For more information:
Maripat Blankenheim 608/232-6539 maripat.blankenheim@cunamutual.com
 
 
Nov. 11, 2007
 
Lending Practices at Risk Under Fed-Proposed Change
Regulation Z Amendments Threaten How Many Credit Unions Do Business
 
SAN DIEGO – Credit union leaders and organizations continue to work with the Federal Reserve toward a reasonable compromise to the Fed’s proposal regarding Regulation Z, the legislation that applies to open-end lending. But CUNA Mutual’s Larry Blanchard warned members of the California-Nevada Credit Union League today that they should anticipate the possibility of working under alternative rules.
 
Blanchard, senior vice president of special projects, was speaking to a packed room at the League’s annual meeting in San Diego.
 
“There’s no question the changes being proposed would have an overall negative impact on credit unions and their members,” said Blanchard. “That’s why we’re doing as much as we can to agree on an acceptable compromise.”
 
Under the change proposed by the Federal Reserve, credit unions would be prevented from underwriting new extensions on open-ended loans, and credit unions would be required to replenish credit lines as they are paid down. According to Blanchard, credit unions of all sizes will be harmed by the proposed rule.
 
“I would estimate roughly 3,500 credit unions use multi-featured open-end lending,” Blanchard said. “A significant number of small credit unions – 1,822 credit unions have less than $50 million in assets – use this product, even though large credit unions are more likely to more extensively use multi-featured open-end lending.”
 
Blanchard said credit unions will unlikely want to establish a replenishing line of credit with a depreciating asset, such as vehicles, boats or other big-ticket items, just as they won’t want to make advances without individual underwriting to a specific advance. In fact, the combination of a line of credit with a depreciating asset for collateral and the inability to underwrite will make multi-featured open-end lending an unattractive option for most credit unions.
 
The changes being proposed to Reg Z affect the larger financial community as well as credit unions, which is why credit union movement leaders are working to separate them from other entities.
 
“The Federal Reserve is trying to address abuses in the marketplace that have nothing to do with credit unions,” Blanchard said. “Credit unions got swept up in the rulemaking, and we’re trying to resolve it.”

Blanchard added there has never been a complaint to the Federal Reserve regarding credit unions on the issues involved with the Reg Z debate.
 
In an effort to raise awareness, organizations such as CUNA Mutual, CUNA, NAFCU, the Leagues and individual credit unions sent letters to the Federal Reserve during its comment period expressing their concern over the proposed rulemaking. A group comprised of those organizations also met with Federal Reserve Board staff in September to discuss the proposal’s ramifications on credit unions and propose alternatives.
 
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.