Florida's state-chartered banks are hoping the third time is the charm for legislation that would relax restrictions on selling debt cancellation products.
As it stands, the state-chartered banks can sell the products only to their own customers, and only when loans are originated. They cannot offer the products after the loan is made or on loans bought from other lenders.
Bankers at state-chartered banks have said the current law puts them at a competitive disadvantage, because no such restrictions apply to national banks doing business in Florida or to banks chartered in other states doing business there.
Florida legislators have agreed with them and passed bills in each of the last two years — but they have been vetoed by the governor because of unrelated provisions.
Bills have been introduced in the Florida House and Senate again this year, and Sen. Michael Bennett, R-Bradenton, who is sponsoring the Senate bill, said he is confident legislation will finally pass, because as a sponsor, he would not let any "controversial" or "unfriendly" amendment be attached to it.
Most state-chartered banks are community banks, Sen. Bennett said. "It's an issue of fairness. The big boys get to do things that little guys can't."
Debt cancellation products act like insurance policies. For a fee — typically paid monthly or in a lump sum — a lender will cancel all or part of the loan if the borrower cannot pay it off in full for any number of reasons, including illness, pregnancy, or death.
Anthony DiMarcos, the executive vice president of state government affairs for the Florida Bankers Association, said the product would be another tool in a "banker's toolbox" but is not likely to become a big money-maker for the state-chartered banks.
"National banks can already sell it. State banks can partially sell it. We want to make sure we can sell it all the time, whenever we want," Mr. DiMarcos said.
He said Florida bankers are especially dismayed they cannot sell these products to customers whose loans were acquired through wholesale channels — for example, loans bought from other banks or automobile dealerships. The opportunity to cross-sell is a main reason why banks buy loans from other lenders in the first place.
National banks or those chartered in states other than Florida are permitted to cross-sell debt cancellation products there on loans they have acquired.
The limitations on Florida-chartered banks stem from a ruling by the Florida Office of Insurance Regulation, which says debt cancellation is an insurance product and must be sold by a licensed insurer.
This ruling conflicts with a determination by the Office of Comptroller of the Currency, which considers debt cancellation a banking product.
Florida's insurance office, in a June 2004 letter written by its general counsel, Steven H. Parton, said it would give "deference" to the OCC's opinion and extend it to Florida's state banks, but only as long as debt cancellation products are sold directly to consumers when the loan is originated. Otherwise, the products would be considered insurance, according to Mr. Parton.
Linda Charity, the director of the state's Division of Financial Institutions, said it issued an order about two years ago permitting Florida's state-chartered banks to offer debt cancellation products when loans are originated, to conform with the legal interpretation of the state's Office of Insurance Regulation.
Ms. Charity said her office did not keep track of the number of debt cancellation products Florida's state-chartered banks issue yearly.
Besides loosening restrictions on state banks selling debt cancellation products, this year's House and Senate bills would declare them banking products to be overseen by the Division of Financial Institutions.
Last year the House and Senate approved a similar bill, and Sen. Bennett said that Gov. Charles Crist, a Republican in his first year in office at the time, had no problem with it until the Florida Retail Federation got an amendment added that would have increased credit card late fees from $10 to $25.
Sen. Bennett vowed that a similar amendment would not slip into this year's legislation.
Jim McIntyre, an outside counsel for the American Bankers Insurance Association, part of the American Bankers Association, said about 15 states consider debt cancellation products insurance. But most have permitted their state-chartered banks to offer the products, so they can compete with national banks and other state-chartered ones.
