ARLINGTON, Va. — NAFCU has sent the Federal Reserve Board its comment letter in response to the agency's request for written comment on the home equity lending market and in anticipation of the board's plans to hold public hearings on home equity lending and the adequacy of existing regulatory and legislative provisions in protecting consumers.
Concerning predatory lending practices, the board solicited comment about whether access to credit has been reduced as a result of laws enacted to curtail abusive lending. In its letter, NAFCU wrote that the Federal Credit Union Act and NCUA rules and regulations "limit the maximum interest rate federal credit unions can charge on loans and lines of credit," and that "federal credit unions are also prohibited from charging prepayment penalties."
NAFCU President/CEO Fred Becker wrote, "NAFCU believes that while consumers should be protected from predatory lending practices, access to legitimate subprime credit must be preserved to ensure that affordable credit is available to those underserved individuals who are most in need of financial services. In its review of Regulation Z and the HOEPA regulations, NAFCU urges the Board to be cognizant of the importance of providing underserved markets with access to credit, and to avoid any action which might adversely affect credit availability."
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The Fed is also asking for comment on whether disclosures that are currently required under Reg Z are sufficient or whether additional disclosures are needed to inform consumers of the risks associated with nontraditional mortgage products.
Becker wrote, "NAFCU believes that the recommended practices in the proposed interagency guidance are appropriate and does not feel that further regulation is necessary at this time. Consumers are already provided with sufficient information under Regulation Z; the recommended practices will further ensure that information about the risks associated with nontraditional mortgages is presented in a noticeable, clear, and understandable format."
On this topic, Becker added, "NAFCU encourages the Board to minimize disclosure requirements to the greatest extent possible…NAFCU believes that the benefits of disclosures are negated if consumers are not utilizing the information. Thus, we urge the Board to minimize disclosures such that the information provided will be useful in the consumer's decision-making process."
On the last issue the Fed asked for comment–consumer choice in the subprime market–Becker wrote that NAFCU "strongly believes that subprime lending can provide real benefits to underserved consumers by increasing loan availability for those who might not otherwise qualify for credit. NAFCU also feels it is imperative that consumers be fully informed of their options so they are able to obtain loan products that best fit their individual needs."
Consequently, he continued, NAFCU supports an upfront risk-based notice requirement relative to Section 311 of The Fair and Accurate Credit Transactions Act that requires the issuance of a risk-based pricing notice during a transaction to inform consumers that their credit reports have an impact on credit decisions.
"NAFCU believes that consumers would be best served if they could receive a risk-based pricing notice at the time of application because the consumer is focused on credit issues and is most likely to be receptive to the message of the notice at that time. Also receiving a notice at the time of application permits consumers to have a more meaningful opportunity to then obtain their free annual credit report for review and take any appropriate action…" Becker wrote. –[email protected]
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