​​​​​​​​​​Debt Cancellation Contracts and Debt Suspension Agreements

​(1)  Authorization.  

The administrator of the Wisconsin Consumer Act authorizes a depository institution to enter into debt cancellation contracts and debt suspension agreements and charge a fee therefor, in connection with the extensions of credit that it makes.  For purposes of the Wisconsin Consumer Act such fees are permitted additional charges and are not finance charges.  Such contracts are not insurance.  This authorization does not cover credit sales or leases.

(2)  Definitions.  In this opinion:

(a)  "Actuarial method" means 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.

(b)  "Contract" means a debt cancellation contract or a debt suspension agreement.

(c)  "Debt cancellation contract" means a loan term or contractual arrangement modifying loan terms under which a depository institution agrees to cancel all or part of a customer's obligation to repay an extension of credit from that depository institution upon the occurrence of a specified event.  The agreement may be separate from or a part of other loan documents.

(d)  "Debt suspension agreement" means a loan term or contractual arrangement modifying loan terms under which a depository institution agrees to suspend all or part of a customer's obligation to repay an extension of credit from that depository institution upon the occurrence of a specified event.  The agreement may be separate from or a part of other loan documents.  "Debt suspension agreement" does not include loan payment deferral arrangements in which the triggering event is the borrower's unilateral election to defer repayment or the depository institution's unilateral decision to allow a deferral of repayment.

(e)  "Depository institution" means a bank as defined in Wis. Stat. s. 220.01(1), a savings bank as defined in Wis. Stat. s. 214.01(1)(t), an association as defined in Wis. Stat. s. 215.01(1)​, or a credit union as defined in Wis. Stat. s. 186.01(2).

(f)  "Residential mortgage loan" means a loan secured by 1-4 family, residential real property.

(3)  Prohibited Practices.

(a)  Anti-tying. A depository institution shall not extend credit or alter the terms or conditions of an extension of credit conditioned upon the customer entering into a debt cancellation contract or debt suspension agreement with the depository institution.

(b)  Misrepresentations generally.  A depository institution shall not engage in any practice or use any advertisement that is false, misleading, or deceptive, or which omits to state material information, or otherwise would cause a reasonable person to reach an erroneous belief with respect to information that may be disclosed under this opinion.

(c)  Prohibited contract terms.  A depository institution shall not offer debt cancellation contracts or debt suspension agreements that contain any of the following:

1.  Terms giving the depository institution the right unilaterally to modify the contract unless the modification is favorable to the customer and is made without additional charge to the customer, or the customer is notified of any proposed change and is provided a reasonable opportunity to cancel the contract without penalty before the change goes into effect.

2.  Terms requiring a lump sum, single payment for the contract payable at the outset of the contract, where the debt subject to the contract is a residential mortgage loan.

(4)  Refunds of fees in the event of termination or prepayment of the covered loan.

(a)  Refunds.  If a debt cancellation contract or debt suspension agreement is terminated, including when the customer prepays the covered loan, the depository institution shall refund to the customer any unearned fees paid for the contract unless the contract provides otherwise.  A depository institution may offer a customer a contract that does not provide for a refund only if the depository institution also offers that customer a bona fide option to purchase a comparable contract that provides for a refund.

(b)  Method of calculating refund.  The depository institution shall calculate the amount of a refund using a method at least as favorable to the customer as the actuarial method.

(5)  Method of payment of fees.

​Except as provided in section (3)(c)2., a depository institution may offer a customer the option of paying the fee for a contract in a single payment, provided the depository institution also offers the customer a bona fide option of paying the fee for that contract in monthly or other periodic payments.  If the depository institution offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the depository institution shall also disclose to the customer, in accordance with section (6), whether and, if so, the time period during ​​​​​​​​​​​​which, the customer may cancel the agreement and receive a refund.

(6)  Disclosures.

(a)  Content of short form of disclosures.  The short form of disclosures required by this opinion must include information described in appendix A to this opinion that is appropriate to the product offered.  Short form disclosures made in a form that is substantially similar to the disclosures in appendix A will satisfy the short form disclosure requirements of this opinion.  The disclosures required by this opinion shall include information relating to any of the following that is appropriate to the product offered:

1.  That the product is optional.

2.  Lump sum payment of fee.

3.  Lump sum payment of fee with no refund.

4.  Refund of fee paid in lump sum.

5.  Any additional disclosures.

6.  Eligibility requirements, conditions, and exclusions.

(b)  Content for long form disclosures.  The long form of disclosures required by this opinion must include information described in appendix B to this opinion that is appropriate to the product offered.  Long form disclosures made in a form that is substantially similar to the disclosures in appendix B​ will satisfy the long form disclosure requirements of this opinion.  The disclosures required by this opinion shall include information relating to any of the following that is appropriate to the product offered:

1.  That the product is optional.

2.  An explanation of debt suspension agreement.

3.  The amount of fee.

4.  Lump sum payment of fee.

5.  Lump sum payment of fee with no refund.

6.  Refund of fee paid in lump sum.

7.  Use of card or credit line restricted.

8.  Termination of product.

9.  Eligibility requirements, conditions, and exclusions.

(c)  Disclosure requirement, and timing and method of disclosures

1.  Short form disclosures.  The depository institution shall make the short form disclosures orally at the time the depository institution first solicits the purchase of a contract.

