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Posted on Thu, Oct. 15, 2009

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Altered act hurts credit unions

BY JERRY SIEBENMARK

The Wichita Eagle

A late change to the federal Credit Card Act has cost local credit unions time and money, but relief for them might be on the way.

This week the House of Representatives passed a bill that would undo provisions of the Credit Card Act that have made it more costly for credit unions to provide open-end lending.

An open-end loan is similar to a line of credit or signature loan in which borrowers can increase the amount of money they are borrowing without requiring additional paperwork or the making of a new loan.

Area credit union executives said a provision slipped into the act a day before it was voted on and approved by Congress has affected their ability to offer such loans.

The provision required institutions making open-end loans to provide 21 days' notice in advance of the payment due date.

That's made it problematic for credit unions that have customers making weekly or biweekly payments on their loans.

Executives said it also doesn't make sense because their members know exactly when their payments are due and how much they will have to pay as part of their open-end loan agreements.

"We've had to try and conform with issues that aren't really relevant to open-end lending," said Bob Corwin, chief executive of Meritrust Credit Union.

Lee Williams, president of Central Star Credit Union, said that in order to comply with the new law, her $82 million institution has had to convert about 3,800 of its 4,000 open-end loans to closed-end loans.

"It probably took us a full week of staff time devoted to nothing but transferring those over," Williams said. "We probably spent $20,000... in man-hours and notifications (to credit union members).

"This is not a year where you need that kind of (financial) impact."

Plus, Williams said, it's taken away the convenience of Central Star members who previously were able to increase their loan by a phone call. Now they have to take out a new, separate loan, which means more time and paperwork for them, she said.

Corwin said it also has cost his $637 million credit union time and money in terms of staff manually preparing the required 21-day notices as well as postage.

"That was a big scramble and quite an expense that we didn't have before," he said.

He said his credit union prepares the notices manually because Meritrust doesn't have the capability to do those notices through an automated system.

The act has also changed payment due dates for members with open-end loans who chose their dates based on their financial situations, the executives said.

Marla Marsh, chief executive of the Kansas Credit Union Association, said she is hopeful that the House bill, CARD Act Technical Corrections Act, will be passed by the Senate.

That act would remove open-end loans from the Credit Card Act and allow credit unions to follow the processes they've always followed with open-end lending.

In Central Star's case, it would re-establish open-end lending, Williams said.

"It's going to help us and consumers," she said.

She and KCUA's Marsh are cautiously optimistic.

"It's only halfway through and there's no corresponding bill in the Senate at this point," Marsh said. "We're hopeful that they will move this along quickly and get this resolved in the next couple of weeks."

Reach Jerry Siebenmark at 316-268-6576 or jsiebenmark@wichitaeagle.com.