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The Vermont Statutes Online
Title
08
:
Banking and Insurance
Chapter
200
:
CONSUMER PROTECTION
Subchapter
004
:
LENDING REPORTS, DISCLOSURES, AND STANDARDS
§
10405. Debt protection agreements
(a) Debt
protection agreements that meet the requirements of this section, including
requirements related to necessary disclosures, prohibited activities, and to
the sale, transfer, and assignment of such agreements are not insurance as
defined by section 3301a of this title and are not governed by the insurance
laws of the State of Vermont.
(b) As used in
this section:
(1) "Debt
protection agreement" means a loan term or contractual arrangement that
may be part of, or separate from, the loan agreement or retail or motor vehicle
installment contract that modifies the loan or retail or motor vehicle
installment contract terms governing the extension of credit under the loan
agreement, or retail or motor vehicle installment contract, and under which the
creditor agrees to provide one or more of the following protections:
(A) debt
cancellation, which is an agreement to cancel all or part of a borrower's
obligation to repay an extension of credit from that creditor upon the
occurrence of a specified event and shall include a guaranteed asset protection
waiver agreement wherein the creditor agrees to cancel all or part of a
borrower's obligation to repay an extension of credit to the extent that there
is an outstanding balance on the loan or retail or motor vehicle installment
contract after application of property insurance proceeds in the event of total
physical damage or theft of the property; or
(B) debt
suspension, which is an agreement to suspend all or part of a borrower's
obligation upon the occurrence of a specified event.
(2) The term
"creditor" shall include:
(A) the lender
in a credit transaction;
(B) any
"retail seller" or "seller" of "motor vehicles"
or of other "goods" and "services" that provides credit to
"retail buyers" or "buyers" of such motor vehicles or goods
and services as those terms are all defined in 9 V.S.A. §§ 2351 and 2401,
respectively; provided that such entities comply with the provisions of this
section, including the provisions of subdivisions (c)(1) and (2) of this
section; and
(C) the
assignees of any of the foregoing to whom the credit obligation is payable.
(3) The term
"borrower" shall include a debtor, retail buyer of a motor vehicle or
other good or service, or other person who obtains an extension of credit from
a creditor.
(4) The term
"actuarial method" shall mean 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.
(c)(1)
Requirements: In the case of credit granted by a seller or retail seller of
motor vehicles or of other goods and services that is not required to be
licensed under chapter 73 of this title, such retail seller or seller of motor
vehicles or of other goods and services shall, within 15 business days sell,
assign, or otherwise transfer the loan agreement, motor vehicle installment
contract, or retail sales installment contract, together with the related debt
protection agreement in accordance with the provisions of subdivision (2) of
this subsection.
(2) All
assignments, sales, or transfers of a loan agreement or motor vehicle or retail
installment contract to which a debt protection agreement relates and the
related debt protection agreement, shall be to a financial institution as
defined in subdivision 11101(32) of this title, a credit union or an entity
licensed under subdivision 2201(a)(1) or (3) of this title to engage in lending
or sales financing.
(3) In the event
that a retail seller or seller of motor vehicles or of other goods or services
cannot within 15 business days sell, assign, or otherwise transfer the loan
agreement or motor vehicle or retail sales installment contract and the related
debt protection agreement as required by subdivision (1) of this subsection, or
in the event that an assignment is made contrary to subdivision (2) of this
subsection, the provisions of subsection (a) of this section shall not apply
and the product shall be considered to be insurance governed by the insurance
laws of the State of Vermont.
(4) The debt
protection agreement forms a part of the loan agreement or sales contract and
must be assigned, sold, or transferred together with any assignment, sale, or
transfer of the loan agreement or retail or motor vehicle installment contract
to which it was originally related.
(5) A creditor
shall disclose in writing, such disclosures shall be conspicuous, readily
understandable, and designed to call attention to the nature and significance
of the information provided:
(A) that neither
the extension of credit, the terms of the credit, nor the terms of the related
sale in the case of a motor vehicle or other good or service are to be
conditioned upon the purchase of a debt protection agreement;
(B) the charge
for the debt protection agreement; and
(C) the terms
and conditions of coverage, including the eligibility requirements for
coverage, conditions, or exclusions associated with the contract, a clear
representation of the parties to the agreement, procedures for making a claim
under the agreement, and the length of term of coverage.
