Supporting Statement
Debt Cancellation Contracts and Debt Suspension Agreements
12 CFR 37
OMB Control No. 1557-0224
A. Justification.
1. Circumstances that make the collection necessary:
12 U.S.C. 24(Seventh) authorizes national banks to enter into Debt Cancellation Contract (DCCs) or Debt Suspension Agreement (DSAs). Part 37 requires national banks and Federal branches and agencies (banks) to disclose information about a DCC or DSA using either a short or long form disclosure. The short form disclosure usually is made orally and issued at the time the bank firsts solicits the purchase of a contract. The long form disclosure usually is made in writing and issued before the customer completes the purchase of the contract. There are special rules for transactions by telephone, solicitations using written mail inserts or “take one” applications, and electronic transactions. Part 37 provides two forms of disclosure that serve as models for satisfying the requirements of the rule. Use of the forms is not mandatory, however, and a bank may adjust the form and wording of its disclosures so long as it meets the requirements of the regulation.
The requirements of part 37 enhance consumer protections for customers who buy DCCs and DSAs from national banks and ensure that national banks offer these products in a safe and sound manner by requiring them to effectively manage their risk exposure.
2. Use of the information:
Section 37.6
Section 37.6 requires the form of the disclosures to be readily understandable and meaningful. The content of the short and long form may vary, depending on whether a bank elects to provide a summary of the conditions and exclusions in the long form disclosures or refer the customer to the pertinent paragraphs in the contract. For example, the short form disclosure requires a bank to instruct the customer to read carefully both the long form disclosures and the contract for a full explanation of the contract, while the long form gives a bank the option of either separately summarizing the limitations or advising the customer that a complete explanation of the eligibility requirements, conditions, and exclusions is available in the contract and identifying the paragraphs where a customer may find that information.
Section 37.6 and Appendices A and B to part 37 require a bank to provide the following disclosures (summarized below), as appropriate:
Optional (anti-tying)—A bank must inform the customer that purchase of the product is optional and neither its decision whether to approve the loan nor the terms and conditions of the loan are conditioned on the purchase of a DCC or DSA (short and long form).
Explanation of debt suspension agreement—A bank must disclose that if a customer activates the agreement, the customer's duty to pay the loan principal and interest is only suspended and the customer must fully repay the loan after the period of suspension has expired (long form).
Amount of the fee—A bank must make disclosures regarding the amount of the fee. The content of the disclosure differs depending on whether the credit is open-end or closed-end. In the case of closed-end credit, the bank must disclose the total fee. In the case of open-end credit, the bank must either disclose that the periodic fee is based on the account balance multiplied by a unit cost and provide the unit cost or disclose the formula used to compute the fee (long form).
Lump sum payment of fee—A bank must disclose, where appropriate, that a customer has the option to pay the fee in a single payment or in periodic payments. This disclosure is not appropriate in the case of a DCC or DSA provided in connection with a home mortgage loan because the option to pay the fee in a single payment is not available in that case. Banks must also disclose that adding the fee to the amount borrowed will increase the cost of the contract (short and long form).
Lump sum payment of fee with no refund—A bank must disclose that the customer has the option to choose a contract with or without a refund provision. This disclosure also states that prices of refund and no-refund products are likely to differ (short and long form).
Refund of fee paid in lump sum—If a bank permits a customer to pay the fee in a single payment and to add the fee to the amount borrowed, the bank must disclose the bank's cancellation policy. The disclosure informs the customer of the bank’s refund policy, as applicable, i.e., that the DCC or DSA: (i) may be canceled at any time for a refund; (ii) may be cancelled within a specified number of days for a full refund; or (iii) may be cancelled at any time with no refund (short and long form).
Whether use of credit line is restricted—A bank must inform a customer if the customer's activation of the contract would prohibit the customer from incurring additional charges or using the credit line (long form).
Termination of a DCC or DSA— If termination is permitted during the life of the loan, a bank must explain the circumstances under which a customer or the bank may terminate the contract (long form).
Additional disclosures—A bank must inform consumers that it will provide additional information before the customer is required to pay for the product (short form).
Eligibility requirements, conditions, and exclusions—A bank must describe any material limitations relating to the DCC or DSA (short and long form).
Section 37.7
Section 37.7 requires a bank to obtain a customer's written
affirmative election to purchase a contract and written
acknowledgment of receipt of the disclosures required by § 37.6.
