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+--------+---+----------------------------+--------+-----------------+---+
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+--------+---+----------------------------+--------+-----------------+---+
| ## Com |   |                            |        |                 |   |
| ptroll |   |                            |        |                 |   |
| er of  |   |                            |        |                 |   |
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+--------+---+----------------------------+--------+-----------------+---+
| ## Su  |   | ## Debt C                  | ##     | ## Final Rule   |   |
| bject: |   | ancellation Contracts and  | Descri |                 |   |
|        |   | Debt Suspension Agreements | ption: |                 |   |
+--------+---+----------------------------+--------+-----------------+---+

TO: Chief Executive Officers of National Banks, Department and Division
Heads, All Examining Personnel, and Other Interested Parties

##### PURPOSE

This bulletin transmits a final rule on debt cancellation contracts
(DCCs) and debt suspension agreements (DSAs) that was published in the
*Federal Register* on September 19. The effective date of the rule is
June 16, 2003.

##### SUMMARY

The Office of the Comptroller of the Currency (OCC) is publishing a
final rule that adds a new part 37 to the OCC's rulebook that governs
DCCs and DSAs. The purpose of the final rule is to establish standards
governing these products in order to ensure that national banks provide
such products consistent with safe and sound banking practices and
subject to appropriate consumer protections.

The final rule defines a DCC as a loan term or contractual arrangement
under which a bank agrees to cancel all or part of a customer's
obligation to repay a loan from that bank upon the occurrence of a
specified event. A DSA is defined as a loan term or contractual
arrangement under which a bank agrees to suspend all or part of a
customer's obligation to repay a loan from that bank upon the occurrence
of a specified event.

The final rule codifies the OCC's longstanding position that DCCs and
DSAs are permissible banking products and states that they are governed
by new part 37 and applicable federal law and regulations, and not by
the OCC's insurance sales consumer protection regulations or by state
law.

The final rule prohibits the following practices by banks that provide
DCCs or DSAs:

-   Tying the approval or terms of an extension of credit to a
    customer's purchase of a DCC or DSA;

-   Engaging in misleading advertisements or practices;

-   Retaining a right to modify a DCC or DSA unilaterally, unless the
    modification benefits the customer, or the customer has a reasonable
    opportunity to cancel without penalty; and

-   Charging a single, lump-sum fee for a DCC or DSA offered in
    connection with a residential mortgage loan.

The final rule imposes the following limitations on banks that provide
DCCs or DSAs:

-   A bank may offer a DCC or DSA that makes no provision for a refund
    of the fees but, if the bank does so, it also must offer the
    customer a *bona fide* option to buy the product that includes a
    refund feature; and

-   For loans other than residential mortgage loans, the bank may offer
    the customer the option of paying the fee in a single, lump sum, but
    if it does, it also must offer a *bona fide* option of paying the
    fee for that contract in monthly or other periodic payments.

The final rule requires national banks to disclose certain key
information to their customers. The disclosure requirements are
structured to accommodate the methods that national banks typically use
to market DCCs and DSAs by permitting the use of abbreviated disclosures
in certain marketing circumstances -- including telephone solicitations
and "take one" applications -- where full disclosure of the terms most
relevant to the customer's decision to purchase is not practicable.

Among other requirements, national banks must:

-   Tell customers of the prohibition on tying.

-   Explain that a DSA, if activated, does not cancel the debt, but only
    suspends requirements to make payments.

-   Disclose the amount of the fees charged.

-   Make customers aware of the option to pay in a lump sum or periodic
    installments.

-   Disclose their refund policy if the fee is paid in a single payment
    and added to the amount borrowed.

-   Tell customers whether they would be barred from using the credit
    line if the DCC or DSA was activated.

-   Explain eligibility requirements, conditions, and exclusions that
    might affect a customer's ability to purchase or obtain benefits
    under a DCC or DSA.

Sample disclosures are attached to the final rule. The sample forms are
not mandatory, but banks that make disclosures in a form substantially
similar to those provided will be deemed to satisfy the disclosure
requirements.

The final rule also requires that a national bank, generally, obtain the
customer's written acknowledgment of his or her receipt of the required
disclosures and an affirmative election to purchase the DCC or DSA
before completing the sale. Like the disclosure requirements, these
provisions are also tailored to accommodate the use of sales methods --
such as by telephone -- where immediate receipt of a written
acknowledgment is not practicable.

The final rule requires that the disclosures, acknowledgement, and
affirmative election be presented in a form that is simple, direct,
readily understandable, and designed to call attention to the nature and
significance of the information provided. Disclosures must also be
meaningful.

Finally, the rule contains a safety and soundness requirement that a
national bank that offers DCCs or DSAs must manage the risk associated
with these products in accordance with safe and sound banking
principles. The rule also requires a bank to establish and maintain
effective risk management and control processes.

For further information, contact Jean Campbell, attorney, Legislative
and Regulatory Activities Division at (202) 874-5090; Suzette Greco,
special counsel, Securities and Corporate Practices Division at (202)
874-5210; or Rick Freer, compliance specialist, Compliance Division at
(202) 874-4862, Office of the Comptroller of the Currency, 250 E Street,
SW, Washington, DC 20219.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

Attachment -- [67 FR
58962](http://www.occ.treas.gov/fr/fedregister/67fr58962.pdf)

\[http://www.occ.treas.gov/fr/fedregister/67fr58962.pdf\]