Guaranteed Auto Protection Program Debt Cancellation Agreement

States require liability insurance for vehicles. Debt cancellation is not insurance. Customers must purchase liability insurance from an insurance company on the vehicle. Liability insurance is affordable. When an FCU acts as an automatic insurer, the FCU actually offers insurance coverage for member loans by taking care of the risk of payment of each loan. Self-insurance is not an activity that is attached to an explicit FCU power. However, a FCU may, under its subsidiary powers, enter into deleveraging contracts or CAP waiver declarations, provided that it acquires an insurance policy covering the full risk of loss. You also asked whether the NCUA considers debt relief contracts or CAP abandonments to be insurance and whether a FCU that enters into such contracts or waivers is active in the insurance field. In the above notice to Richard Hetzel, we stated that the decision to decide whether a debt cancellation contract or CAP waiver is an insurance product should be made by the national insurance authority.

However, on reflection, we believe that debt relief contracts or CAP waiver declarations are not insurance products. We rely on a Federal Court of Appeal decision which states that, since national banks are allowed to offer deleveraging contracts as part of their ancillary powers, debt cancellation contracts should not be considered “insurance transactions”. First National Bank of Eastern Arkansas v. Taylor, 907 F.2d 775, 780 (8. Cir. 1990), cert. As a result, a FCU would not be included in the insurance business by entering into such debt relief contracts or CAP waiver declarations with its members. Debt cancellation is not insurance, it is an amendment to the tempering contract for individuals, in which the customer pays a tax to the dealer or financial company and, in return, the dealer or financial company waives the reduced customer debts of a small deductible (according to state law) when the vehicle is a total or stolen loss and is not recovered.

Debt cancellation is based on the amount financed and not on the credit score of the debitor. In almost all cases, it is cheaper than property damage insurance. Debt relief contracts can be added to the individuals` contract to be part of the customer`s payment and to reduce the total cost of owning a vehicle. The lender benefits from the fact that there is no need to follow the insurance and that the application process is very simple. In your letter, you referred to a letter from Richard Schulman to Richard Hetzel on November 16, 1995, in which we explained that a FCU may sell debt cancellation contracts to its members as an activity related to the FCU`s explicit lending authority. They sought clarification of a statement, which was later made in the notice, that such debt relief contracts “constitute an unacceptable activity when they require an FCU to lend by other means.” The CAP generally waives or pays the loss balance (deducted from certain fees and fees) between the amount owed on your financing or lease contract and your car insurance at the time of the total loss.

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