The Fed's Proposal and "Credit Protection"

Posted by Anthony Demangone

As you probably are aware, the Fed recently released a 900+ page proposal to amend Regulation Z regarding home mortgages, HELOCs and reverse mortgages.  While not quite lost in the shuffle, the regulatory proposal touches upon another major issue for credit unions - credit protection.  Here's a snippet from the proposal:

Based on comments to the August 2009 Closed-End Proposal and the Board’s review of creditor solicitations and disclosures for credit protection products, the Board now proposes changes to the timing, format, and content of disclosures required under § 226.4(d). These disclosures would be necessary to satisfy the disclosure requirements of proposed § 226.6(a)(5)(i) for HELOCs, § 226.6(b)(5)(i) for open-end credit that is not home-secured, § 226.18(n) for closed-end credit that is not home-secured, and § 226.38(h) for closed-end mortgages. These disclosures would be required whether the credit protection product was optional or required. As discussed more fully in the section-by-section analyses for proposed § 226.38 in the August 2009 Closed-End Proposal and for proposed §§ 226.6 and 226.18 below, the Board is proposing to use its TILA Section 105(a) authority to require these disclosures for credit protection products that are required in connection with the credit transaction to ensure that consumers are fully informed of the costs and risks of these products. (Proposal, pp. 59-60).

Without getting into too many details at this point, it might serve you well to view some of the proposed model disclosures that the Fed cooked up regarding credit protection.  If your credit union makes money based on the sale of such insurance products, ask yourself this question after looking at the model form: Are we going to sell more, less or pretty much the same amount of credit protection products if members look at these types of disclosures?

 

That's right.  You'll sell fewer policies. The details are in proposed 226.4(d).

 Keep in mind a few things:

1. This is just a proposal.
2. That being said, if your credit union makes money off of the sale of "credit protection" policies that are associated with your loans, this is an issue you'll likely want to investigate. 
3. NAFCU is working on a Regulatory Proposal that we will issue shortly after the Fed publishes its proposal in the Federal Register. We'll be sure to highlight the issue surrounding credit protection, and we invite your comments and feedback.