Texas Register
(28 TexReg 3010) and will not be
republished.
The amendments establish additional standards governing debt cancellation
products in order to ensure that credit unions provide such products consistent
with safe and sound credit union practices. Specifically, the amendments add
three new subsections. New subsection (b) imposes additional standards that
apply to credit unions offering debt cancellation products. These standards
prohibit a credit union from engaging in any form of self-insurance to cover
any loss resulting from these products; from tying the approval or terms of
an extension of credit to a member's purchase of a product; and requires the
product provide for the refunding of, or credit to, the member any unearned
fees resulting from the termination of the member's participation in the product.
New subsection (c) requires a credit union to notify the commissioner of its
intention to offer debt cancellation products and prescribes the information
that must be included in the notification. And finally, new subsection (d)
imposes a new duty on the credit union's board of directors to establish and
maintain written policies concerning debt cancellation products. The amendments
also remove references to a guaranteed auto protection program and improve
the definition of debt cancellation product.
The Credit Union Department has long recognized that state credit unions
may provide debt cancellation contracts as permissible credit union products.
The Credit Union Commission officially granted state credit unions parity
with federal credit unions relating to the sale of guaranteed auto protection
programs and debt cancellation contracts in 1999 based on the regulations
of the National Credit Union Administration at 12 C.F.R. Part 721.3(g) which
expressly noted debt cancellation and debt suspension agreements as permissible
loan-related products. In promulgating §91.403 the Commission codified
the Department's position and specifically stated the authority of state credit
unions under Texas Finance Code Section 123.003 to enter into debt cancellation
products as authorized credit union loan terms and to charge a fee for these
products.
One comment from MCT Credit Union was received, which objected to the inclusion
of subsection (b) (2), stating that they had an "incentive" program that did
alter the terms of credit to members who purchased debt cancellation products
and they felt that it was a benefit to their members and they should be allowed
to continue this practice. The Commission disagrees with the commenter and
believes that the proposal establishes important safeguards to protect against
member confusion and areas of potential member abuse. A credit union's authority
to deny a member's request for credit gives the credit union a unique ability
to seek to coerce members to purchase a debt cancellation product. Therefore,
the Commission considers it inappropriate for a credit union to condition
the granting of a loan or its terms on the member's purchase of a debt cancellation
product. In addition, the Commission believes that the proposal's express
prohibition on tying a debt cancellation product to loan terms makes it clear
that the choice of purchasing a debt cancellation product is left exclusively
to the member.
The amendment is adopted under the Texas Finance Code §15.402
and §123.003. The Commission interprets §15.402 to authorize the
Commission to adopt reasonable rules, and the Commission interprets §123.003
to authorize the Commission to adopt rules that authorize a state credit union
to engage in any activity in which it could engage, exercise any power it
could exercise, or make any loan or investment it could make, if it were operating
as a federal credit union.
The specific section affected by this amendment is Texas Finance Code §124.001.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on May 19, 2003.
TRD-200303108
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: June 8, 2003
Proposal publication date: April 11, 2003
For further information, please call: (512) 837-9236