Changes Could Harm Instead Of Help Consumers

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MADISON, Wis.-While the Fed's proposed changes to credit protection in Truth in Lending disclosures are likely aimed at helping consumers, two analysts believe they will have the opposite effect.

"People are often underinsured, and if you discourage them from buying the kind of protection that can help them avoid financial risk, you are hurting them," said Bill Klewin, CUNA Mutual's director of regulatory compliance.

Klewin speculated that the genesis of the Fed's actions (see related story) stems from concerns over consumers buying credit protection when the products are not needed. "Where it gets little dicey is trying to understand exactly what they are trying to accomplish with this. Not to get on a soapbox, but credit unions have always prided themselves on having nothing to hide, and having fair and appropriate disclosures. When it goes beyond that, as with the latest Fed proposal, it does not feel right."

If members who need the insurance are discouraged from taking the products, credit union delinquencies and defaults could increase, suggested Klewin. "When you think of the benefits paid out (for credit protection), they are substantial."

Klewin agreed that without those credit protection polices in place, CU losses over the last few years would have ticked up. "Not all of those transactions would go into delinquency, but a large percentage would, only exacerbating the ROA situation."

According to Mark Hein, CEO of SWBC's credit union division, the Fed is operating through the fear that some consumers may not receive any benefits under credit protection products. "What the Fed does not understand is that many times customers of credit protection are the uninsured or under-insured. Most insurance carriers do not want to provide low-benefit coverage because the cost/benefit does not meet their standards. So many times, this insurance is the only type of coverage a consumer can purchase."

SWBC is headquartered in San Antonio.

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