Reg Z Proposals May Harm CUs and Members
The Federal Reserve Board's proposed amendments to Regulation Z regarding credit insurance and debt protection products are inaccurate, misleading and negative. These proposals would not only significantly change the rules, they have the potential to devastate credit union sales of these products.
The new rules would apply to credit protection products such as short-term credit and mortgage life, disability, and unemployment insurance; debt cancellation and suspension products that cancel or suspend loan balances or payments in the event of death, disability, unemployment or other events; and guaranteed asset protection.
The second requirement is that credit unions must check age and employment eligibility prior to the purchase of products with such requirements. The credit union may no longer rely on statements or answers contained in the product application. Eligibility must be checked against "reasonably reliable evidence," such as the birth date on the member's driver's license or a current pay stub. If eligibility is not checked and documented, the credit union cannot exclude the product cost from the loan's APR. Doing so would be a Reg Z violation.
Finally, the new rules would require credit unions to include the cost of the product in the APR for closed-end loans secured by real estate or a dwelling, in addition to the required disclosures and eligibility check. This contradicts the language of the Truth-in-Lending Act and would make the cost of the loan look higher than it actually is.