WASHINGTON – Should auto finance companies be required to make Reg Z-type disclosures to consumers when they offer auto loans with APRs at or near 0%? In the mid-eighties, the Fed said this would not be feasible, but now CUNA wants the Federal Reserve Board to go back to the table and revisit the issue. In his October 24th comment letter to Ann Bistay, secretary of the Consumer Advisory Council, Division of Consumer and Community Affairs for the Fed, CUNA’s Assistant General Counsel Jeffrey Bloch wrote that CUNA realized “that both the CAC and the Fed have exhaustively reviewed this issue in the past, but we believe that it is now necessary to revisit the issue.” What concerns CUNA, Bloch stated is that when auto finance companies offer APRs at or near 0%, the financing is being offered at a below market rate and a rate that is also below the companies’ cost of funds. “The difference between the APR and the cost of funds can be determined by reviewing the financial statements of these companies, which are publicly available,” he wrote. He continued that, “It is unrealistic for consumers to expect that they are actually borrowing money below the cost of funds. Consumers can generally negotiate a lower price for the automobile if he or she foregoes the APR. The difference between these two prices must be disclosed as a prepaid finance charge under Regulation Z and reflected in the APR. This difference is often reflected in a rebate that the consumer may elect in lieu of the low APR. Here, the consumer is paying for the low APR by foregoing the rebate, which we believe is a prepaid finance charge that needs to be disclosed under Regulation Z.” When the Fed reviewed the issue in the mid- eighties, it determined it would be too difficult to accurately measure the difference between the two prices. But, wrote Bloch, “regardless of whether rebates are available, we believe that there is a method to determine the additional prepaid finance charge that should be disclosed when a consumer elects a low APR.” Bloch offered that, “We believe that a relatively simple disclosure requirement should be included in Regulation Z to reflect that purchasers may be paying a higher price for the automobile if they decide to accept the low APR financing.” By amending Reg Z requirements to require auto financing companies disclose this information, it “would provide consumers with useful information in connection with the low APRs that are periodically offered by automobile finance companies.” In his same letter, Block also offered CUNA’s comments on possible revisions to Reg Z, the Truth in Lending Act in regards to credit card rules and the revision of the three-day right of rescission rules for home equity loans and home equity lines of credit. Specifically: CUNA recommended that: * the APR calculation should be changed to accurately reflect that the cash advance fee is only imposed at the time of the advance and not on a monthly basis; * it should be allowed to disclose the APRs for purchases, cash advances, and balance transfers in one “Schumer box” if the rate is the same for all the transactions; * it should be permissible, for risk-based credit cards, to disclose the range of APRs, instead of each APR that can apply; * consumers should have the authority to waive their rights under the three-day right of rescission rules for loans secured by real estate. The CAC met on October 25 to discuss possible Reg Z revisions, with significant attention to credit card rules. CUNA was not invited to that meeting, but the association’s Consumer Protection Subcommittee instructed Bloch to draft the subcommittee’s comments concerning Reg Z as it claims it pertains to auto financing and to include those comments in his letter. Kris Meecham, chairman, CUNA’s Consumer Protection Subcommittee is well-aware of credit unions’ poor track record with getting the Fed and FTC to recognize CUs’ concerns and remedy them. “It’s fair to say that in the mid-eighties we went to the FTC concerned about the sorts of rebates that were being offered on a bait and switch tactic, and the FTC didn’t pick up on that. We also attempted then to persuade the Fed that there were Reg Z, Truth in Lending violations because there was a significant difference between the disclosed financial charge and what consumers were being charged. The bottom line is we haven’t gotten the ear of the Fed or the FTC through those actions.” Meecham continued that,”We believe there is an issue here. As a movement, credit unions continue to comply with Reg Z. Other organizations involved with consumer lending should comply with the regulation as well.” -

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