(a) Definitions.
  (1) "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 added to, the unpaid balance of the amount financed.
  (2) "Closed-end credit" means consumer credit other than open-end credit as defined in this section.
  (3) "Contract" means a debt cancellation contract or a debt suspension agreement.
  (4) "Customer" means an individual who obtains an extension of credit from a bank primarily for personal, family, or household purposes.
  (5) "Debt cancellation contract" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to cancel all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents.
  (6) "Debt suspension agreement" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to suspend all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. The agreement may be separate from or a part of other loan documents. The term "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 bank's unilateral decision to allow a deferral of repayment.
  (7) "Open-end credit" means consumer credit extended by a bank under a plan in which:
    (A) The bank reasonably contemplates repeated transactions;
    (B) The bank may impose a finance charge from time to time on an outstanding unpaid balance; and
    (C) The amount of credit that may be extended to the customer during the term of the plan (up to any limit set by the bank) is generally made available to the extent that any outstanding balance is repaid.
  (8) "Residential mortgage loan" means a loan secured by a 1-4 family, residential real property.
(b) Authority, purpose, and scope.
  (1) Authority. A state bank is authorized to enter into debt cancellation contracts and debt suspension agreements and charge a fee therefor under Finance Code, §32.001.
  (2) Purpose. This section sets forth the standards that apply to debt cancellation contracts and debt suspension agreements entered into by state banks. The purpose of these standards is to ensure that state banks offer and implement such contracts and agreements consistent with safe and sound banking practices, and subject to appropriate consumer protections.
  (3) Scope. This section applies to debt cancellation contracts and debt suspension agreements entered into by state banks in connection with an extension of credit they make. State banks' debt cancellation contracts and debt suspension agreements are governed by this section and applicable provisions in the Finance Code, and not by state insurance laws.
(c) Prohibited Practices.
  (1) Anti-tying. A state bank may not extend credit nor 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 bank.
  (2) Misrepresentations. A state bank may not engage in any practice or use any advertisement that could mislead or otherwise cause a reasonable person to reach an erroneous belief with respect to information that must be disclosed under this section.
  (3) Prohibited Contract Terms. A state bank may not offer debt cancellation contracts or debt suspension agreements that contain terms:
    (A) giving the bank the right unilaterally to modify the contract or agreement unless:
      (i) the modification is favorable to the customer and is made without additional charge to the customer; or
      (ii) 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; or
    (B) 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.
(d) Refunds of fees on termination or prepayment.
  (1) Refunds. If a debt cancellation contract or debt suspension agreement is terminated (including, for example, when the customer prepays the covered loan), the bank shall refund to the customer any unearned fees paid for the contract unless the contract provides otherwise. A state bank may offer a customer a contract that does not provide a refund only if the bank also offers that customer a bona fide option to purchase a comparable contract that provides for a refund.
  (2) Method of calculating refund. The bank shall calculate the amount of a refund using a method at least as favorable to the customer as the actuarial method.
(e) Payment of fees. Except as provided in subsection (c)(3)(B) of this section, a state bank may offer a customer the option of paying the fee for a contract in a single payment, provided the bank also offers the customer a bona fide option of paying the fee for that contract in monthly or periodic payments. If the bank offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the bank must also disclose to the customer, whether and under what terms the customer may cancel the agreement and receive a refund.
(f) Disclosures.
  (1) Content of short form of disclosures. The short form of disclosures required by this section must include the information described in subparagraphs (A) through (F) of this paragraph that is appropriate to the product offered. Short form disclosures made in a form that is substantially similar to these disclosures will satisfy the short form disclosure requirements of this subsection.
    (A) This product is optional. "Your purchase of (product name) is optional. Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."
    (B) Lump sum payment of fee (applicable if a bank offers the option to pay the fee in a single payment, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose to pay the fee in a single lump sum or in monthly or quarterly payments. Adding the lump sum of the fee to the amount you borrow will increase the cost of (product name)."
    (C) Lump sum payment of fee with no refund (applicable if a bank offers the option to pay the fee in a single payment for a no-refund debt cancellation contract, prohibited where the debt subject to the contract is a residential mortgage loan). "You may choose (product name) with a refund provision or without a refund provision. Prices of refund and no-refund products are likely to differ."
    (D) Refund of fee paid in lump sum (applicable where the customer pays the fee in a single payment and the fee is added to the amount borrowed, prohibited where the debt subject to the contract is a residential mortgage loan). Either:
      (i) "You may cancel (product name) at any time and receive a refund;"
      (ii) "You may cancel (product name) within _______ days and receive a full refund;" or
      (iii) "If you cancel (product name) you will not receive a refund."
    (E) Additional disclosures. "We will give you additional information before you are required to pay for (product name)." If applicable: "This information will include a copy of the contract containing the terms of (product name)."
    (F) Eligibility requirements, conditions, and exclusions. "There are eligibility requirements, conditions, and exclusions that could prevent you from receiving benefits under (product name)." Either:
      (i) "You should carefully read our additional information for a full explanation of the terms of (product name);" or
      (ii) "You should carefully read the contract for a full explanation of the terms."
  (2) Content of long form of disclosures. The long form of disclosures required by this section must include the information described in subparagraphs (A) through (I) of this paragraph that is appropriate to the product offered. Long form disclosures made in a form that is substantially similar to these disclosures will satisfy the long form disclosure requirements of this subsection.
    (A) This product is optional. "Your purchase of (product name) is optional. Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."
Cont'd...