Currently, financial institutions may offer debt cancellation products pursuant to an Order of General Application that was issued by the Office of Financial Regulation on February 1, 2006. During the 2008 regular session, the Florida Legislature ...

DEPARTMENT OF FINANCIAL SERVICES
FSC - Financial Institution Regulation

RULE NO: RULE TITLE
69U-100.100: Authority, Purpose, and Scope
69U-100.101: Definitions Concerning Debt Cancellation Products
69U-100.102: Prohibited Practices
69U-100.103: Refunds
69U-100.104: Method of Payment or Fees
69U-100.105: Disclosures
69U-100.106: Affirmative Election to Purchase and Acknowledgement of Receipt of Disclosures Required
PURPOSE AND EFFECT: Currently, financial institutions may offer debt cancellation products pursuant to an Order of General Application that was issued by the Office of Financial Regulation on February 1, 2006. During the 2008 regular session, the Florida Legislature passed HB 343, which, among other things, codifies this authority in statute. HB 343 was signed into law (Chapter 2008-75, Laws of Florida) on May 28, 2008, and will take effect on October 1, 2008. The new law provides authority for financial institutions to offer debt cancellation products, and charge fees for such products, in connection with the loans, leases, and similar extensions of credit made by the financial institutions pursuant to Sections 655.947 and 655.954, F.S. The proposed rules implement the new law by setting forth standards that will apply to debt cancellation products offered by financial institutions. The purpose of these standards is to ensure that financial institutions offer debt cancellation products consistent with safe and sound financial institution practices, and subject to appropriate consumer protection. The proposed rules apply to all contracts and agreements for debt cancellation products entered into by financial institutions in connection with extensions of credit they make, purchase, or assume. The proposed rules are based on and consistent with federal regulations set forth in 12 C.F.R. Part 37 (2008).
SUMMARY: Chapter 2008-75, Laws of Florida, provides authority for financial institutions to offer debt cancellation products, and charge fees for such products, in connection with the loans, leases, and similar extensions of credit made by the financial institutions pursuant to Sections 655.947 and 655.954, F.S. The proposed rules implement the new law by setting forth standards that will apply to debt cancellation products offered by financial institutions.
SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS: No Statement of Estimated Regulatory Cost was prepared.
Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.
SPECIFIC AUTHORITY: 655.012(2), 655.947(3) FS.
LAW IMPLEMENTED: 655.947, 655.954 FS.
IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE SCHEDULED AND ANNOUNCED IN FAW.
THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Bruce Kuhse, Chief Counsel, Division of Financial Institutions, Office of Financial Regulation, The Fletcher Building, 200 East Gaines Street, Tallahassee, Florida 32399, [phone], [e-mail]

THE FULL TEXT OF THE PROPOSED RULE IS:

69U-100.100 Authority, Purpose, and Scope.

(1) Financial institutions may offer debt cancellation products, and charge fees for such products, in connection with the loans, leases, and similar extensions of credit made by the financial institutions, pursuant to Sections 655.947 and 655.954, F.S., and the rules and orders of the Commission and the Office.

(2) Rules 69U-100.100 – 69U-100.106, F.A.C., set forth the standards that apply to debt cancellation products offered by financial institutions. The purpose of these standards is to ensure that financial institutions offer debt cancellation products consistent with safe and sound financial institution practices, and subject to appropriate consumer protection.

(3) Rules 69U-100.100 – 69U-100.106, F.A.C., apply to all contracts and agreements for debt cancellation products entered into by financial institutions in connection with extensions of credit they make, purchase, or assume.

Specific Authority 655.012(2), 655.947(3) FS. Law Implemented 655.947, 655.954 FS. History–New________.

 

69U-100.101 Definitions Concerning Debt Cancellation Products.

For the purposes of Rules 69U-100.100 – 69U-100.106, F.A.C., the following definitions apply:

(1) “Actuarial method” means the system 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.

