MADISON, Wis. – CUNA Mutual Group's Keith Nelson, vice president and product manager of CU Choice Lending ProtectionT, CMG's debt cancellation product, doesn't deny he would be happy if more credit unions implemented the company's recently released debt cancellation product, except in this case the product offering is so new to credit unions and different from others CUs have offered, that Nelson is quite happy CUs are taking their time adopting it. Two months after CMG released its debt cancellation product (CU Times, Sept. 11, 2002) and worked with United Airlines Employees Credit Union in creating the first prototype of CU Choice Lending Protection, the $3.3-billion credit union remains the only user of CU Choice Lending Protection. Nelson though says CMG has made several proposals to various credit unions on the product and credit unions have shown "tremendous" interest so far. "This is a new type of business than ones credit unions have been involved with before, and they need to thoroughly understand the product and risks that are involved because it's a credit union product, not an insurance product," says Nelson. He adds that, "Debt cancellation is not necessarily suitable for every credit union, and credit unions shouldn't jump on it simply because they think it's the latest, greatest thing." In his talks with credit unions, Nelson in fact has focused his discussions on educating credit unions about debt cancellation and how it differs from credit insurance. He said the issue that's at the center of most of his discussions is risk transfer. Because debt cancellation is a credit union lending product, the initial liability lies with the credit union. Nelson explained there are two types of liabilities involved when a CU is considering debt cancellation: * litiation risk – since the credit union's name is on the contract, in cases where a lawyer is involved the credit union would be the first to be engaged in any legal dealing. * claim liability – a credit union can transfer this risk to an insurance company using a contractual liability policy. Otherwise, the liability is resides with the credit union. Nelson said most credit unions grasp the difference between debt cancellation and credit insurance once he has the opportunity to explain the risks and liabilities involved with debt cancellation to them. But he admitted that realizing the risks that are involved with debt cancellation has made some CUs stop and rethink their initial interest in the product. That, subsequently, has slowed down some CUs' interest in CU Choice Choice Lending Protection. "Even though credit unions have had the authority to offer debt cancellation to their members for a little more than a year, most credit unions are still going through an intense learning curve with the product," says Nelson. "Credit unions need to ask the right questions when they consider debt cancellation and know the pros and the cons," he adds. Nelson says debt cancellation is not intended to replace credit insurance. "Credit insurance remains a viable product for credit unions," he said. Deciding whether debt cancellation is a better value for members than credit insurance depends on how a credit union's debt cancellation program is designed and priced. Both types of programs can offer good consumer value, but debt cancellation offers greater flexibility and can consequently result in a high value product more closely matched to a specific credit union's membership. There again though, if there are no additional events a credit union feels it has to protect its members against, then the CU doesn't need to offer members any extra beyond credit insurance. "Debt cancellation may be a better alternative in states where regulatory restrictions on rates or contract provisions prevent a credit insurance solution from providing sustainable pricing or from including needed protection options," says Nelson. "There may be credit unions with specific fields of membership that have a need for a specific kind of protection or benefit provisions that aren't available in the credit insurance regulatory scheme. In these cases, debt cancellation offers more flexibility," says Nelson. Even though credit unions are attracted to the flexibility in benefit design and the additional income potential of debt cancellation, choosing a debt cancellation program is not an easy decision to make. Nor is it the type of program that can be implemented quickly. Nelson says there are a lot of elements and steps in the conversion process that go into implementing a debt cancellation program. Some of these elements include modifying lending forms, figuring out ways fees are calculated and disclosed, modifying data processing system and administrative processing, training and developing marketing materials. Nelson's advice to credit unions contemplating debt cancellation: be careful adopting new products and working with new vendors who may not be thoroughly familiar with the product or with credit unions. There are lots of providers who offer debt cancellation services, but there are also differences between the providers that CUs should be aware of, says Nelson. These are some questions credit unions should consider when they shop around for a debt cancellation provider: * Does the provider have the expertise and experience needed to make your program successful? * Do they know credit unions and credit unions' needs, as well as those of the CU's members? * Have they helped you with the decision-making process by discussing with you the differences between debt cancellation and credit insurance? * Do they offer support services or will you have to integrate the products and services from several vendors? * Will they help you integrate your debt cancellation program with your data processing systems(s) and lending forms and calculation tools? * If the provider is offering insurance protection to accept the transfer of debt cancellation claim liability, do they have the needed financial strength to support that? * If they're helping you evaluate members' claims, do they have a history of fast, fair claim decisions? * Do they warranty their program for compliance? * Will they customize a program specific to your needs? In the end, says Nelson, "Credit unions need to pick a partner who will help them in the short term and be there for them for support in the long terms." -

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