SECTION 84.308. Debt Cancellation Agreements Not Requiring Insurance

(a) Purpose and scope. The Texas Finance Code allows a debt cancellation agreement to be included in a motor vehicle retail installment sales contract involving an ordinary vehicle subject to Texas Finance Code, Chapter 348 as an itemized charge. This section outlines the parameters under which a retail seller or holder may provide a debt cancellation agreement for total loss or theft of an ordinary vehicle in connection with a Chapter 348 retail installment sales contract. This section applies only to debt cancellation agreements that do not require insurance coverage. This section does not apply to a debt cancellation agreement under Texas Finance Code, Chapter 354.

(b) Disclosure under Texas Finance Code, §348.124.

(1) Delivery. A retail seller must provide the retail buyer with a notice that a debt cancellation agreement for total loss or theft of an ordinary vehicle is not required in order to purchase the motor vehicle if a retail seller offers to sell a debt cancellation agreement for total loss or theft to a retail buyer. This notice can be provided to the retail buyer either in a debt cancellation agreement for total loss or theft of an ordinary vehicle or in a separate disclosure. The notice under this section must be provided separately from the retail installment sales contract. A retail seller may request that the retail buyer authenticate the debt cancellation agreement for total loss or theft of an ordinary vehicle disclosure acknowledging the applicant's receipt of the disclosure or notice. A retail seller may rely upon a verifiable procedure to show that a debt cancellation agreement for total loss or theft of an ordinary vehicle notice was provided to an applicant.

(2) Multiple applicants. In the case of multiple applicants, it is only necessary for the retail seller to deliver the debt cancellation agreement for total loss or theft of an ordinary vehicle notice to one applicant.

(c) Authorized debt cancellation agreement for total loss or theft of an ordinary vehicle provisions. A debt cancellation agreement under this section may only contain provisions or exclusions from either paragraph (1) or (2) of this subsection, language to implement any of the provisions or exclusions of either paragraph (1) or (2) of this subsection, and language to identify and obligate the parties to the debt cancellation agreement under Texas law if that language does not conflict with this subsection.

(1) Debt cancellation agreement for total loss or theft of ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft must:

(A) contain a statement that the holder will cancel the amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle;

(B) permit the exclusion of loss or damage only as a result of one or more of the following:

(i) an act occurring after the original maturity date or date of holder's acceleration of the retail installment sales contract;

(ii) any dishonest, fraudulent, criminal, illegal or intentional act of any authorized driver that directly results in the total loss;

(iii) conversion, embezzlement, or secretion by any person in lawful possession of the motor vehicle;

(iv) lawful confiscation by an authorized public official;

(v) the operation, use, or maintenance of the motor vehicle in any race or speed contest;

(vi) war, whether or not declared, invasion, civil war, insurrection, rebellion, revolution, or act of terrorism;

(vii) normal wear and tear, freezing, mechanical or electrical breakdown or failure;

(viii) use of the motor vehicle for primarily commercial purposes;

(ix) loss that occurs after the motor vehicle has been repossessed;

(x) damage to the motor vehicle prior to the purchase of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(xi) damage related to any personal property attached to or within the vehicle;

(xii) damages associated with falsification of documents by any person not associated with the retail seller or the debt cancellation provider;

(xiii) abandonment of the motor vehicle by the retail buyer only if the retail buyer voluntarily discards, or leaves behind, or otherwise relinquishes possession of the motor vehicle to the extent that the relinquishment shows intent to forsake and desert the motor vehicle so that the motor vehicle may be appropriated by any other person;

(xiv) any loss occurring outside the continental United States of America, Alaska, or Hawaii (holder may opt to cover losses in Canada);

(xv) any exclusion or limitation approved in writing by the commissioner;

(C) contain a statement that the retail buyer is required to notify the holder within 75 days, or a longer period as agreed to in the debt cancellation agreement, of any potential loss under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(D) contain a statement that requests the retail buyer to provide or complete a debt cancellation request form and a copy of the police report, if any, filed in connection with the total loss or theft of the motor vehicle and provide those documents to the holder;

(E) contain a statement that the holder will cancel amounts as provided under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(F) contain a statement naming the refunding method to be used to calculate refunds under subsection (f) of this section;

(G) contain a statement that the holder may not be named as loss payee on any insurance policy covering the motor vehicle or receive any of the proceeds from an insurance policy on the motor vehicle;

(H) contain a statement that the holder may not require property insurance on the motor vehicle;

(I) contain a statement that the debt cancellation agreement is not required to obtain credit and will not be a factor in the credit approval process;

(J) contain a statement that a partial loss of the motor vehicle is not subject to relief under the debt cancellation agreement;

(K) contain a statement that upon request of the commissioner, the administrator will make its records relating to the creation, processing, and resolution of the debt cancellation agreement available to the commissioner;

(L) contain a statement that the retail buyer should consider contacting a tax advisor regarding possible tax consequences; and

(M) contain, at the election of the drafter, contract provisions pertaining to the following issues, so long as the provisions comply with state and federal law and implementing regulations:

(i) a notice provision regarding how notice may be given or delivered by either party under the debt cancellation agreement;

(ii) a severability provision;

(iii) an arbitration provision;

(iv) any contract provision approved in writing by the commissioner.

