CUNA says REG Z Plan Needs Serious Changes

CUNA News Now
October 17, 2007 | COMMENTS

The Credit Union National Association (CUNA) strongly objects to any changes in the Federal Reserve Board's Regulation Z that could impact credit unions' ability to offer multi-featured, open-end lending products, the group stated in a comment letter Thursday.

For the most part CUNA supports the Fed's long-term process to simplify Reg Z disclosures and agrees with the Fed that focusing on consumer testing should help in these efforts, but CUNA does not support the plan as written.

For instance, even prior to its letter, CUNA, along with CUNA Mutual Group (CMG), outlined for the Fed credit union concerns that the agency's proposal could unintentionally cut into products favored by credit unions and their members, such as the LoanLiner program offered by CMG.

The Fed's Reg Z implements the Truth in Lending Act (TILA). The Fed's proposed modifications include comprehensive changes to the format, timing, and content requirement for the five main types of open-end credit disclosures that are required under the regulation. These include credit card application and solicitation disclosures, account-opening disclosures, periodic statements, change-in-term notices, and advertising provisions.

If the Fed is irrevocably determined to go forward with the proposed changes, CUNA said, the agency should consider an alternative approach: that the Board require only that the closed-end disclosures be provided for any credit that is not "self-replenishing." Under this alternative, a signature would not be required each time the member receives credit under the overall plan and the ability of credit unions to review each advance separately would not be changed.

"The member would receive the disclosure information when the credit plan is set up and then continue to receive information about the credit he or she requests in the future. Members would continue to be able to access credit through a variety of means, such as requesting it by telephone, by Internet, or in person at the credit union," the CUNA letter noted.

CUNA strongly supported a plan to eliminate the requirement to disclose the "effective" APR on the periodic statement, which is the APR that incorporates certain fees and costs.

"The effective APR is confusing and difficult for consumers to understand, since it may vary greatly from month-to-month and may significantly differ from the interest rate that has also been disclosed to the consumer, " CUNA wrote

CUNA also supported a change to require a 30-day advance notice before changing certain terms of an open-end credit plan, instead of the current 15-day requirement, saying such a change would be useful for consumers.

"Because this proposal incorporates the most extensive and comprehensive changes to the Regulation Z open-end rules since the early 1980s, credit unions and others should be given a significant amount of time to prepare for these changes. For this reason, mandatory compliance should not be required until at least two years after these changes are issued in final form," CUNA concluded its letter.

> Read more of CUNA's comment letter to the Fed.

This article originally appeared in CUNA News Now and is reprinted with permission.