(6) The buyer
signs or initials an affirmative written request to purchase a debt protection
agreement after receiving the disclosures specified in this subsection. Any
buyer in the transaction may sign or initial the request.
(7) Neither the
extension of credit, the terms of the credit, nor the terms of the related sale
in the case of a motor vehicle or other good or service are to be conditioned
upon the purchase of a debt protection agreement.
(8) The fees
charged for debt protection agreements shall not vary as between individual
borrowers except in relation to the amount and maturity date of the underlying
loan or extension of credit.
(9) Creditors
may not offer debt protection agreements where the products contain terms that
allow the creditor to modify unilaterally the contract, unless the modification
is favorable to the borrower and is made without additional charge to the
borrower, or the borrower is notified of the proposed change and can cancel the
debt protection agreement without penalty.
(10) Creditors
cannot offer debt protection agreements where the terms require a lump sum,
single payment, for the contract payable at the outset and the product is for a
residential mortgage loan, including primary or secondary residences and
including first or subordinate liens. Periodic payments made in relation to a
residential home loan must be evenly distributed over the same term as the term
of the residential home loan.
(11) The
borrower may cancel the debt protection agreement at any time and for any
reason. In the event of termination or cancellation of the contract, the
creditor must refund any unearned fee according to a formula fully disclosed to
the borrower at the time of entering into the debt protection agreement, unless
the contract provides otherwise. A debt protection agreement that does not
provide for a refund may only be offered if an offer is also made of a bona
fide option to purchase a comparable contract that provides for a refund. The
refund must be fair and reasonable, and the method of calculating the refund
must be at least as favorable to the borrower as the "actuarial
method"; provided, however, that if such method produces a result of less
than $5.00, no refund shall be required. Notwithstanding the foregoing, if
cancellation by the borrower occurs within 30 days of entering into the debt
protection agreement, the borrower shall receive a full refund.
(12) The
creditor must manage the risks associated with debt protection agreements in
accordance with safe and sound financial principles. The creditor must
establish and maintain effective risk management and control processes over its
debt protection agreements. Such processes include appropriate recognition and
financial reporting of income, expenses, assets, and liabilities, and
appropriate treatment of all expected and unexpected losses associated with the
products. The creditor also should assess the adequacy of its internal control
and risk mitigation activities in view of the nature and scope of its debt
protection agreement programs.
(13) Debt
protection agreements, as defined in this section, shall not state that the
borrower does not have a right to bring an action to enforce the terms of the
debt protection agreement or otherwise challenge the denial of a claim, or that
any civil action brought in connection with a debt protection agreement must be
brought in the courts of a jurisdiction other than Vermont.
(14) Any other
requirements prescribed by the Commissioner, in order to further the purposes
of this section, by rules adopted pursuant to this section.
(d) The
Commissioner may conduct an examination of any creditor, as defined under this
section, for the purpose of determining compliance with this section and may
make such investigation, as the Commissioner deems necessary. To the extent
necessary for such examination or investigation, the Commissioner may, without
limiting the foregoing, compel the production of all relevant books, records,
documents, other evidence, or the attendance of witnesses, and may issue
subpoenas with respect to the foregoing. The expense of any such investigation
or examination shall be paid by the entity being examined or investigated.
Nothing contained herein shall limit any other examination or investigation
authority of the Commissioner contained in Title 9 or this title.
(e) The
Commissioner may take any action reasonable, necessary, or desirable for the
enforcement of this section, or any rule adopted pursuant to this section, or
the enforcement of any order issued under this subsection and may:
(1) Order the
creditor to cease and desist from offering debt protection agreements.
(2) Revoke or
suspend the license or authority under this title of any person including
creditors offering debt protection agreements.
(3) Impose a
penalty of not more than $1,000.00 for each violation that the Commissioner finds
to exist.
(4) Order the
creditor to make restitution to the borrower.
(f) The powers
vested in the Commissioner under this section are in addition to any other
powers of the Commissioner to enforce penalties, fines, or forfeitures
authorized by law with respect to a violation of any other law under Title 9 or
this title. (Added 2005, No. 70, § 4.)