(2) “Closed-end credit” means consumer credit other than open-end credit as defined in these rules.

(3) “Customer” means an individual who obtains an extension of credit from a financial institution primarily for personal, family, or household purposes.

(4) “Debt cancellation products” shall have same meaning as defined in Section 655.005(1), F.S.

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

(6) “Financial institution” shall have the same meaning as defined in Section 655.947, F.S.

(7) “Open-end credit” means consumer credit extended by a financial institution under a plan in which:

(a) The financial institution reasonably contemplates repeated transactions;

(b) The financial institution may impose a finance charge from time to time on an outstanding unpaid balance; and

(c) The amount of the credit that may be extended to the customer during the term of the plan (up to any limit set by the financial institution) is generally made available to the extent that any outstanding balance is repaid.

(8) “Residential mortgage loan” means a loan secured by 1-to-4 family residential real property.

Specific Authority 655.012(2), 655.947(3) FS. Law Implemented 655.947, 655.954 FS. History–New________.

 

69U-100.102 Prohibited Practices.

(1) A financial 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 product with the financial institution.

(2) A financial institution may not engage in any practice or use an advertisement that could mislead or otherwise cause a reasonable person to reach an erroneous belief with respect to information that must be disclosed under Rules 69U-100.101 – 69U-100.106, F.A.C.

(3) A financial institution may not offer debt cancellation products that contain terms:

(a) Giving the financial institution the right unilaterally to modify the debt cancellation product unless:

1. The modification is more favorable to the customer and made without additional charge to the customer; or

2. The customer is notified of any proposed change and is provided a reasonable opportunity to cancel the debt cancellation product without penalty before the change goes into effect: or

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

Specific Authority 655.012(2), 655.947(3) FS. Law Implemented 655.947, 655.954 FS. History–New________.

 

69U-100.103 Refunds.

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

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

Specific Authority 655.012(2), 655.947(3) FS. Law Implemented 655.947, 655.954 FS. History–New________.

 

69U-100.104 Method of Payment or Fees.

Except as provided in paragraph 69U-100.102(3)(b), F.A.C., a financial institution may offer a customer the option of paying the fee for a debt cancellation product in a single fee, provided the financial institution also offers the customer a bona fide option of paying the fee for that debt cancellation product in monthly or other periodic payments. The option of monthly or periodic payments need not be offered for any debt cancellation product designed to protect a customer against a deficiency between the outstanding loan or lease amount and the value of the motor vehicle that is used as collateral for the loan. If the financial institution offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the financial institution must also disclose to the customer, in accordance with Rule 69U-100.105, F.A.C., whether and, if so, the time period during which, the customer may cancel the agreement and receive a refund.

Specific Authority 655.012(2), 655.947(3) FS. Law Implemented 655.947, 655.954 FS. History–New________.

 

69U-100.105 Disclosures.

(1) The short form of disclosures required by these rules must include the information described in Form OFR-U-XX, “Debt Cancellation Products – Short Form Disclosures”, effective XX-XX-2008, which is hereby incorporated by reference, that is appropriate to the product offered. Short form disclosures made in a form that is substantially similar to the disclosures in Form OFR-U-XX will satisfy the short form disclosure requirements of this rule.

(2) The long form of disclosures required by these rules must include the information described in Form OFR-U-YY, “Debt Cancellation Products – Long Form Disclosures”, effective XX-XX-2008, which is hereby incorporated by reference, that is appropriate to the product offered. Long form disclosures made in a form that is substantially similar to the disclosures in Form OFR-U-YY, “Debt Cancellation Products – Long Form Disclosures”,  will satisfy the long form disclosure requirements of this rule.

(3) The financial institution shall make the short form disclosures orally or in writing at the time the financial institution first solicits the purchase of a debt cancellation product.

(4) The financial institution shall make the long form disclosures in writing before the customer completes the purchase of the debt cancellation product. If the initial solicitation occurs in person, then the financial institution shall provide the long form disclosures at that time.

