Over the past ten years that I’ve worked in the credit union movement, I’ve become increasingly convinced that more people would join as members if they knew the benefits credit unions provide consumers. If more people understood the basic not-for-profit, cooperative governance structure that guides credit unions, it should be a no-brainer for consumers. However, most people don’t know why they should care and are never provided with the information to understand the distinction between banks and credit unions. While I fear that Dodd Frank teeters on disclosure/information overload for consumers, some provisions in the new law could help the public better understand the benefits of the credit union model.
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With all of the recent regulatory changes, you may have placed compliance with the completion of Truth-In-Lending (TIL) disclosures for closed-end consumer loans on the back burner. Although all the talk recently has centered around open-end lending, the same old closed-end disclosures are still on the books and are still being enforced. One particular aspect of the TIL that seems to get overlooked is the Itemization of Amount Financed.
Section 226.18 of Regulation Z requires creditors to provide a written itemization of the amount financed. With closed-end consumer loans, this is typically included within the TIL disclosure. The itemization must include the following information:
- The amount of any proceeds distributed directly to the consumer. This includes funds given to the consumer in the form of cash, check, and funds placed in an asset account.
- The amount credited to the consumer’s account with the creditor. This refers to an account in the nature of a debt with that creditor. It may include, for example, an unpaid balance on a prior loan, a credit sale balance or other amounts owing to that creditor. It does not include asset accounts of the consumer.
- Any amounts paid to other persons by the creditor on the consumer’s behalf, including the identity of those persons.
- Any prepaid finance charge.
Credit unions often only enter the amount financed into the itemization section and fail to list where the money is going. Others frequently just list all the funds as paid directly to the consumer. The itemization of amount financed is an important part of Regulation Z and your credit union must ensure that it is completed properly. In reality, it is an easy requirement to comply with. All you have to do is list the amount financed and everywhere those funds are going. It is really just that easy.
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It is going to be awhile before most credit unions feel like they’ve fully digested each of the new and upcoming regulatory changes. Most people just don’t have the time to read each new rule and all of the accompanying information. The problem is that if you don’t read all of the information you can miss some key points. In other words, you can’t read just the new rules, and feel confident you’ve got it—you’ve really got to read the new rules, the commentary to the new rules, the supplementary information that is published in the Federal Register, etc.
For example, one of the new CARD Act provisions of Regulation Z clearly prohibits
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Has your credit union been properly trained to recognize the new one hundred dollar bills? The Federal Reserve unveiled the design of the new hundred dollar bill on April 21st, 2010. The bill looks remarkably different than any of the other denominations. These bills are scheduled to start circulating on February 10, 2011. So it is important that you educate your employees on what to look for, to avoid the “shock” factor. The bill has many new security features to help detect counterfeit attempts. You will want to make sure your staff is well aware of what to look for prior to the circulation. Here is a great resource for information and education materials on the new $100 bills. www.newmoney.gov.
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The FACT Act risk-based pricing rules are going to require some planning on the part of your credit union because there are some choices you need to make before January 1, 2011. In short, if you are using risk-based pricing, the rules require you to provide a notice under certain circumstances when you use a consumer report in connection with an application or extension of credit. Which notice you will provide and to whom are the ultimate questions.
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In today’s economic environment, credit unions (and all other financial institutions) are having to spend a greater amount of their time and resources on their collection activities. This increased activity may have led you to wonder…does the FDCPA and its collection rules apply to my credit union? Well, if you want a short answer, it would be NO, as long as the credit union is collecting its own debts in its own name. BUT, in the world of financial regulatory compliance, there is never a short answer!
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Various blogs and media outlets are prophesying an end to the era of free checking (see e.g. here and here). In fact, some banks have already eliminated free checking from their product offerings, as discussed here. In light of the hoopla over the demise of free checking, credit unions are in an excellent position to both differentiate themselves from banks, and add greater value to consumers, by offering and advertising free checking.
When may a credit union advertise a checking account as free?
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