures; and

(c) Permits the customer to cancel the purchase of the agreement without penalty within 30 days after the depository institution has mailed the long form disclosures to the customer.

(4) Electronic election: The affirmative election and acknowledgment may be made electronically in a manner consistent with the requirements of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq.

R331-25-6. Prohibited Practices

Latest version.

(1) A depository institution may not extend credit nor alter the terms or conditions of an extension of credit conditioned upon the customer entering into a debt cancellation agreement or debt suspension agreement with the depository institution.

(2) A depository institution may not engage in any practice or use any advertisement that could mislead or otherwise cause a reasonable person to reach an erroneous expectation with respect to information that must be disclosed under this rule.

(3) Prohibited contract terms. A depository institution may not offer debt cancellation agreements or debt suspension agreements that contain contract terms:

(a) Giving the depository institution the right unilaterally to modify the 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 agreement without penalty before the change goes into effect; or

(b) Requiring a lump sum, single payment for the agreement payable at the outset of the agreement, where the debt subject to the agreement is a residential mortgage loan.

R331-25-7. Safety and Soundness Requirements

Latest version.

A depository institution must manage the risks associated with debt cancellation agreements and debt suspension agreements in accordance with safe and sound banking principles. Accordingly, a depository institution must establish and maintain effective risk management and control processes over its debt cancellation agreements and debt suspension agreements. Such 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 agreements. A depository institution also should assess the adequacy of its internal control and risk mitigation activities in view of the nature and scope of its debt cancellation agreement and debt suspension agreement programs.