Regulatory Compliance
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Skipping the Holidays

As I hopelessly roamed around the mall last night searching for Christmas gifts for family and friends, I began to lament how much easier this would be if someone would just do my gift shopping for me. I envisioned a utopia of holiday bliss where no effort was expended on my part and all the gifts I gave were absolutely perfect (and if not, at least I could blame someone else). Perhaps this is a service your credit union could consider offering? Just kidding…kind of.

While I realize the absurdity of your credit union offering to do my holiday shopping for me, I do have some advice regarding a very real service that you can offer your members around the holiday times. With the holiday season in full swing, money can often become tighter. One solution that some financial institutions have considered offering to their members is the option to “skip a payment.”However, it is important to consider the compliance issues related to the skipped payment.

For open-end loans, if a credit program allows consumers to skip or reduce one or more payments during the year, or involves temporary reductions in finance charges, no notice of the change in terms is required either prior to the reduction or upon resumption of the higher rates or payments if these features are explained on the initial disclosure statement (including an explanation of the terms upon resumption). Otherwise, the creditor must give notice prior to resuming the original schedule or rate, even though no notice is required prior to the reduction. The change-in-terms notice may be combined with the notice offering the reduction. For closed-end loans, prior to allowing the skip payment, the credit union should provide notice of the right to skip a payment, which month(s) a skip payment will be allowed, the amount of any fee, how the credit union will collect that fee (i.e., a withdrawal from the members share account), and the effect the skip payment will have on increasing the total finance charges and extending the loan term.

Even though the above items are not required to be disclosed under Regulation Z, since the original loan agreement is a contract signed by the member, any modifications should be communicated to and agreed to by members in a form that amends the terms of the existing loan agreement.

I wish everyone the best as the holidays quickly approach…and if anyone has any suggestions for what this perplexed son can give to his mother for Christmas, please let me know.

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