CUNA Comment Letter

CUNA's Letter to NCUA Regarding Privacy 5/30/00

May 30, 2000

The Honorable Norman D'Amours
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3486

Dear Chairman D'Amours:

We appreciate your willingness to reconsider the privacy amendment regarding notices to co-borrowers and loan guarantors. This letter follows our previous letters of May 8, 18 and 23, 2000 opposing the agency's privacy amendment. Board Member Wheat has asked for additional information regarding our position, which I want to share with you as well.

The Privacy Amendment Will Hurt Credit Union Members and Co-Borrowers

Board Member Wheat questioned how the amendment will affect credit union members. The amendment will hurt all members indirectly and jeopardize the privacy interests of co-borrowers and loan guarantors directly.

Let me address the issue of co-borrowers first. NCUA's amendment is designed to protect the privacy of co-borrowers and loan guarantors by requiring initial and annual notices for all co-borrowers and loan guarantors. The notices inform individuals regarding their right to opt out of disclosure of nonpublic personal information to nonaffiliated third parties and provide other related information, including the categories of nonpublic personal information that are disclosed. Based on responses from our members, most credit unions do not maintain the necessary information regarding the identity of the co-borrower and loan guarantor in a format that could be readily disclosed and do not collect this information beyond capturing it in the paper loan file. Nonetheless, the amendment will require credit unions to collate the data necessary to provide the notices, thus actually making it easier for credit unions, if they choose, to disclose the information to third parties.

In this regard, the amendment accomplishes the exact opposite result of what it is intended to produce.

The amendment will exact a toll on all members. That is because funds that could have been used for new loans or for higher savings rates for all members will have to be allocated to compliance costs associated with this amendment for co- borrowers and loan guarantors, costs all other financial institutions will not have to bear. Our Market and Research Department has reviewed and analyzed our survey results very carefully. As I stated previously, their analysis demonstrates that the combined costs associated with modification of data processing systems and notification will be $62 million for nonmember co-borrowers.

The Amendment Will Cost More Than $1.59 Member

Board Member Wheat indicated that the privacy amendment will cost only $1.59 per member.

We do not know the basis for these cost estimates, but our review indicates that total costs for notification and modification of data processing systems per co-borrower would be $5.03 for all credit unions and would be $10.70 per co- borrower for credit unions with assets of less than $20 million. Credit unions with assets of $20 million to $100 million would incur costs of $7.66 per co-borrowers and credit unions with assets over $100 million would face costs of $3.12 per co-borrower to comply with the privacy amendment.

Another relevant issue that could drive costs up even further relates to the difficulty many credit unions experience in keeping track of address changes and dealing with the volume of returned mail for addresses that are no longer current. While we have not been able to quantify this concern, the monitoring and related costs associated with keeping the address list updated for co-borrowers and guarantors could be sizeable.

The Amendment Will Hurt Credit Unions

Board Member Wheat questioned whether the amendment will hurt credit unions. We believe strongly that it will for several reasons. The cost is significant, as addressed above. Also, the amendment places credit unions in an anti- competitive position in relation to other types of financial institutions, none of which have to comply. Further, the amendment gives the impression that NCUA is concerned credit unions need more regulations than other types of financial institutions in order to protect the rights of individuals who are involved as co-borrowers or guarantors with a credit union. Finally, we are concerned about NCUA and its relationship with Congress regarding this matter. We believe the amendment is highly inconsistent with the congressional directive to make the privacy rules "consistent and comparable" for all financial institutions and to take into consideration the competitive impact of privacy provisions on small institutions.

In closing, I firmly believe this amendment is unnecessary and will not accomplish its intended goal. I urge you to vote to remove it from the final privacy regulation.

Thank you again for considering our request on this issue of utmost importance.

Daniel A. Mica
President and CEO