Credit Union Trades Take Advantage of Reg Z Review; CUNA Unleashes 20 Years Worth of Recommendations

WASHINGTON-CUNA and NAFCU are taking advantage of the opportunity to comment on the biggest overhaul of Regulation Z (Truth-in-Lending) in the last 20 years. CUNA went to the extent of putting together a working group, worked with CUNA’s Consumer Protection Subcommittee and a number of state leagues, and filed a 27-page comment letter. Much of CUNA’s comments focused on simplifying Reg Z as it pertains to open-end credit for both credit unions and consumers. For example, CUNA suggested that the Annual Percentage Rate be limited to just the actual interest; currently fees and other charges are calculated in, which can be confusing for consumers, CUNA Senior Assistant General Counsel Jeff Bloch wrote. “The historical APR is confusing because if these fees are incurred by consumers, the APR on the periodic statements well be much different than the APR that may have been reflected in the account-opening or other disclosures that the consumer may have relied upon at the time he or she entered into the account relationship,” he said. “This confusion will always continue, regardless of the verbiage that creditors include in an effort to explain this discrepancy.” Additionally, one-time fees can often result in a much higher APR in a particular statement period than at other times. In the interest of full disclosure, however, fees and charges should be divulged in full dollar amounts, according to Bloch. NAFCU expressed a similar concern. The group also pointed out that the disclosure’s content must be revised before a change in format can be considered, but something like a table of contents may be useful to consumers though left to the discretion of the institution. In addition, model formats would help with compliance as well as help consumers in comparing various products because the language would be similar. NAFCU President and CEO Fred Becker stated in the comment letter, “NAFCU believes that the regulation should be amended in parts, but that all of the changes regarding disclosures should go into effect at the same time. Irrespective of the content of the disclosures, it is very expensive for financial institutions to continually have to change disclosures, and it is confusing to consumers to receive slightly different disclosures regarding the same account.” CUNA also emphasized the need for financial education to help consumers understand the disclosures they receive. “In addition to simplifying disclosures, we believe that improving financial literacy will help consumer to better understand their cost of credit,” Bloch wrote. “CUNA supports these efforts which includes our involvement in the National Endowment for Financial Education and the Jump$tart Coalition. Ensuring that consumers have a general understanding of credit will also help eliminate the need to provide the excessive information that is now required under the current disclosure rules.” On the topic of amendments to the disclosures, CUNA supported changing the notice before changing terms to an open-end credit agreement from 15 to 30 days. If the interest rate changes due to default or delinquency, notice should be given at the time of the incident. Bloch noted that credit unions generally oppose the practice of increased interest rates simply because of a default to another lender. The Fed has suggested possibly adding disclosures on the effects of making minimum payments. CUNA said that if they are going to follow through with that, it should be done by example with a sample balance and APR as opposed to customized reports. Overall, the substance of Reg Z is adequate and “generally favorable to the consumer,” CUNA’s Bloch wrote. “Our ultimate goal, in our review process, is to achieve meaningful changes to Truth in Lending that serve credit union members and consumers that the rule is meant to protect, and the credit unions that are charged with putting the rule into effect,” CUNA Consumer Protection Subcommittee Chairman H. Byron Edgett, of Spokane Federal Credit Union in Spokane, Wash., added. On a general note, CUNA also made known its disapproval of the use of convenience checks that can easily be forged, counterfeit, or otherwise unauthorized. If these instruments are permitted to continue, depository institutions should be able to place a long hold time on them. Additionally, Bloch stated that the rule applying to checks, not credit card payments, should be applied to them. Concerning a couple credit union specific areas, Bloch asked the Fed to keep an eye out for the little guy. First, he said that Reg Z penalties against institution should follow a sliding scale for smaller institutions that inadvertently violate the rule. And, CUNA noted that under the Federal Credit Union Act, credit unions are capped at 18% interest, but are required to use the “finance charge” definition under TILA and Reg Z for calculating the APR; Bloch recommended that credit unions be permitted to use an interest rate calculation for the purpose of figuring the interest rate ceiling not based on TILA and Reg Z’s “finance charge.” CUNA would support legislative action to make this change, Bloch wrote. [email protected]