(5) If the debt cancellation product is solicited by telephone, the financial institution shall provide the short form disclosures orally and shall mail the long form disclosures, and, if appropriate, a copy of the debt cancellation product contract or agreement to the customer within 3 business days, beginning on the first business day after the telephone solicitation.

(6) If the debt cancellation product is solicited through written materials such as mail inserts or “take one” applications, the financial institution may provide only the short form disclosures in the written materials if the financial institution mails the long form disclosures to the customer within 3 business days, beginning on the first business day after the customer contacts the financial institution to respond to the solicitation, subject to the requirements of subsection 69U-100.106(3), F.A.C.

(7) The disclosures provided in this rule 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., which is hereby incorporated by reference, and Ch. 668, F.S.

(8) The disclosures required by this rule must be conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided.

(9) The disclosures required by this rule must be in a meaningful form. Examples of methods that could call attention to the nature and significance of the information provided include:

(a) A plain-language heading to call attention to the disclosures;

(b) A typeface and type size that are easy to read;

(c) Wide margins and ample line spacing;

(d) Boldface of italics for key words; and

(e) Distinctive type style, and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.

(10) The short form disclosures are required in advertisements and promotional materials for debt cancellation products unless the advertisements and promotional materials are of a general nature describing or listing the services or products offered by the financial institution.

(11) All forms and federal statutes referenced in this rule may be obtained from the Office of Financial Regulation’s website (www.flofr.com), or by mail by submitting a request to the Office of Financial Regulation, Division of Financial Institutions, 200 East Gaines Street, Tallahassee, Florida 32399-0371.

Specific Authority 655.012(2), 655.947(3) FS. Law Implemented 655.947, 655.954 FS. History–New________.

 

69U-100.106 Affirmative Election to Purchase and Acknowledgment of Receipt of Disclosures Required.

(1) Before entering into a debt cancellation product, the financial institution must obtain a customer’s written affirmative election to purchase a debt cancellation product and written acknowledgment of receipt of the disclosures required by subsection 69U-100.105(2), F.A.C. 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 of subsection 69U-100.105(2), F.A.C.

(2) If the sale of a debt cancellation product occurs by telephone, the customer’s affirmative election to purchase may be made orally, provided the financial institution:

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

(b) Mails the affirmative written election and written acknowledgment, together with the long form disclosures required Rule 69U-100.105, F.A.C., 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 debt cancellation product without penalty within 30 days after the financial institution has mailed the long form disclosures to the customer.

(3) If the contract is solicited through written mail inserts or “take one” applications and the financial institution provides only the short form disclosures in the written materials, then the financial institution shall mail acknowledgment of the receipt of disclosures, together with the long form disclosures required by Rule 69U-100.105, F.A.C., to the customer within 3 business days, beginning on the first business day after customer contacts the financial institution or otherwise responds to the solicitation. The financial institution may not obligate the customer to pay for the debt cancellation product until after the financial institution has received the customer’s written acknowledgment of receipt of disclosures unless the financial institution:

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

(b) Maintains sufficient documentation to show that the financial 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 debt cancellation product without penalty within 30 days after the financial institution has mailed the long form disclosures to the customer.

(4) 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., which is incoporated by reference in Rule 69U-100.105, F.A.C., and Ch. 668, F.S.

Specific Authority 655.012(2), 655.947(3) FS. Law Implemented 655.947, 655.954 FS. History–New________.

NAME OF PERSON ORIGINATING PROPOSED RULE: Bruce Kuhse, Chief Counsel, Division of Financial Institutions, Office of Financial Regulation, The Fletcher Building, 200 East Gaines Street, Tallahassee, Florida 32399, [phone], [e-mail]
NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Financial Services Commission
DATE PROPOSED RULE APPROVED BY AGENCY HEAD: August 12, 2008
DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAW: June 20, 2008