(2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance, must:

(A) contain a statement that:

(i) if the retail buyer does not have property insurance for the motor vehicle that is in force and effect at the time of the total loss or theft of the motor vehicle, the retail seller will cancel the amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle; or

(ii) if the retail buyer has property insurance for the motor vehicle that is in force and effect at the time of the total loss or theft of the motor vehicle or the motor vehicle is involved in a total loss involving another responsible party's liability insurance policy, the retail seller will apply any settlement payment from the retail buyer's primary comprehensive, collision, or uninsured/underinsured motorist policy or other parties' liability insurance policy to the retail buyer's account and cancel the remaining balance;

(B) permit the exclusion of loss or damage only as a result of one or more of the following:

(i) an act occurring after the original maturity date or date of retail seller's acceleration of the retail installment sales contract;

(ii) any dishonest, fraudulent, criminal, illegal or intentional act of any authorized driver that directly results in the total loss;

(iii) conversion, embezzlement, or secretion by any person in lawful possession of the motor vehicle;

(iv) lawful confiscation by an authorized public official;

(v) the operation, use, or maintenance of the motor vehicle in any race or speed contest;

(vi) war, whether or not declared, invasion, civil war, insurrection, rebellion, revolution, or act of terrorism;

(vii) normal wear and tear, freezing, mechanical or electrical breakdown or failure;

(viii) use of the motor vehicle for primarily commercial purposes;

(ix) loss that occurs after the motor vehicle has been repossessed;

(x) damage to the motor vehicle prior to the purchase of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(xi) damage related to any personal property attached to or within the vehicle;

(xii) damages associated with falsification of documents by any person not associated with the retail seller or the debt cancellation provider;

(xiii) abandonment of the motor vehicle by the retail buyer only if the retail buyer voluntarily discards, or leaves behind, or otherwise relinquishes possession of the motor vehicle to the extent that the relinquishment shows intent to forsake and desert the motor vehicle so that the motor vehicle may be appropriated by any other person;

(xiv) any loss occurring outside the continental United States of America, Alaska, or Hawaii (retail seller may opt to cover losses in Canada);

(xv) any exclusion or limitation approved in writing by the commissioner;

(C) contain a statement that the retail buyer is required to notify the retail seller within 75 days, or a longer period as agreed to in the debt cancellation agreement, of any potential loss under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(D) contain a statement that requests the retail buyer to provide or complete some or all of the following documents and provide those documents to the retail seller:

(i) a debt cancellation request form;

(ii) if property insurance is in force and effect, proof of loss and settlement payment from the retail buyer's primary comprehensive, collision, or uninsured/underinsured motorist policy or other parties' liability insurance policy for the settlement of the insured total loss of the motor vehicle;

(iii) a copy of the police report, if any, filed in connection with the total loss or theft of the motor vehicle;

(iv) a copy of the damage estimate;

(v) any additional documentation approved in writing by the commissioner;

(E) contain a statement that the retail seller will cancel amounts as provided under the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(F) contain a statement naming the refunding method to be used to calculate refunds under subsection (f) of this section;

(G) contain a statement explaining the calculation of the amount canceled under the debt cancellation agreement for total loss or theft of an ordinary vehicle that is in accordance with subsection (h)(2) of this section;

(H) contain a statement that the retail seller may be named as loss payee on any insurance policy covering the motor vehicle, but may only receive proceeds from an insurance policy on the motor vehicle in the event of a total loss or theft;

(I) contain a statement that the retail seller may not require property insurance on the motor vehicle;

(J) contain a statement that the debt cancellation agreement is not required to obtain credit and will not be a factor in the credit approval process;

(K) contain a statement that a partial loss of the motor vehicle is not subject to relief under the debt cancellation agreement, but may be subject to relief from property insurance voluntarily purchased by the retail buyer;

(L) contain a statement that upon request of the commissioner, the administrator will make its records relating to the creation, processing, and resolution of the debt cancellation agreement available to the commissioner;

(M) contain a statement that the retail buyer should consider contacting a tax advisor regarding possible tax consequences; and

(N) contain, at the election of the drafter, contract provisions pertaining to the following issues, so long as the provisions comply with state and federal law and implementing regulations:

(i) a notice provision regarding how notice may be given or delivered by either party under the debt cancellation agreement;

(ii) a severability provision;

(iii) an arbitration provision;

(iv) any contract provision approved in writing by the commissioner.

