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CU System
Reg Z alternative addressed at CUNA Lending Council
ORLANDO, Fla. (11/5/08)--Credit union advocates have submitted an alternative to the Federal Reserve Board’s proposed changes to Regulation Z. It would address the Fed’s concerns over disclosure, yet ensure the benefits of multi-featured, open-end lending are maintained, according to CUNA Mutual Group.
Bill Klewin, associate general counsel, CUNA Mutual Group, addressed CUNA Lending Council conference attendees Monday about the Federal Reserve Board’s proposed changes to Regulation Z and its impact on credit unions. (Photo provided by CUNA Mutual Group)
Bill Klewin, associate general counsel, CUNA Mutual Group, told attendees of CUNA’s Lending Council that Credit Union National Association (CUNA) and CUNA Mutual representatives have met with Fed staff to discuss the Fed’s belief that more disclosure for consumers is needed in the lending transaction. Fed staff believe loan transactions for autos and boats--and in general, bigger consumer loans--need more disclosure at the time the transaction is consummated. The Fed believes increased disclosure benefits consumers’ ability to make a choice in selecting a lender, Klewin said. The alternative proposed by CUNA Mutual and CUNA, and supported by the Consumer Federation of America, would provide members with more information on payments, finance charges and borrowing amounts. Credit unions have used multi-featured, open-end lending as their preferred method to make non-real estate, secured loans for more than 25 years. About half of all credit unions use this lending approach and about 60% of credit unions with assets of more than $100 million in assets use this approach as their primary method of consumer lending, Klewin said. The Fed proposal would put credit unions’ multi-featured, open-end lending in jeopardy. Open-end lending allows credit unions to establish long-term borrowing relationships by providing loans how and where the member wants from their credit union. The proposal would eliminate the convenience members desire and differs from closed-ending lending, which is characterized by disclosures and processes that require the lender and borrower to close loans at the branch, thus stemming the convenience. “We estimate if multi-featured, open-end lending went away and credit unions had to switch to closed-end lending it would cost the industry $350 million for compliance costs alone to make the switch,” Klewin said. “And that doesn’t include ongoing expenses associated with costs related to the greater length of times for closing. Under the alternative, we believe the disclosure issue concern will be addressed and the associated cost would be lowered to $5 million to 10 million,” he added. When the final rules may be issued is unknown, Klewin said. CUNA Mutual is working on compliance and lending adjustments that credit unions may need to make as a result of any changes in the lending transaction. “Why are we pushing this issue with the Fed? Without any changes to the Fed’s proposal, credit unions will be forced to switch to closed-end lending for many of their consumer loans,” Klewin said. “It would have tremendous expense ramifications to credit unions and adversely affect their service and competitive capabilities.”
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