2.  Long form disclosures.  The depository institution shall make the long form disclosures in writing before the customer completes the purchase of the contract.  If the initial solicitation occurs in person, the depository institution shall provide the long form disclosures in writing at that time.

3.  Transactions by telephone.  If the contract is solicited by telephone, the depository institution shall provide the short form disclosures orally and shall mail the long form disclosures, and, if appropriate, a copy of the contract to the customer within 3 business days, beginning on the first business day after the telephone solicitation.

4.  Solicitations using written mail inserts or "take one" applications.  If the contract is solicited through written materials such as mail inserts or "take one" applications, the depository institution may provide only the short form disclosures in the written materials if the depository institution mails the long form disclosures to the customer within 3 business days, beginning on the first business day after the customer contacts the depository institution to respond to the solicitation, subject to the requirements of section (7)(c).

5.  Electronic transactions.  Disclosures described in this opinion provided through electronic media shall be in a manner consistent with the requirements of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001​ et seq.

(d)  Form of disclosures

1.  Understandable disclosures.  The disclosures required by this opinion shall be conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided.

2.  Meaningful disclosures.  The disclosures required by this opinion shall be in a meaningful form.  Examples of methods that could call attention to the nature and significance of the information provided include: a plain language heading to call attention to the disclosures; typeface and type size that are easy to read; wide margins and ample line spacing; boldface or italics for key words; and distinctive type style, and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.

(e)  Advertisements and other promotional material for debt cancellation contracts and debt suspension agreements.  The short form disclosures are required in advertisements and promotional material for contracts unless the advertisements and promotional materials are of a general nature describing or listing the services or products offered by the depository institution.

(7)  Affirmative election to purchase and acknowledgement of receipt of disclosures required.​

​(a)  Affirmative election and acknowledgement of receipt of disclosures.  Before entering into a contract the depository institution shall obtain a customer's written affirmative election to purchase a contract and written acknowledgement of receipt of the disclosures required by section (6)(b).  The election and acknowledgement information shall be conspicuous, simple, direct, readily understandable, and designed to call attention to their significance.  The election and acknowledgement satisfy these standards if they conform with the requirements in section (6)(d).

(b)  Telephone solicitations.  If the sale of a contract occurs by telephone, the customer's affirmative election to purchase may be made orally, provided the depository institution does all of the following:

1.  Maintains sufficient documentation to show that the customer received the short form disclosures and then affirmatively elected to purchase the contract.

2.  Mails the affirmative written election and written acknowledgement, together with the long form disclosures required by section (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.

3.  Permits the customer to cancel the purchase of the contract without penalty within 30 days after the depository institution has mailed the loan form disclosures to the customer.

(c)  Solicitations using written mail inserts or "take one" applications.  If the contract is solicited through written materials such as mail inserts or "take one" solicitations and the depository institution provides only the short form disclosures in the written materials, then the depository institution shall mail the acknowledgement of receipt of disclosures, together with the long form disclosures required by section (6), to the customer within 3 business days, beginning of the first business day after the customer contacts the depository institution or otherwise responds to the solicitation.  The depository institution may not obligate the customer to pay for the contract until after the depository institution has received the customer's written acknowledgement of receipt of disclosures unless the depository institution does all of the following:

1.  Maintains sufficient documentation to show that the depository institution provided the acknowledgement of receipt of disclosures to the customer as required by this opinion.

2.  Maintains sufficient documentation to show that the depository institution made reasonable efforts to obtain from the customer a written acknowledgement of receipt of the long form disclosures.

3.  Permits the customers to cancel the purchase of the contract without penalty within 30 days after the depository institution has mailed the long form disclosures to the customer.

(d)  Electronic election.  An affirmative election and acknowledgement made electronically shall be in a manner consistent with the requirements of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq.

Effective Date.  This opinion takes effect on April 1, 2006, except for those provisions comparable to the provisions of 12 C.F.R. sec 37 that are subject to a delayed effective date by the United States Office of the Comptroller of Currency.  These provisions shall become effective when the comparable provisions of 12 C.F.R. sec 37 become effective.  The administrator shall issue interpretive letters confirming which provisions of this rule have become effective and the effective date of these provisions.  For credit unions this opinion takes effect on February 1, 2006.  In regard to depository institutions​, this opinion supersedes prior gap approvals.

This opinion is granted under our authority found in Wis. Stat. s.​ 426.104(4).