Vermont § 10405 - Debt protection agreements

§ 10405. Debt protection agreements

• (a) Debt protection agreements that meet the requirements of this section, including 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) As used in 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 in which 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 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. (c)(1) Requirements. 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 (4) 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, such disclosures shall be conspicuous, readily
  understandable, and designed to call attention to the nature and significance of the
  information provided: (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 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. (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 in this subsection 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. (Added 2005, No. 70, § 4; amended 2021, No. 105 (Adj. Sess.), § 281, eff. July 1, 2022; 2021, No. 139 (Adj. Sess.), § 6, eff. May 27, 2022.)