CUNA Comment Letter
Proposed Revisions to the Regulation Z Commentary
February 1, 2002
Ms. Jennifer J. Johnson
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 nations 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 CUNAs Position
- If certain holidays fall on weekends and are observed on alternative days, CUNA would only support including these days as business days, and included as part of the rescission period for certain home-secured loans, if the financial institution is open or available for business on these alternative days.
- CUNA supports the change to the official staff commentary that would clarify that lenders do not need to provide two separate copies to the consumer when disclosures for closed-end loans are placed on the same document as the credit contract.
- CUNA has no objection to the change in the official staff commentary that would permit consumers to cancel credit insurance or debt cancellation coverage after consummation, instead of after the initial payment, in those situations when lenders are permitted to exclude the initial fees and premiums from the finance charge.
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.
Assistant General Counsel