Credit unions without federal insurance could face additional requirements for informing members about their insurance status, as a result of a proposed rule by the Federal Trade Commission.
The commission could issue final rules before the end of 2009 that would require credit unions without federal insurance-159 according to American Share Insurance-to obtain a signed acknowledgment from depositors that they are aware that the credit union lacks federal insurance.
Several industry sources said they had been told the regulations could be issued before the end of the year, but the FTC declined to state a timetable.
Under the draft rules, privately insured credit unions would have to receive signed acknowledgement from all members as of Oct. 13, 2006. But in its comment letter, CUNA urged the commission to make the change effective the day the rules take effect.
The draft would also require credit unions to place signs that they are not federally insured at all deposit windows and at shared-branching facilities. Under the law, institutions lacking federal deposit insurance must disclose that fact in periodic statements, conspicuous notices in the facilities, and in all advertising, including print, electronic, Web or broadcast media. FTC's notices quote the statute as reading that covered institutions shall "include conspicuously in all advertising and at each place where deposits are normally received a notice that the institution is not federally insured."
In its comment letter, CUNA said the provisions regarding service centers and shared-branching facilities aren't needed because the NCUA regulations already require such a disclosure in a shared branch.
NASCUS expressed similar sentiments in its comment letter and expressed concern that such a requirement could be "problematic," especially if the non-federally insured CU doesn't have direct management oversight of the location.
American Share Insurance President/CEO Dennis Adams wrote that the requirement would "create confusion." He added that "disclosure that is not readily ascertained by the consumer is of no value."
But in its comment letter, NAFCU expressed support for stronger notification requirements and cited the lack of disclosure found in 37% of locations where the Government Accountability Office made unannounced visits. "NAFCU supports the proposed disclosures and believes they are necessary and will help consumers make informed decisions," President/CEO Fred Becker wrote.
NAFCU, which has previously come out in opposition to private insurance for a primary insurance option, stated that the FTC should more clearly address deposits made over the Internet and include disclosure requirements for those as well.
The regulations are a long time in coming.
The FTC was delayed more than a decade in writing regulations implementing section 43 of the Federal Deposit Insurance Corporation Improvement Act of 1991 because, after passing the bill, Congress refused to fund enforcement of it. Congress lifted this ban in 2003 by appropriating funds.
Lawmakers agreed to the funding shortly after the General Accounting Office report found that the "most apparent impact on consumers, from the lack of enforcement of these provisions, may result from credit unions not providing adequate disclosures that they are not federally insured."
–cmarx@cutimes.com

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