In the matter of the sale of debt cancellation contracts and debt suspension agreements by depository institutions

Issued and entered this 18th day of June 2004
By Linda A. Watters, Commissioner

On June 18, 2004, the Commissioner issued a declaratory ruling in the matter of the sale of debt cancellation contracts ("DCCs") and debt suspension agreements ("DSAs") by depository institutions. The Commissioner ruled that these institutions may sell these contracts and agreements and may do so without being subject to the Insurance Code of 1956, as amended ("Code"), MCL 500.100 et seq.

The ruling is based upon the application of the principal object and purpose test. Loan agreements of depository institutions do not become subject to the Code due to the sale of related DCCs and DSAs. The principal object and purpose of a loan agreement is the loan itself, not insurance.

Nationally chartered banks, credit unions, and thrifts are authorized to sell DCCs and DSAs. Under rules issued by the Office of the Comptroller of the Currency ("OCC") that took effect June 2003, national banks are regulated in their sale of DCCs and DSAs. [12 CFR part 37]

The Commissioner has scrutinized the OCC rules. She has concluded that DCCs and DSAs offered by state chartered depository institutions in connection with extensions of credit that comply with the standards identified in the OCC rules will be deemed by her office to be provided in a safe and sound manner. She is this date sending an advisory letter to the chief executive officer of each of these institutions respecting the declaratory ruling and compliance with the OCC rules.

The declaratory ruling and the letter to the chief executive officers may be seen in their entirety at the OFIS website: www.michigan.gov/ofis. The new ruling prospectively changes and supersedes Declaratory Ruling No. 98-105-M.

Any questions regarding this bulletin should be directed to:

Office of Financial and Insurance Services
Division of Policy
611 West Ottawa Street
P.O. Box 30220
Lansing, Michigan 48909-7720

Phone: (517) 373-7231
Toll Free (877) 999-6442

Related Documents:
Declatory Ruling
Letter