Some car dealerships, as well as banks and credit unions, offer “debt cancellation” and “debt suspension” products or insurances under different names. These products are similar to their credit insurance function, but the fees and other functions may be different. Richard Hetzel of FLS Services, Inc. forwarded your letter to John Tullis of Balboa Insurance Company to the Office of General Counsel of the National Credit Union Administration (NCUA) for response. In your letter, you requested a written statement that credit unions may use debt cancellation contracts or agreements and that NCUA does not consider such contracts or agreements to be insurance. Banks and other financial institutions offer debt cancellation contracts instead of credit insurance. Debt cancellation contracts are available for consumer credit, including installment loans, auto loans, mortgages, home lines of credit (HELOC) and leasing contracts. The borrower pays a royalty to a creditor who receives the protection granted. Federal banking supervisors, federal courts, and most states recognize DCCs as banking products because they do not have the attributes of insurance.
DCCs are available from state- and state-chartered deposit banks as well as non-deposit-financed creditors. THE CDC is subject to comprehensive regulation by the federal and regional banking supervisory authorities. DCCs can be generated either with the underlying credit transactions or after the conclusion or implementation of a loan or line of credit. Is debt cancellation the answer for all vehicles? No, debt cancellation lowers the customer`s debt in the event of total loss or theft and does not cover partial losses such as wing folders. Debt relief agreements may not be the right product for vehicles that are financed over the long term and have a higher real present value. Debt relief agreements may vary from one Member State to another. For example, the Texas State Office of Credit Commissioner (OCCC) establishes contractual requirements for debt relief agreements made available to consumers by auto agencies. Among the most interesting requirements is the fact that the buyer maintains non-life insurance for the vehicle while it is in its possession.
As a general rule, CADs are considered an alternative to insurance.