AN ACT RELATING TO THE INTERSTATE INSURANCE PRODUCT REGULATION COMPACT
The Senate proposes to the House to amend the bill by adding Secs. 3, 4, 5, and 6 to read as follows:
Sec. 3. 9 V.S.A. § 42(a)(4) is amended to read:
(4) the reasonable cost of creditor life or disability insurance, or of a debt protection agreement as set forth in section 10405 of Title 8, if agreed to by the borrower;
Sec. 4. 8 V.S.A. § 10405 is added to read:
§ 10405. DEBT PROTECTION AGREEMENTS
(a) Debt protection agreements that meet the requirements of this section, including without limitation 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) For purposes of 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 without limitation 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.
(1) 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:
(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 without limitation 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. Such disclosures shall be conspicuous, readily understandable, and designed to call attention to the nature and significance of the information provided.
(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.
Sec. 5. 9 V.S.A. § 2355(f)(4) is amended to read:
(4) The amount, if any, for insurance including the cost
of credit life insurance at a rate authorized by rate schedules then in effect
and on file with the commissioner of banking, insurance, securities, and health
care administration, the cost, if any, of physical damage insurance specifying
the type or types and the term of coverage,
and the cost, if any, for
service contracts as defined in section 4247 of Title 8, and the reasonable
cost, if any, for a debt protection agreement as set forth in section 10405 of
Sec. 6. 9 V.S.A. § 2405(g)(4) is amended to read:
(4) The amount, if any, included for insurance, if a
separate identified charge is made therefore, specifying the coverage and cost
of each type of insurance at rates authorized by rate schedules then in effect
and on file with the commissioner of banking, insurance, securities, and health
and the cost, if any, for service contracts as
defined in section 4247 of Title 8, and the reasonable cost, if any, for a
debt protection agreement as set forth in section 10405 of Title 8;
The Vermont General Assembly
115 State Street