Banking industry advocates have urged the Federal Reserve Board to adopt a single policy describing how to disclose debt cancellation agreements.
Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America, said a single rule would "avoid confusion, foster consistency, and alleviate regulatory burden."
The Fed, in a Dec. 7 Truth-in-Lending staff commentary, proposed letting states decide when banks must disclose fees for debt cancellation agreements.
The banking groups, however, assailed the Fed's commentary, saying that several states treat debt cancellation agreement fees as finance charges that trigger additional Truth-in-Lending disclosures.
Other states, however, treat all debt cancellation agreements as insurance, a product that falls outside Truth-in-Lending coverage.
Bankers said such a system would produce different disclosure requirements in different jurisdictions, creating a compliance nightmare.
The new proposal "was misdirected and discriminatory for banks, would produce unworkable or self-defeating disclosures, and is unsupported by the regulatory text," Consumer Bankers Association general counsel Steven I. Zeisel wrote in a comment letter.
The new treatment runs contrary to existing policy, Mr. Zeisel said. Bankers, relying on past Fed interpretations and court cases, now don't make Truth-in-Lending disclosures unless the consumer must buy the product to get a loan.
Mr. Guenther wrote that the changes weren't justified. "Treating the fees according to how the underlying agreement is classified by state law could create an awkward situation for a bank," Mr. Guenther wrote. "... Since the two agreements have a virtually identical impact in the eyes of the consumers, this distinction does not make sense."
John E. Smith, executive vice president of Hibernia Bank, New Orleans, said the commentary needs to be "completely revised" and was "unnecessarily complicating the disclosures of the charges." He added that the Fed didn't provide enough guidance as to which state's laws would take precedence in some cases.
"A bank located in one state may finance the purchase of a motor vehicle from a dealer located in another state by a resident of still a third state," Mr. Smith wrote. "Each state might take a completely different approach to insurance contracts."
That confusion, he wrote, might scare away creditors from offering debt cancellation agreements.
