Leagues Express 'Extreme Concern' Over FTC Plan On Private Insurance

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The California and Nevada Credit Union Leagues have expressed "extreme concern" over proposals by the Federal Trade Commission on disclosures that privately insured credit unions must make to their members.

The leagues said that "particularly those requiring signed acknowledgments from members-are redundant, restrictive, costly and practically impossible to implement, and would cause confusion among consumers."

While saying that the leagues support any regulation that increases consumer awareness regarding the financial services. League President David Chatfield said some of the proposed regulations will cause undesirable consequences, "ultimately hurting the consumers they are supposed to protect."

The leagues also urged the FTC to adopt guidelines developed by NCUA and the Federal Deposit Insurance Corporation regarding the types of advertising that must contain private insurance disclosures.

Specifically, the leagues are "extremely concerned" with Section 320.5 of the FTC's proposed rule governing acknowledgments of disclosure. Under the proposed rule, credit unions that converted to private share insurance after June 19, 1994, will be forced to refuse deposits from any new or existing depositor unless the depositor has signed a written acknowledgement indicating that the institution lacks federal insurance.

"This proposal is redundant, impossible to achieve, would unfairly require affected credit unions to cease long-standing relationships with faithful members who may unintentionally fail to respond, and would having a chilling effect on competition by unjustly discouraging any future conversions from federal to private insurance," Chatfield wrote.

The leagues' comment letter notes that NCUA requires extensive disclosures when a credit union plans to convert to private insurance, including three separate mailings to members; information on the conversion vote and meeting; the date of conversion; members' rights to withdraw money penalty-free; and the fact that private share insurance is not backed by the federal government.

The letter also notes that the written acknowledgment rule contravenes amendments to the FDIC Improvement Act of 1991 that Congress integrated into the U.S. banking code in 1994.

Objection To Merger Proposal

Similarly, the proposed FTC rules would force privately insured credit unions that merged with federally insured credit unions and retained private insurance to refuse deposits from members who do not have a signed acknowledgement on record, the letter to the FTC states.

"Refusing the deposit of a merged member due to a lack of a signed acknowledgement is an extreme measure that unfairly and harshly penalizes both credit union and consumer for woefully inadequate reasons and can have a devastating effect on the consumer's personal financial affairs," Chatfield wrote. "Members of privately insured credit unions know their funds are not guaranteed by federal insurance because existing FDIC and NCUA regulations require such disclosure."

The leagues objected to provisions of the proposed FTC rule that would require signage in shared branches and on ATMs disclosing that a privately insured credit union was within the shared branch or ATM network. The league's comment letter notes that NCUA has already promulgated regulations regarding disclosure signage at shared branches, and argues that signage on ATMs would confuse consumers.

"Throughout the country, many privately insured credit unions belong to ATM networks with federally insured credit unions," Chatfield wrote. "To post signs on ATMs regarding privately insured credit unions would certainly confuse members who do not belong to privately insured credit unions and who simply want access to their accounts. This defeats the true intent of the proposed rule, which presumably is to increase consumer awareness."

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