Rulemaking on Credit Protection Products Suspended
February 1, 2011
February 3, 2011
The Federal Reserve Board (FRB) announced Tuesday that it was suspending rulemaking on the proposed disclosures required for credit insurance and debt cancellation products under Reg. Z, citing the volume of comments and the upcoming transition of Reg. Z to the Consumer Financial Protection Bureau (CFPB) as the reason.
The proposed language was biased and unfair. It would have had the effect of discouraging members from purchasing credit insurance or debt cancellation products. The proposed disclosures included statements like:
- “Other types of insurance can give you similar benefits and are often less expensive”
- “If you already have enough insurance or savings to pay off this loan if you die, you may not need this product”
- “You may not receive any benefits even if you buy this product”
In response to a comment call sent out jointly by the Washington Credit Union League and the Credit Union Association of Oregon, Northwest credit unions sent more than 70 comment letters opposing this change.
The FRB’s announcement covered this and a few other recent proposals under Reg. Z. The proposals suspended relate primarily to mortgage lending. The first two proposals suspended were issued in August 2009, and would have substantially changed the disclosures for closed end mortgage loans and home equity lines of credit. The final proposal suspended reformed the right of rescission disclosures, reverse mortgage disclosures, and credit protection product disclosures. Regulation Z will transfer to the administration of the CFPB in July, 2011, and it would not be surprising if that new agency begins rulemaking on these issues shortly after its inception.
Not suspended was proposed rulemaking on Interchange fees. This rule would set a cap on interchange fees (at a rate nearly 70 percent lower than 2009 rates), and while there is an exemption for issuers with less than $10B in assets, there are no teeth in place to enforce that tiered program. The Northwest Credit Union Association (NWCUA) is working against this proposal on two fronts.
Jaycee Winn, the new Director of Regulatory Advocacy for the Northwest Credit Union Association (NWCUA), has set up a simple way for your credit union to submit comments, via CapWiz. So far, Oregon credit unions have generated 28 comment letters and Washington credit unions have generated 69. If your credit union wishes to comment, please be certain to fill in credit union specific information in the blanks of our sample letter before sending it. Comments on the proposed regulation are due in to the FRB by February 22, 2011.
Secondly, NWCUA is fighting interchange limitations legislatively. There is a hearing scheduled on the matter in Washington, D.C., on February 17. While a legislative fix would potentially have great impact on the proposal, and the Association is hopeful that the intent of the legislature to exempt small financial institutions from the limits will be realized, it is important to advocate on the regulatory side. If the legislative efforts are ultimately unsuccessful, the rulemaking already in progress will stand.