Chapter DFI-CU 74

Chapter DFI-CU 74

DEBT CANCELLATION CONTRACTS AND DEBT SUSPENSION AGREEMENTS

DFI-CU 74.02   Definitions.

DFI-CU 74.03   Debt cancellation contracts and debt suspension agreements.

DFI-CU 74.04   Prohibited practices.

DFI-CU 74.05   Refunds of fees in the event of termination or repayment of covered loan.

DFI-CU 74.06   Method of payment of fees.

DFI-CU 74.07   Disclosures.

DFI-CU 74.08   Affirmative election to purchase and acknowledgement of receipt of disclosures required.

DFI-CU 74.09   Safety and soundness.

DFI-CU 74.02 DFI-CU 74.02 Definitions. In this section:

DFI-CU 74.02(1) (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.

DFI-CU 74.02(2) (2) “Credit union” has the meaning set forth in s. 186.01 (2), Stats.

DFI-CU 74.02(3) (3) “Customer” means a member of a credit union who obtains an extension of credit from a credit union primarily for personal, family or household purposes.

DFI-CU 74.02(4) (4) “Debt cancellation contract” means a loan term or contractual arrangement modifying loan terms under which a credit union agrees to cancel all or part of a customer’s obligation to repay an extension of credit from that credit union upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents.

DFI-CU 74.02(5) (5) “Debt suspension agreement” means a loan term or contractual arrangement modifying loan terms under which a credit union agrees to suspend all or part of a customer’s obligation to repay an extension of credit from that credit union upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents. “Debt suspension agreement” does not include loan payment deferral arrangements in which the triggering event is the borrower’s unilateral election to defer repayment or the credit union’s unilateral decision to allow a deferral of repayment.

DFI-CU 74.02(6) (6) “Director” means the director of the office of credit unions or an authorized representative of the director.

DFI-CU 74.02(8) (8) “Loan-related products” mean the products, activities or services a credit union provides to its members in a lending transaction that protect it against credit-related risks or are otherwise incidental to its lending authority. “Loan-related products” include debt cancellation agreements, debt suspension agreements, letters of credit and leases.

DFI-CU 74.02(9) (9) “Residential mortgage loan” means a loan secured by 1-4 family, residential real property.

DFI-CU 74.02 History History: CR 05-046: cr. Register January 2006 No. 601, eff. 2-1-06; 2013 Wis. Act 277: r. (7) Register May 2014 No. 701, eff. 6-1-14.

DFI-CU 74.03 DFI-CU 74.03 Debt cancellation contracts and debt suspension agreements. A credit union may provide debt cancellation contracts and debt suspension agreements.

DFI-CU 74.03 History History: CR 05-046: cr. Register January 2006 No. 601, eff. 2-1-06; 2013 Wis. Act 277: am. Register May 2014 No. 277, eff. 6-1-14; correction in (title) made under s. 35.17, Stats., Register May 2014 No. 277.

DFI-CU 74.04 DFI-CU 74.04 Prohibited practices.

DFI-CU 74.04(1) (1) Anti-tying. A credit union shall not extend credit or 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 credit union.

DFI-CU 74.04(2) (2) Misrepresentations generally. A credit union shall not engage in any practice or use any advertisement that is false, misleading or deceptive, or which omits to state material information, or otherwise would cause a reasonable person to reach an erroneous belief with respect to information that may be disclosed under this section.

DFI-CU 74.04(3) (3) Prohibited contract terms. A credit union shall not offer debt cancellation contracts or debt suspension agreements that contain any of the following:

DFI-CU 74.04(3)(a) (a) Terms giving the credit union the right unilaterally to modify the contract unless the modification is favorable to the customer and is made without additional charge to the customer, or 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.

DFI-CU 74.04(3)(b) (b) Terms 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.

DFI-CU 74.04 History History: CR 05-046: cr. Register January 2006 No. 601, eff. 2-1-06.

DFI-CU 74.05 DFI-CU 74.05 Refunds of fees in the event of termination or repayment of covered loan.

DFI-CU 74.05(1) (1) Refunds. If a debt cancellation contract or debt suspension agreement is terminated, including when the customer prepays the covered loan, the credit union shall refund to the customer any unearned fees paid for the contract unless the contract provides otherwise. A credit union may offer a customer a contract that does not provide for a refund only if the credit union also offers that customer a bona fide option to purchase a comparable contract that provides for a refund.

DFI-CU 74.05(2) (2) Method of calculating refund. The credit union shall calculate the amount of a refund using a method at least as favorable to the customer as the actuarial method.

DFI-CU 74.05 History History: CR 05-046: cr. Register January 2006 No. 601, eff. 2-1-06.

DFI-CU 74.06 DFI-CU 74.06 Method of payment of fees. Except as provided in s. DFI-CU 74.04 (3) (b), a credit union may offer a customer the option of paying the fee for a contract in a single payment, provided the credit union also offers the customer a bona fide option of paying the fee for that contract in monthly or other periodic payments. If the credit union offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the credit union shall also disclose to the customer, in accordance with s. DFI-CU 74.07, whether and, if so, the time period during which the customer may cancel the agreement and receive a refund.

DFI-CU 74.06 History History: CR 05-046: cr. Register January 2006 No. 601, eff. 2-1-06.

DFI-CU 74.07 DFI-CU 74.07 Disclosures.

DFI-CU 74.07(1) (1) Content of short form disclosures. The short form of disclosures required by this section shall include information relating to any of the following that is appropriate to the product offered:

DFI-CU 74.07(1)(a) (a) That the product is optional.

DFI-CU 74.07(1)(b) (b) Lump sum payment of fee.

DFI-CU 74.07(1)(c) (c) Lump sum payment of fee with no refund.

DFI-CU 74.07(1)(d) (d) Refund of fee paid in lump sum.

DFI-CU 74.07(1)(e) (e) Any additional disclosures.

DFI-CU 74.07(1)(f) (f) Eligibility requirements, conditions and exclusions.

DFI-CU 74.07(2) (2) Content of long for disclosures. The long form of disclosures required by this section shall include information relating to any of the following that is appropriate to the product offered:

DFI-CU 74.07(2)(a) (a) That the product is optional.

DFI-CU 74.07(2)(b) (b) An explanation of debt suspension agreement.

DFI-CU 74.07(2)(c) (c) The amount of fee.

DFI-CU 74.07(2)(d) (d) Lump sum payment of fee.

DFI-CU 74.07(2)(e) (e) Lump sum payment of fee with no refund.

DFI-CU 74.07(2)(f) (f) Refund of fee paid in lump sum.

DFI-CU 74.07(2)(g) (g) Use of card or credit line restricted.

DFI-CU 74.07(2)(h) (h) Termination of product.

DFI-CU 74.07(2)(i) (i) Eligibility requirements, conditions and exclusions.

DFI-CU 74.07 Note Note: Copies of the short and long form, and instructions for using them may be obtained by writing to the Office of Credit Unions, P.O. Box 14137, Madison, WI 53708-0317 or by downloading it from the Department of Financial Institutions’ website, www.wdfi.org.

DFI-CU 74.07(3) (3) Disclosure requirement, and timing and method of disclosures.

DFI-CU 74.07(3)(a) (a) Short form disclosures. The credit union shall make the short form disclosures orally at the time the credit union first solicits the purchase of a contract.

DFI-CU 74.07(3)(b) (b) Long form disclosures. The credit union shall make the long form disclosures in writing before the customer completes the purchase of the contract. If the initial solicitation occurs in person, the credit union shall provide the long form disclosures in writing at that time.