Compliance Q&A: Risk-based Pricing Notice

Must credit unions provide a co-signer or guarantor with a risk-based pricing notice?

December 26, 2012

Q Must credit unions provide a co-signer or guarantor with a risk-based pricing notice?

A No. The credit union is only required to provide the notice when, based on a consumer’s credit report or score, it “grants, extends or otherwise provides credit” to a consumer on “material terms” (i.e. APR) that are “materially less favorable” than the most favorable terms available to a substantial portion of the credit union’s other borrowers for the same type of credit. This requirement generally applies to anyone who applies for and is approved for credit.

The credit union doesn’t grant, extend, or otherwise provide credit to an individual who merely acts as the co-signer/guarantor for another person who applies and is approved for credit. The co-signer/guarantor only supports and assumes liability for the credit granted or extended, but doesn’t receive it.

Q Will a credit union that offers remittance transfer services have to comply with the Electronic Signature in Global and National (ESIGN) Commerce Act when providing both the prepayment disclosure and receipt under the Regulation E remittance transfer rule?

A A remittance transfer provider may provide the prepayment notice in electronic form without regard to ESIGN’s consumer consent provisions, explains the staff commentary to Reg E’s remittance transfer rule. But a receipt that’s provided electronically must comply with ESIGN—Comment 1005.31(a)(2). And, in the case of a combined notice (prepayment and receipt), ESIGN applies since the receipt part of the disclosure falls under the requirements. It’s effective Feb. 7, 2013.

Q Does the Bank Secrecy Act still require credit unions to maintain a handwritten log to record cash sales of money orders and cashier’s checks?

A Credit unions still must keep records of certain information on each issuance or sale of these instruments from $3,000 to $10,000 in currency (e.g., purchaser’s name, date of purchase, type of instruments purchased, serial number(s) of each instrument, dollar amount of each instrument purchased).

Credit unions can record these transactions manually or electronically. If the credit union’s computer system can generate a report that contains the information, it doesn’t need to maintain a separate log. The records must be kept for five years.

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