§10405. Debt protection agreements

Link to law: http://legislature.vermont.gov/statutes/section/08/200/10405
Published: 2015

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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.)
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