Necessary and Unnecessary Disclosures

Anthony Sanders
July 13, 2009 | COMMENTS

The cost of creating and sending certain disclosures and notices can be one of the highest operating expenses for a credit union. But in some cases, these disclosures and notices are mailed to members based on the false assumption they are required by regulation. There are potential cost savings to your credit union if it reduces or eliminates the printing and postage expenses for unnecessary disclosures and notices. However, it is important to first understand how those disclosures and notices might still be used to comply with other regulations.

Periodic Statement Disclosures

Members who only have a share account that does not receive, nor is capable of receiving Electronic Funds Transfers (EFT), are not required by Truth in Savings (TISA) or the Electronic Fund Transfer Act (Regulation E) to receive a statement. This fact could be particularly helpful to credit unions who incur the cost of sending statements to a large number of members with very low participation in the credit union. No statement requirement also gives credit unions that do not want to completely eliminate statements the option of reducing their frequency.

The Negative —The reduction or elimination of mailing statements to members could create a customer service issue, especially with long-term members who expect to receive their statement regardless of the last time they made a transaction on the account.

Remember —If the member has an open-end loan with a balance, the Truth in Lending Act (Regulation Z) requires the credit union to send a statement at least quarterly. If the member receives an EFT, such as direct deposit Social Security benefits, Regulation E requires the credit union to send the member a monthly statement.

Non-Sufficient Funds (NSF) Notice

Credit unions are not required to send NSF notices to members by any regulation. Sending the notice is a courtesy to your member, whether or not it is an effective means of collection.

The Negative —From a collection standpoint, the elimination of this notice could result in a longer time to resolve NSF issues. Members may not be aware of the bad check as soon as they would with an NSF notice.

Remember —If an NSF check can result in the report of negative information to a national credit report agency, the Fair Credit Reporting Act specifies that members must receive a notice informing them of that possibility prior to reporting. In many cases, credit unions use the NSF notices to meet those requirements; therefore, if the NSF notice is eliminated, the member must be notified of potential negative reporting by another method.

Delinquent Notices

Like the NSF notices, there is no regulation that specifically requires credit unions to send delinquency notices to members with past due loans. While it is probably not a great idea to eliminate all delinquency notices, some of the early high-volume notices could be reduced. The collection department should have a method of determining the effectiveness of a delinquent notice before elimination is considered.

The Negative —As the rate of delinquencies grows higher in this economic environment, credit union collections departments might be opposed to reducing delinquency notices.

Remember —Like the NSF notice, if a delinquency can result in the report of negative information to a national credit report agency, credit unions are required to follow the same procedures as earlier stated under the Fair Credit Reporting Act. In addition, the Fair Debt Collection Practices Act requires a validation of debt be sent the member. Any changes to disclosure practices should always first be discussed with legal counsel.

This article was reprinted with permission from Credit Union Digest, the publication of the California and Nevada Credit Union Leagues.