Ga. Comp. R. & Regs. R. 80-1-2-.09 - Debt Cancellation Contracts and Debt Suspension Agreements

(1) State chartered banks may offer Debt Cancellation Contracts and Debt Suspension Agreements to customers, subject to this rule and policies and procedures of the Department. Policies of the Department include requirements for disclosures and certain prohibited practices. Banks are expected to comply with all these requirements. Such products will not be considered insurance products in this state when offered by banks.

(2) Definitions and Explanation:

(a) A "Debt Cancellation Contract" (DCC) is a contractual agreement modifying loan terms that is linked to a bank's extension of credit, under which the bank agrees to cancel all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event.

(b) A "Debt Suspension Agreement" (DSA) is a contractual agreement that modifies loan terms and that is linked to an extension of credit, wherein the bank agrees to suspend all or part of a customer's obligation to repay an extension of credit upon the occurrence of some specified event.

(c) Typically these products are tied to the life, injury or disability of the borrower, although some products are based on the occurrence of some other specified event, such as termination of employment.

(d) Fees are assessed to the borrower for the ability to cancel or suspend loan payments on the loan, in accordance with the terms of the agreement.

(e) To "underwrite" in the context of this rule means to directly provide for any losses resulting from the operation of the product.

(3) State chartered banks desiring to offer DCC or DSA products where the bank is not underwriting the product shall provide a letter form notification to the Department. The bank must keep on file the following information, which must be obtained before execution of a contract:

(a) A listing of the types of contracts offered and the underwriting standards for each product;

(b) A copy of the written policies and procedures developed regarding administration of debt cancellation or debt suspension products and their compliance with Department policies;

(c) Identification of any vendor or third party service provider used in conjunction with the product offerings, including a list of the products and services being provided (see also Rule 80-1-2-.06 for contracting with third parties);

(d) A copy of the bank's plan demonstrating the ability to administer claims;

(e) An analysis of the bank's risk evaluation and mitigation procedures, including any plans to obtain insurance coverage to fully or partially indemnify itself for losses resulting from the operation of the DCC or DSA product; and

(f) An analysis of the expected impact on bank staffing.

(4) If a bank intends to underwrite any part of the DCC or DSA, the following information must also be submitted to the Department in the form of a letter application. No underwriting will be permitted until such approval is granted.

(a) Analysis of management expertise, based on education and experience, in the areas of product design, underwriting, actuarial analysis, claims processing and risk reserving and accounting practices to support the ability to provide these functions in-house.

(b) An explanation of the risk management techniques the bank will undertake, including product design criteria, underwriting procedures, limitations and conditions on DCC or DSA products, and other risk mitigation procedures in order to limit risk exposure to the bank.

(c) A well-documented analysis of risk of the products being proposed, including the risks posed by catastrophic events that could result in unusually high claims upon the bank.

(d) An outline of the proposed practices for properly reserving for risks related to these products based on industry practices and Generally Accepted Accounting Principles.

(e) An analysis of the bank to support that the bank has the proper financial position, cash flow performance and capital position to sustain continued operations in the event of an unusually high claims event.

(5) State chartered banks desiring to offer DCC or DSA products where third party service providers will underwrite the products or will administer any part of the program shall provide the letter form notification described in this rule. In addition to any requirements of Rule Chapter 80-1-2 governing service providers, the following information shall also be obtained by the bank before any contract is executed, and such information will be kept on file at the bank:

(a) A description of the experience of the third party service provider in offering such DCC or DSA products;

(b) An analysis of the financial stability of the third party service provider, including but not limited to: operating or cash flow statements, analysis of capital and reserves and the use of external company ratings performed by a nationally recognized rating service;

(c) In lieu of (a) and (b) of this paragraph, the bank may provide proof of the third party's appropriate licensure with the state of Georgia Department of Insurance.

(d) A copy of the standard form contract to be utilized. The contract must contain the third party service provider's assurance that:

1. It will make its books and records available for examination by the Department; and

2. The Department shall have the authority to periodically review the internal routine and controls of the service provider to ascertain that the operations are being conducted in a sound manner in keeping with industry practices and Generally Accepted Accounting Principles.

(e) A schedule of fees to be charged for each product or service performed; and

(f) A listing of reports, printouts, schedules or program that will be provided by the third party service provider to the bank to permit management, auditors, examiners and other interested parties to monitor the services provided.

Notes

Ga. Comp. R. & Regs. R. 80-1-2-.09

O.C.G.A. § 7-1-61.

Original Rule entitled "Debt Cancellation Contracts and Debt Suspension Agreements" adopted. F. July 28, 2003; eff. August 17, 2003. Amended: F. July 7, 2022; eff. July 27, 2022.