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TDI: Regulatory Position Regarding Debt Cancellation/Suspension Agreements

The position of the Texas Department of Insurance with regard to debt cancellation agreements is as follows:

The Gramm-Leach-Bliley Act properly classified these products as insurance. [1] Banks may sell these products as principal [2] and the states have the express authority to regulate them subject to the preemption standards set forth in Section 104 of the Act. Texas Law does not currently accommodate the licensing of national or state banks to underwrite these products as principal. In this regard, please note that SB 1568 which would have authorized the Department to issue underwriting charters to state and national banks and other financial entities did not win legislative approval during the 77th session of the Texas Legislature. Until legislation similar to SB 1568 is enacted, the Department will not seek to regulate the underwriting, selling or claims processing of these products by national and state banks.

Based upon the parity provisions of Section 93.008, Finance Code, the Texas Savings and Loan Department is of the opinion that state chartered savings banks may enter into DCCs and or DCAs to the same extent as a national bank. [3] As with a national bank, Texas Law does not accommodate the licensing of state chartered savings banks to underwrite these products as principal. Until legislation is enacted that authorizes the Department to issue underwriting charters to state chartered savings banks, the Department, based upon the Texas Savings and Loan Department's interpretation of the parity provisions of Section 93.008, Finance Code, will not seek to regulate the underwriting, selling, or claims processing of these products by state chartered savings banks.

In addition, we acknowledge interpretive rulings issued by the Office of Thrift Supervision that found that federal savings associations have the authority to enter into debt cancellation contracts, as principal, in connection with the consumer loans they originate [4] and we will not challenge these rulings with respect to the power of federal savings associations to enter into these contracts under the Home Owners Loan Act. We do not believe, however, that the authority of the Department to regulate these products would in any way be preempted, should the legislature give us the authority to license federal savings associations as underwriters with respect to these products.

Federal and state credit unions do not enjoy the same legal standing as banks since there is no federal legislation parallel to GLBA that affirms regulatory opinions finding credit union underwriting authority under their organic statutes. However, we have in the past acknowledged interpretive rulings issued by the National Credit Union Administration [5] and the Texas Credit Union Commission (to the extent of GAP DCA's) [6] that found that credit unions have the legal authority to underwrite debt suspension or cancellation agreements as principal and we will not challenge these rulings with respect to the power of credit unions under their enabling statutes to underwrite these products. We do not believe, however, that the authority of the Department to regulate these products would in any way be preempted, should the legislature give us the authority to license credit unions as underwriters with respect to these products.

Senate Bill 1429 which was passed during the 78 th Legislative Session and signed by the governor permits Chapter 342 Finance Code Lenders "to offer to the borrower a debt suspension agreement or debt cancellation agreement under similar terms and conditions as such an agreement may be offered by a bank or savings association." These same lenders may also offer a gap waiver agreement "in connection with a loan . . . and that is secured by a motor vehicle." It should be noted that SB 1429 carves out a very narrow class of licensed lenders who can underwrite DCA's or gap waiver agreements. It should be noted in this regard that those who finance the sale of goods, such as an auto dealer under a retail installment contract, are not permitted to offer or underwrite these contracts. Nor are these contracts permitted to be offered unless the rate of interest on the money loaned is greater than 10% but less than 18%. [7]

Senate Bill 1966 which was passed during the 81 st Legislative Session and became effective September 1, 2009 amended Chapter 348 of the Finance Code to permit a retail seller to offer a retail buyer a debt cancellation agreement in connection with a motor vehicle retail installment contract under Chapter 348. SB 1966 defines a debt cancellation agreement to mean a retail installment contract term or a contractual arrangement modifying a retail installment contract term under which a retail seller or holder agrees to cancel all or part of an obligation of the retail buyer to repay an extension of credit from the retail seller or holder on the occurrence of the total loss or theft of the motor vehicle that is the subject of the retail installment contract. The term does not include an offer to pay a specified amount on the total loss or theft of the motor vehicle. The bill specifies that a debt cancellation agreement as defined in the bill is not considered an insurance product.

Therefore, we can only consider for approval a contractual liability policy for use with a debt cancellation, debt suspension or gap waiver agreements that meet the following limited use criteria.

1. National or State Banks.

2. State Chartered Savings Banks to the same extent as national banks pursuant to the Texas Savings and Loan Department's interpretation of the parity provisions of Section 93.008, Finance Code.

3. Federal Savings Associations under the interpretive rulings issued by the Office of Thrift Supervision in connection with consumer loans originated by Federal Savings Associations under the Home Owners Loan Act.

4. Federal or State Credit Unions, but only for activities permitted: (a) under 12CFR Part 721 (Federal Credit Union Incidental Powers Activities) and (b) under interpretive rulings of the Texas Credit Union Commission (to the extent of GAP DCAs).

5. Finance Code Chapter 342 lenders where the rate of interest in greater than 10% but less than 18%.

6. Finance Code Chapter 348 retail sellers in connection with a motor vehicle retail installment contract where coverage is limited to the occurrence of the total loss or theft of the motor vehicle that is the subject of the retail installment contract.



  1. TDI Op. Special Litigation Counsel (Goodman) (March 14, 2001)
  2. TDI Op. Special Litigation Counsel (Goodman) (March 14, 2001)
  3. TSLD Op. Commissioner (April 16, 2003)
  4. OTS Op. Chief Counsel (Dec. 18, 1995)
    OTS Op. Chief Counsel (Sept. 15, 1993)
  5. NCUA Op. Assoc. General Counsel (Sept. 12, 1997)
  6. TCUC Op. Regional Director (Ratzman) (June 18, 1999)
  7. These rates are subject to change. Please contact the Consumer Credit Commissioner of Texas for current permissible rates.

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Last updated: 09/29/2015

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