`Skip-A-Payment' Programs Can Trigger TILA Disclosures

ALEXANDRIA, Va.-In a recent legal opinion letter, NCUA has advised that the addition of an option to defer payments on loans may trigger additional Truth in Lending Act disclosures. “A credit union’s addition of an option to defer or skip a payment to an open-end loan after giving the initial disclosures may trigger additional disclosure requirements. No additional disclosures are necessary if the credit union adds the feature within 30 days after providing the initial disclosures, and the finance charge is the same,” NCUA Associate General Counsel Sheila Albin wrote in the March 28 legal opinion letter (05-0903). After 30 days, the credit union must provide additional disclosures. Also, any fee charged for use of the option is generally not a finance charge, but, if the finance charge terms are different from the initial disclosures, a credit union must give disclosures regarding the finance charges applicable to the option. Skip payment features on closed-end credit after the initial offer do not require additional disclosures, unless “(1) initial disclosures are rendered inaccurate before the consummation of the loan; (2) the loan involves certain residential mortgages and variable rate transactions; or (3) a member refinances, assumes, or incurs a variable rate adjustment to closed-end credit.” Albin continued, “While the disclosure rules for closed-end credit do not specifically address supplemental features or changes in its terms, the official staff interpretations to Regulation Z state that deferral of individual installments will not constitute a refinancing, for which subsequent disclosures are required, unless it is accomplished by the cancellation of the original obligation and the substitution of a new one.” She also cited an appellate court decision stating, “[n]o specific duty arises [with closed-end credit] to make post-consummation disclosures under the statute or regulations, and each payment deferral cannot be construed as a new credit transaction, triggering TILA’s disclosure requirements.”