CUNA Regulatory Comment Call


December 4, 2003

Fed Proposes Uniform Standards for Five Consumer Protection Rules and Additional Changes to Regulation Z, Truth in Lending
(MAJOR RULE)

EXECUTIVE SUMMARY

Comments on the proposal are due by January 30, 2004. Please submit your comments to CUNA by January 21, 2004. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the proposal, or you may access them on the Internet at the following address:
http://www.federalreserve.gov/boarddocs/press/bcreg/2003/20031126/default.htm

BACKGROUND

The Fed’s proposal will establish more uniform standards for providing disclosures under the five following consumer protection rules:

  1. The Truth in Lending Act (TILA) – TILA is intended to promote the informed use of consumer credit by providing for disclosures about its terms and cost. TILA requires creditors to disclose the cost of credit as a dollar amount and as an annual percentage rate in a uniform manner. This uniformity is intended to assist consumers in comparison shopping for credit. Regulation Z implements TILA.
  2. The Equal Credit Opportunity Act (ECOA) - ECOA makes it unlawful for creditors to discriminate in any aspect of a credit transaction on the basis of sex, race, color, religion, national origin, marital status, age, or because the applicant receives public assistance. Regulation B implements ECOA.
  3. The Electronic Fund Transfers (EFT) Act – The EFT Act establishes rights, liabilities, and responsibilities for parties involved in EFT systems, which include transfers through automated teller machines, point-of-sale terminals, automated clearinghouses, telephone bill-payment plans, and remote banking programs. Regulation E implements the EFT Act.
  4. The Truth in Savings Act (TISA) - TISA requires financial institutions to disclose yields, fees, and other terms concerning deposit accounts to consumers at account opening, upon request, when changes in terms occur, and in periodic statements. There are also rules about advertising deposit accounts. Regulation DD implements TISA, with credit unions being covered under substantially similar rules that are issued by the NCUA Board.
  5. The Consumer Leasing Act (CLA) – CLA requires lessors to provide consumers with uniform cost and other disclosures regarding consumer lease transactions. These requirements apply to consumer leases of personal property in which the contractual obligation does not exceed $25,000 and has a term of more than four months. Regulation M implements CLA.

Each of these regulations also contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions. The Fed proposes to amend these regulations and the corresponding official staff commentary to provide a consistent standard for providing “clear and conspicuous” disclosures that would apply to all five rules. The Fed is also proposing additional amendments to Regulation Z.

DESCRIPTION OF THE PROPOSAL WITH REGARD TO UNIFORM STANDARDS

The Fed’s consumer protection rules contain similar, although not identical, standards for providing disclosures that consumers will notice and understand. Generally, they must be “clear and conspicuous” under Regulations B, M, Z, and DD, with slight differences among these rules as to how this is interpreted, and “clear and readily understandable” under Regulation E. The proposal will now apply the definition of “clear and conspicuous” to these five rules that is currently included in these privacy rules that were adopted by the financial institution regulators in 2000 with regard to the annual privacy notices that must be sent by financial institutions. These privacy rules define “clear and conspicuous” as “reasonably understandable and designed to call attention to the nature and significance of the information” in the disclosure.

The official staff commentary to these five consumer protection rules will provide consistent guidance with regard to this uniform definition of “clear and conspicuous,” similar to the guidance that is included in the privacy rules. The commentary includes the following examples of what is considered “reasonably understandable:”

The commentary also includes the following examples of disclosures “designed to call attention to the nature and significance of the information:”

Unless otherwise prohibited, this new uniform standard for “clear and conspicuous” disclosures will not prohibit adding other terms or prohibit sending promotional material with the disclosures. However, the presence of additional information will be a factor in determining whether the “clear and conspicuous” standard has been met. Segregating this additional information from the disclosures will more likely satisfy this standard.

Guidance regarding the “clear and conspicuous” standard for electronic disclosures will be considered in the rulemaking process currently underway with regard to the electronic delivery of these disclosures. Click here for more information about the interim rules that the Fed issued in 2001 with regard to electronic disclosures.

ADDITIONAL PROPOSED CHANGES WITH REGARD TO REGULATION Z

Here are the additional proposed changes with regard to Regulation Z:

With regard to debt cancellation and debt suspension agreements, the Fed is not proposing any amendments at this time but is requesting comment on possible changes in the future. Under these agreements, a creditor agrees to cancel, or temporarily suspend, all or part of a borrower’s obligation to repay a debt upon the occurrence of specified events, such as death, disability, or unemployment.

Although the fees charged for these agreements meet the definition of “finance charge,” these fees may be excluded from the finance charge on the same conditions as credit insurance premiums. However, this applies for liability: 1) in the case of accident or loss of life, health, or income; or 2) in the amount exceeding the value of collateral securing the debt. (This is commonly referred to as “gap” insurance, often sold in connection with automobile loans.)

The Fed is now aware that some creditors are offering expanded coverage. An example is suspension of payment for life events, such as marriage and divorce. Some in the financial institution industry have requested additional guidance as to the circumstances in which fees for agreements that cover these events can also be excluded from the finance charge, as well as clarification regarding the disclosures that should be provided.

QUESTIONS TO CONSIDER REGARDING THE FED’S PROPOSAL WITH REGARD TO CONSUMER PROTECTION RULES

I. QUESTIONS REGARDING UNIFORM STANDARDS

  • The proposal with regard to providing a uniform standard for “clear and conspicuous” disclosures is intended to ensure that consumers receive noticeable and understandable information with regard to financial products and services. Do you believe that this goal will be achieved?
















  • Another goal of this proposal will be to provide consistency among these rules in order to facilitate compliance by institutions. Do you believe this goal will be achieved?
















  • The proposal specifically provides that 12-point type will be acceptable and that smaller type may also be acceptable, although disclosures of less than 8-point type will likely be too small. Is this requirement acceptable? Will the burden outweigh the benefit for your members? If so, how?
















  • Other comments?
















  • II. QUESTIONS REGARDING THE ADDITIONAL CHANGES TO REGULATION Z

    (The Fed is Specifically Interested in Receiving Comments on Most of the Issues Raised by the Following Questions.)

    Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
    Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
    Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
    Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com