(d) Copy of debt cancellation agreement for total loss or theft of ordinary vehicle provided to retail buyer. If a retail buyer purchases a debt cancellation agreement for total loss or theft of an ordinary vehicle, the retail seller must provide the retail buyer, within a reasonable amount of time not to exceed 10 days from the date of the retail installment sales contract, a true and correct copy of the agreement that clearly sets forth:

(1) the name of the retail buyer, and the name, address, and telephone number of the place where requests for debt cancellation are processed;

(2) the amount and term of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(3) the cost of the debt cancellation agreement for total loss or theft of an ordinary vehicle;

(4) the terms, including the limitations, exclusions and restrictions; and

(5) a statement that the holder will cancel certain amounts under the debt cancellation agreement for total loss or theft of an ordinary vehicle substantially similar to the following: "YOU WILL CANCEL CERTAIN AMOUNTS I OWE UNDER THIS CONTRACT IN THE CASE OF A TOTAL LOSS OR THEFT OF THE VEHICLE AS STATED IN THE DEBT CANCELLATION AGREEMENT."

(e) Fee or rate for debt cancellation agreement for total loss or theft of an ordinary vehicle. The amount of the fee is based upon the amount financed. The fee for a debt cancellation agreement can be adjusted to the nearest whole dollar. The fee may be included in the amount financed and a finance charge may be charged on the fee. The minimum fee for a debt cancellation agreement under this subsection is $50.

(1) Debt cancellation agreement for total loss or theft of ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft. The following figure contains a rate schedule of maximum fees that are deemed to be reasonable for debt cancellation agreements for total loss or theft of an ordinary vehicle that are in compliance with subsection (c)(1) of this section.

Attached Graphic

(2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance. The following figure contains a rate schedule of maximum fees that are deemed to be reasonable for debt cancellation agreements for total loss or theft of an ordinary vehicle that are in compliance with subsection (c)(2) of this section.

Attached Graphic

(f) Refund or credit of unearned debt cancellation agreement fee.

(1) Notification of cancellation triggering refund or credit. A holder may require that the retail buyer notify the holder, retail seller, or any administrator appointed by the holder in writing should the retail buyer decide to cancel the debt cancellation agreement.

(2) Refunding method. Upon termination of a debt cancellation agreement prior to the scheduled maturity date of a retail installment sales contract, the holder or administrator will provide the retail buyer a refund or credit calculated using a method that is at least as favorable to the buyer as the Rule of 78s. In the event of a canceled debt under the debt cancellation agreement, the fee paid for the debt cancellation agreement is fully earned and no refund or credit is due.

(3) Cancellation date. The refund or credit of the debt cancellation agreement fee, if any, must be based upon the earlier date of:

(A) the prepayment of the retail installment sales contract in full prior to the original maturity date;

(B) a demand by the holder for payment in full of the unpaid balance or acceleration;

(C) a request by the retail buyer for cancellation of the debt cancellation agreement; or

(D) the total denial of a debt cancellation request based on one of the exclusions contained in subsection (c)(1)(B) or (2)(B) of this section, except in the case of a partial loss of the covered motor vehicle.

(4) Rounding of unearned debt cancellation agreement fee. The refund or credit for the unearned debt cancellation agreement fee can be rounded to the nearest whole dollar.

(5) Refund or credit less than readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=185518&p_tloc=19906&p_ploc=9966&pg=3&p_tac=&ti=7&pt=5&ch=84&rl=308.00 not required. A refund or credit is not required if the amount of the refund or credit is less than readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=185518&p_tloc=19906&p_ploc=9966&pg=3&p_tac=&ti=7&pt=5&ch=84&rl=308.00.

(6) Flat cancellation within 30 days. If no total loss or theft has occurred, the retail buyer may cancel the debt cancellation agreement within 30 days from the date of the retail installment sales contract or the issuance of the debt cancellation agreement, whichever is later, or such later day as may be provided under the debt cancellation agreement. Upon such cancellation, the holder or administrator will refund or credit the entire debt cancellation agreement fee. A retail buyer may not cancel the debt cancellation agreement and then receive any benefits under the agreement.

