CUNA Comment Letter
Docket No. R-1286 Proposed Rule on Regulation Z Open-end Disclosures
June 3, 2009
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-1286 Proposed Rule on Regulation Z Open-end Disclosures|
Dear Ms. Johnson:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Federal Reserve Boards (Boards) proposed rule that will amend the open-end credit rules under Regulation Z. This proposal is comprised primarily of clarifications to the comprehensive changes to the open-end disclosures that were issued in December 2008. By way of background, CUNA is the largest credit union advocacy organization in this country, representing approximately 90% of our nations 8,000 state and federal credit unions, which serve 92 million members.
Summary of CUNAs Comments
- We urge the Board to provide guidance as soon as possible with regard to how the final rule issued last year will apply in light of the enactment of the Credit Card Accountability, Responsibility and Disclosure Act of 2009.
- As a result of the final rule issued last year, certain credit unions that use multifeatured, open-end lending programs may decide to use closed-end disclosures for certain loans made under these programs. We strongly urge the Board to allow these credit unions to use their current disclosures until the Board finalizes its upcoming review of the Regulation Z closed-end rules.
- The final rule on open-end credit should not apply to credit secured by real property, regardless of whether the property is the consumers home.
- The final rule issued last year will require that periodic statements include the disclosure of interest charges and fees for the statement period and for the calendar year-to-date. CUNA supports the clarification in this proposal that the disclosure requirement applies when a creditor acquires an account from another creditor or when the underlying account relationship is changed in some other manner.
The Credit Card Act
The Credit Card Act codifies a number of the provisions that were issued under the final rule issued last year and the final rule that was issued under the Unfair or Deceptive Acts or Practices Act. The provisions in the Credit Card Act are either duplicative of the provisions in these rules or very similar. We recognize that the Board will need to review and revise these rules in light of the Credit Card Act, and we urge the Board to move forward in providing guidance to credit unions as soon as possible, especially with regard to the provisions in the Credit Card Act that are effective within 90 days after enactment, which was shortly before Memorial Day.
Multi-featured, Open-end Lending
The final rule issued this past December will impact the multi-featured, open-end loan programs that credit unions offer. Under the final rule, credit unions may continue to use their current disclosures if credit under the program as a whole can be replenished, even if certain subaccounts are not replenished. However, underwriting individual advances will be prohibited, although the creditor will still have the right to periodically verify credit information and to adjust the credit limit and terms if the borrowers creditworthiness has deteriorated. Creditors may also verify collateral values to comply with Federal, State, or other laws or may verify collateral in connection with a specific advance under the plan.
CUNA believes these changes may still allow credit unions to offer multifeatured, open-end lending programs. However, we realize that operational changes may be necessary, and CUNA and CUNA Mutual are working together in developing additional guidance for credit unions before these provisions become effective on July 1, 2010.
We also recognize that as a result of these changes, there may be credit unions that will want the flexibility to underwrite certain specific loans that have until now been included within these multifeatured, open-end lending programs. In order to do so, they will now need to use the closed-end disclosures, as required under the recent final rule.
For those credit unions that may choose to use closed-end disclosures, we strongly urge that the Board delay the requirement to use such disclosures until the Board completes its review of the closed-end provisions of Regulation Z. It is our understanding that the Board will issue a proposal later this year with regard to these closed-end disclosures. If so, we would anticipate that these changes would be finalized in 2010 with compliance being required in 2011 or 2012.
For those credit unions that may choose at this time to use closed-end disclosures, they will need to make this change by July 1, 2010 to comply with the final rule issued in December and then change these disclosures again either in 2011 or 2012, based on the modifications that the Board makes to the current closed-end disclosures. To require credit unions to change these disclosures twice within a relatively short period of time will be very expensive and quite unfair, especially since the Board until now has specifically permitted open-end disclosures for multi-featured, open-end lending programs, as outlined under the official staff commentary to Section 226.2(a)(20). It would be much more efficient and much less confusing for credit unions and their members if these disclosures are only changed once during this process.
Applicability of Final Rule to Home-secured Loans
The final rule that was issued last year will not apply to open-end credit that is secured by the consumers home. The Board indicated that these issues will be addressed when it considers changes later this year to home-secured credit under the Regulation Z closed-end rules. However, in the proposal, the Board requested comment as to whether these open- end rules should apply to open-end credit secured by property that is not the consumers home.
We believe all loans secured by a home should be subject to the same rules and should be addressed when the Board considers changes to the Regulation Z closed-end rules, regardless of whether the property is the consumers home. The open-end rules issued last year should apply primarily to credit cards and similar types of unsecured credit.
The final rule issued last year will require that periodic statements include the disclosure of interest charges and fees for the statement period and for the calendar year-to-date. The proposal clarifies that this disclosure requirement applies when a creditor acquires an account from another creditor or when the underlying account relationship is changed in some other manner. In these situations, the interest and fees incurred prior to the acquisition or change must also be included in these disclosures, although they may be disclosed separately. In the proposal, the Board requested comment as to the operational burdens or other concerns associated with these clarifications.
We do not believe this clarification will impose an undue burden on credit unions and agree that this will be beneficial for consumers. This will likely only require credit unions to input this data into their system once at the time the account is acquired, which should not pose any undue hardship.
Thank you for the opportunity to comment on this proposal with regard to the open-end credit rules under Regulation Z. If you have questions about our comments, please contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777.
Jeffrey P. Bloch
Senior Assistant General Counsel