For more information:
Rick Uhlmann 608/231-8940 rick.uhlmann@cunamutual.com
Phil Tschudy 608/231-7188 philip.tschudy@cunamutual.com

August 11, 2007

Fed's Proposed Changes to Reg Z Have Significant Implications for CUs
Open-End Lending’s Future at Stake if Agency has its Way, NASCUS Attendees Told

FORT LAUDERDALE, Fla. – A proposal by Federal Reserve Board staff could adversely affect credit unions’ well-earned customer service tradition and disrupt the industry’s primary method of meeting members’ demand for loans, attendees of NASCUS’ State System Summit were told Saturday.

CUNA Mutual Group’s Tim Kovac told state regulators and credit union leaders that under the Fed’s proposed changes to Regulation Z, multi-featured, open-end lending would change significantly. But, he added, industry leaders are responding in an effort to preserve the lending practice credit unions have embraced for 25 years.

Kovac estimated approximately 3,500 credit unions use open-end lending as a convenient process that allows them and their members to establish long-term borrowing relationships. He said the proposed changes to Reg. Z – the implementing regulation for the Federal Truth in Lending Act (TILA) governing consumer credit disclosures – would:

• Require that each lending feature (i.e. sub-account) of a multi-featured open-end lending plan must be self replenishing, and
• Require that credit unions (and other open-end lenders) would not be able to underwrite specific loan transactions under an open-end lending plan.

“When you combine the effect of these two fundamental changes, multi-featured, open-end lending as currently used may no longer be a viable method of making loan advances to members,” Kovac said. “If the proposed regulations go into effect, credit unions will be forced to modify their lending practices, thereby losing the convenience and lower cost their members currently enjoy. Credit unions will need to retrain staff and increase staffing to accommodate the changes. All this means greater expense to credit unions, which will erode credit unions’ competitive position.” Kovac said even if the regulations are implemented, it’s unlikely they will take effect until at least 2009 and recommended those using multi-featured, open-end lending should continue to do so.

“CUNA Mutual, CUNA, NAFCU and others are preparing responses to these regulations,” Kovac added. He urged credit unions to review the proposed regulations, share their concerns with those organizations and with other credit union professionals so they are aware of the impact the proposals would have on their credit union and members.

“Credit unions are recognized for their outstanding service, year in and year out. We need to let the Federal Reserve Board know what a significant impact their proposals will have on that tradition,” Kovac said.

CUNA Mutual Group is the leading provider of financial products and services to credit unions and their members worldwide. More information on the company is available at www.cunamutual.com.