(g) Prompt cancellation under debt cancellation agreement. A holder must comply with the terms of a debt cancellation agreement within 60 days of receiving a debt cancellation request form and all necessary information needed by the holder or administrator to process the request. If the administrator has all of the information that a retail buyer would provide in the completion of a debt cancellation request form, the administrator must comply with the terms of the debt cancellation agreement within 60 days of receipt of all the necessary information needed by the holder or administrator to process the request.

(h) Calculation of amount to be cancelled under debt cancellation agreement for total loss or theft of ordinary vehicle. The calculation of the amount to be canceled under this section will be figured in compliance with one of the following methods:

(1) Debt cancellation agreement for total loss or theft of ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft. The amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle on the retail installment sales contract will be the amount canceled under the debt cancellation agreement for total loss or theft of an ordinary vehicle.

(2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance.

(A) If the retail buyer did not have property insurance at the time of the total loss or theft of the motor vehicle or the total loss of the vehicle was not covered by another responsible party's liability insurance policy, the amount to be canceled will be the amount currently owed by the retail buyer as of the date of total loss or theft of the motor vehicle.

(B) If the retail buyer had property insurance at the time of the total loss or theft of the motor vehicle or the total loss of the vehicle was covered by another responsible party's liability insurance policy, the retail seller or related finance company will calculate the amount to be canceled by determining:

(i) the current balance owed by the retail buyer as of the date of total loss or theft of the motor vehicle;

(ii) subtracting the total loss payment made by the primary insurance carrier or other responsible party's liability insurance carrier; and

(iii) subtracting any refunds received by the retail seller or related finance company as of the date of total loss or theft of the motor vehicle.

(i) Prepayment of retail installment sales contract by debt cancellation agreement. If the debt cancellation agreement is triggered by the total loss or theft of the motor vehicle, all refunds should be calculated as of the date of loss.

(1) Insurance refunds and other cancelable items. Examples of refunds that should be calculated as of the date of loss include credit life premium, credit accident and health insurance premium, credit involuntary unemployment insurance premium, collateral protection insurance premium, and service contract refunds. The retail installment sales contract may permit an administrator or provider to receive any refunds that are received by the holder after the settlement of the debt cancellation agreement, if those refunds were included in the amount received by the holder from the administrator. Refunds that were not part of the amount received by the holder from the administrator must be either applied to the retail buyer's account or given to the retail buyer.

(2) Time price differential refund. If the retail installment sales contract uses the scheduled installment earnings method or is a regular payment contract using the sum of the periodic balances method, the time price differential refund should be calculated as of the date of loss. If the retail installment sales contract uses the true daily earnings method, the holder should not earn any time price differential charge after the date of loss.

(j) Assignment and delegation.

(1) The retail seller or subsequent holder of a retail installment sales contract may not assign any of its rights under a debt cancellation agreement unless the retail seller or subsequent holder assigns the retail installment sales contract that the debt cancellation agreement modifies. The retail seller or subsequent holder of the retail installment sales contract may delegate its duties under a debt cancellation agreement, but the delegating party remains liable for the performance it delegated and the conduct of the persons to whom the duties are delegated.

(2) Good faith reliance. A holder may in good faith rely on a computation by the administrator of the balance waived, unless the holder has knowledge that the computation is not correct. If a computation by the administrator of the balance waived is not correct, the holder must, within a reasonable time of learning that the computation is incorrect, make the necessary corrections or cause the corrections to be made to the retail buyer's account. This section does not prevent the holder from obtaining reimbursement from the administrator or others responsible for the debt cancellation agreement or computation.

(3) For any documents relating to the creation, processing, or resolution of a debt cancellation agreement, the licensee must:

(A) maintain documents that come into its possession; and

(B) upon request by the agency, cooperate in requesting and obtaining access to documents not in its possession.

(4) Paragraph (3) of this subsection also applies to a retail seller who negotiates a debt cancellation agreement and subsequently assigns the retail installment sales contract.

(k) Prohibited practices. A debt cancellation agreement cannot be offered if:

(1) the retail installment sales contract is already protected by gap insurance;

(2) the purchase of the debt cancellation agreement is required for the retail buyer to obtain the extension of credit.

Source Note: The provisions of this §84.308 adopted to be effective March 14, 2010, 35 TexReg 1959; amended to be effective November 4, 2010, 35 TexReg 9708; amended to be effective September 8, 2011, 36 TexReg 5671; amended to be effective November 8, 2012, 37 TexReg 8780; amended to be effective September 7, 2017, 42 TexReg 4462