CUNA Comment Letter

Proposed Revisions to the Regulation Z Commentary

February 1, 2002

Ms. Jennifer J. Johnson
Secretary
Board of Governors of the
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

Re: Docket No. R-1118, Proposed Revisions to the Regulation Z Commentary

Dear Ms. Johnson:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed revisions to the official staff commentary to Regulation Z, which implements the Truth in Lending Act (TILA). The proposed revisions, which appeared in the Federal Register on December 13, 2001, would clarify how creditors that place TILA disclosures on the same document with the credit contract may satisfy the requirement for providing the disclosures in a form the consumer may keep. These revisions would also provide guidance on the definition of "business day" for purposes of the right to rescind certain home-secured loans and guidance on disclosing costs for certain credit insurance policies.

CUNA represents more than 90 percent of our nation’s 10,500 state and federal credit unions. This letter reflects the views of our member credit unions and of CUNA's Consumer Protection Subcommittee, chaired by Kris Mecham, CEO of Deseret First Credit Union, Salt Lake City, Utah.

Summary of CUNA’s Position

Definition of "Business Day"

For rescission of certain home-secured loans, "business day" is currently defined as all calendar days, except for Sundays and federal legal holidays. Federal law lists ten federal holidays, but only four are identified by a specific date, such as July 4 for Independence Day. (The others are identified by certain days of the week, such as "the third Monday in January.")

The official staff commentary would be revised to clarify that for the four holidays identified by a specific date, only the date specified will be considered a legal holiday and, therefore, not included as part of the rescission period. For example, if July 4th falls on a Saturday, government offices often observe the holiday on July 3rd. However, for purposes of rescission for certain home-secured loans, July 3rd would be considered a "business day," not a holiday.

CUNA would support this approach only if the financial institution was open or otherwise available for business on the alternative date when the holiday itself falls on a weekend. If the institution were closed on this alternative date, the practical effect could be that the rescission period would essentially be shortened by one day, which would be unfair for consumers.

Requirements when disclosures appear on credit contracts

The official staff commentary currently allows disclosures for closed-end loans to be placed on the same document with the credit contract, as long as they are segregated from that contract.

When disclosures are placed on the same document as the credit contract, the official staff commentary would clarify that lenders do not need to provide two separate copies to the consumer. Instead of providing both an unsigned and then a signed copy, this requirement can be satisfied by giving the consumer one copy of an unexecuted credit contract, containing the disclosures, for him or her to read and then sign. The consumer must then be given the opportunity to take possession of this document to review it before signing. If the consumer signs the contract, he or she may return the document to the lender and the consumer must then be given a signed copy to keep.

CUNA supports this clarification to the official staff commentary because it represents a common sense approach when disclosures are placed on the same document as the credit contract. This approach will also help to eliminate confusion that would result if both a blank copy and executed copy existed, which would be the case if lenders needed to create these two separate copies.

Disclosure of costs for certain credit insurance and debt cancellation policies

Under Regulation Z, amounts paid for credit insurance or debt cancellation coverage may be excluded from the finance charge if, among other conditions, the lender discloses the fee or premium for the initial term of coverage. The official staff commentary currently provides lenders the option of providing these disclosures on the basis of one year of coverage if the fee or premium is assessed periodically and the consumer is under no obligation to continue coverage after making the initial payment.

The official staff commentary would be changed to clarify that the consumer may cancel coverage at any time after consummation of the transaction, not after the initial payment, as currently stated in the commentary. Although these products have given rise to a number of consumer protection issues, we do not believe this change to the commentary will exacerbate these issues and, therefore, CUNA would have no objection to this change.

Thank you for the opportunity to comment on the proposed revisions to the official staff commentary to Regulation Z. If you or other Board staff have questions about our comments, please give Associate General Counsel Mary Dunn or me a call at (202) 638-5777.

Sincerely

Jeffrey Bloch
Assistant General Counsel