The section further provides that the election and acknowledgment
must be conspicuous, simple, direct, readily understandable, and
designed to call attention to their significance. Pursuant to §
37.7(b), if the sale of the contract occurs by telephone, the
customer’s affirmative election to purchase and acknowledgment
of receipt of the required short form may be made orally, provided
the bank: (i) maintains sufficient
documentation to show that the customer received the short form
disclosures and then affirmatively elected to purchase the contract;
(ii) mails the affirmative written election and written
acknowledgment, together with the long form disclosures required by §
37.6, 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
(iii) permits the customer to cancel the purchase of the contract
without penalty within 30 days after the bank has mailed the long
form disclosures to the customer.
Pursuant to § 37.7(c), if the contract is solicited through written materials such as mail inserts or "take one" applications and the bank provides only the short form disclosures in the written materials, then the bank shall mail the acknowledgment, together with the long form disclosures, to the customer. The bank may not obligate the customer to pay for the contract until after the bank has received the customer's written acknowledgment of receipt of disclosures, unless the bank takes certain steps, maintains certain documentation, and permits the customer to cancel the purchase within 30 days after mailing the long form disclosures to the customer. Section 37.6(d) permits the affirmative election and acknowledgment to be made electronically.
3. Consideration of the use of improved information technology:
All banks have the option of making the disclosures electronically, but may only do so if the customer consents and the disclosure is made in a manner consistent with the requirements of the E-Sign Act.
4. Efforts to identify duplication:
The collections are unique and cover the specific contracts or agreements between the bank and its customer.
5. Methods used to minimize burden if the collection has a significant impact on substantial number of small entities:
This information collection does not have a significant impact on a substantial number of small entities.
6. Consequences to the Federal program or policy activities if the collection is not conducted or is conducted less frequently:
The purposes of the disclosures are to enhance consumer protections for customers who buy DCCs or DSAs from banks and ensure that banks providing DCCs or DSAs do so on a safe and sound basis. If the disclosures are not made before customers purchase DCCs or DSAs, customers will not benefit from the enhanced protections the rule provides. Furthermore, absent the safety and soundness provision of the rule, banks that offer DCCs and DSAs may be less likely to do so in a safe and sound manner.
7. Special circumstances necessitating collection inconsistent with 5 CFR Part 1320:
Not applicable. This information collection is conducted in accordance with OMB's guidelines in 12 CFR Part 1320.
8. Efforts to consult with persons outside the agency:
On October 20, 2014, the OCC published a 60-day notice in the Federal Register (79 FR 62710). No comments were received.
9. Payment to respondents:
There is no payment to respondents.
10. Any assurance of confidentiality:
No assurance of confidentiality is given.
11. Justification for questions of a sensitive nature:
Not applicable. No sensitive or personally identifiable information is collected.
12. Burden estimate:
1,219 respondents @ 1 response = 1,219 responses
1,219 responses @ 24 burden hours = 29,256 burden hours
The OCC estimates the cost of the hour burden to respondents as follows:
29,256 x $92 = $ 2,691,552
To estimate compensation costs associated with the collection, we used $92 per hour, which is based on May 2012 Bureau of Labor Statistics wage data for the average of the 90th percentile for seven occupations (i.e., accountants and auditors, compliance officers, financial analysts, lawyers, management occupations, software developers, and statisticians) plus an additional 33 percent to cover adjustments and private sector benefits. According to Bureau of Labor Statistics employer costs of employee benefits data, thirty percent represents the average private sector costs of employee benefits.
13. Estimate of annualized costs to respondents:
Banks should be able to use readily available equipment to comply with the information collection requirements.
14. Estimate of annualized costs to the government:
Not applicable.
15. Changes in burden:
Former burden: 1,650 respondents @ 1 response = 1,650 responses
1,650 responses @ 24 burden hours = 39,600 burden hours
New burden: 1,219 respondents @ 1 response = 1,219 responses
1,219 responses @ 24 burden hours = 29,256 burden hours
Difference: - 431 respondents; - 431 responses; - 10,344 burden hours
The decrease in burden is due to the decrease in the number of national banks.
16. Information regarding collections whose results are planned to be published for statistical use:
The results of these collections will not be published for statistical use.
17. Approval to not display expiration date of OMB approval:
Not applicable.
18. Exceptions to certification statement:
None.
B. Collections of Information Employing Statistical Methods.
Not applicable.
| File Type | application/msword |
| Author | Administrator |
| Last Modified By | mary.gottlieb |
| File Modified | 2014-11-07 |
| File Created | 2014-10-14 |