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What are debt suspension and debt cancellation contracts?

Debt Suspension Contracts (DSC) and Debt Cancellation Contracts (DCC) are banking products that substitute for credit insurance.

The Comptroller of the Currency, Administrator of National Banks (OCC) finalized it’s regulation, 12 CFR part 37 effective June 16, 2003. This regulation covers DCCs and DSAs issued by national banks. These are banking products, not insurance products thus federal law, not state law, governs them and state insurance regulators have no role in the regulation of these products.

Debt Cancellation Contracts
The regulation broadly defines debt cancellation contracts and debt suspension agreements. A debt cancellation contract is defined as a loan term or contractual arrangement modifying loan terms under which a bank agrees to cancel all or part of a customer’s obligation to repay an extension of credit upon the occurrence of a specified event.

The regulation does not otherwise define what is a “specified event.” Thus, a national bank is free to design its contracts to address not only traditional events such as death, disability or involuntary unemployment of a borrower, but also any event that may reasonably be expected to occur in the life of a borrower.

Debt Suspension Agreements
A debt suspension agreement is defined as a loan term or contractual arrangement modifying loan terms under which a bank agrees to suspend all or part of a customer’s obligation to repay an extension of credit from that bank upon the occurrence of a specified event.

This definition is intended to cover debt suspension agreements under which interest continues to accrue during the suspension period, as well as those under which the accrual of interest is suspended. It also provides that a debt suspension agreement does not include arrangements in which the borrower unilaterally decides to defer a payment or the bank unilaterally decides to allow a deferral of a payment, so-called “skip-a-payment” agreements. See additional information here…

Debt & Loan Insurance

Last update: 2006-04-23 10:27
Author: Administrator

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