WASHINGTON-Credit union trade associations amassed survey and poll numbers disputing the National Credit Union Administration's assertion that sending privacy disclosures to co-borrowers, co-signers and co-guarantors of CU-member loans would not be a burden and force-fed that information to the agency. The flurry of letters, faxes, phone calls and personal visits-all geared to wresting reconsideration of the Chairman D'Amours/Board Member Wheat proposed initiative toward expanding privacy and "opt-out" notices to those parties- may save the day, they hope. NCUA's Bob Loftus acknowledged D'Amours' "had received advice from a large variety of folks-both inside and outside the CU community- and he is hearing both pro and con." Wheat, presumably had also been heavily lobbied to vote down her own idea when the Board meets again on June 6th. Both Democrats, they may have been reflecting the general public's (and solidly Democratic Party) effort to expand privacy protection through the amendment, but their aim may be off, say experts consulted by Credit Union Times. While the Credit Union National Association (CUNA) and the National Association of Federal Credit Unions (NAFCU) object to the disclosures on a cost basis and find it counterproductive, there may be so little value to the information to be protected to make it moot for privacy's sake. Just because credit unions ask financial information of co-signers doesn't mean they actively market to them, whether they be members of the credit union or not. If they are, they are already receiving CU marketing material. If not, they are not being targeted at all. This calls up the very essence of the difference between how a CU treats financial data it gathers and the way the same data is handled by other financial institutions. "Credit unions get that information for collection purposes. It's there in case the primary borrower defaults," said Rex Johnson, a nationally recognized consumer loan expert and a partner in Lending Solutions, Inc. Elgin, Ill. "It's not for solicitation purposes. A credit union will get the same information on a co-borrower because they also benefit from the proceeds of a loan. That's standard risk-assessment procedure. But a co-signer doesn't get any benefit; he or she is merely doing a favor for someone. Other than maintaining a name, address and phone number to call in case of a default, what is the purpose of asking for and maintaining such information?" Johnson added that cosigners are already required to sign a "co-signer statement" which acknowledges full responsibility for the amount of the loan if it goes bad. Any disclosure of how financial data is handled might best be addressed by adding any proposed disclosure to that statement. " What credit unions need is to spend more time on loan decisions and less time on documentation," he scoffed. CUNA's Mary Dunn said that many CUs maintain information other than name and address of co-signers in paper files. They only access that information when necessary, as in a delinquent situation. It's labor-intensive, she said. Randy Karnes, president of WESCO, the CUSO data processor, said that while creating a co-borrower/ co-signer mailing list (to send disclosures) would not be a great expense, (except for mailing costs) the "average CU is not pro-actively targeting and certainly not reselling that list. Credit unions are typically low-key marketers." "While there may be more interest in credit unions' data mining, what I see is that a lot of them are still buying static data from other available sources," he said. All these points and more have been made by CUNA President Dan Mica in his letters to board members. CUNA cost estimates for the notices was put at $62, 375 per CU; to modify DP systems where necessary and mail notices to co-signers in the first year. (That information was based on a survey conducted by Newswatch through the CUNA Web site (www.cuna.com) and extrapolated from numbers supplied by 75 credit unions, Dunn informed.) The great "branding" opportunity of pointing out the more protective way delicate financial data on members is handled may indeed be acted on by credit union service organizations (CUSOs). That was one point made recently during a privacy issues session at the NACUSO annual meeting conducted by General Counsel Guy Messick and Brian Witt, of the Portland, Oregon, law firm of Farleigh, Wada & Witt. "The wording of opt-out disclosures will become an art form," Messick mused. "There's seven-degrees of separation to privacy; and you must have confidential agreements with vendors from now until the two-years you have under the law to comply," he said. (CUs have until July 1, 2001.) "Credit union marketing departments will become much more important," he added. "There may be more restriction of information from the CUSO to the credit union rather than the other way around." Insurance and financial planning CUSOs that gather information on members (supplied voluntarily) and send privacy disclosures to them may be reinforcing the higher standard of information handling, even in its done indirectly. The joint marketing agreements between CUs and CUSOs are an exception to the opt-out requirement, but they must include a confidentiality clause and meet the same standard of the credit union, said Witt. "There is a wide latitude there," he said. Publicizing the confidentiality clause is one area in which CUSOs and CUs might best position the privacy policy on such disclosure statements, some CUSO CEOS later remarked. CUSOs will be regulated by a host of agencies (federally, by NCUA, the SEC and the FTC and also by the relevant state insurance commissioners and attorneys general in the case of a higher standard in state privacy laws) advised Witt, yet the NCUA regulation impacts a major part of CUSO business. Generally, the information sharing exceptions are quite broad, they said. These include: processing and servicing of accounts and transactions; with consent of consumer; fraud protection; to resolve disputes; to regulators; for judicial requests; and to consumer reporting agencies. -
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