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News Archive

Compliance Compass: new guidance on Skip-A-Pays

 

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Paul Guttormsson

Skip-a-payment promotions – where credit unions let members skip a loan payment for a month, often at the holiday season – can be popular promotions. They sound simple, and members may appreciate a break from a monthly bill. However, credit unions must be aware of potentially complex compliance issues.

Before your credit union offers to let members skip their December payments, review The League’s new ii Release No. B073. It summarizes several general concerns that apply to both closed- and open-end lending, then it focuses on issues that are specific to the type of loan.

 

For example, it may be a bad idea to charge members a fee to skip a month’s payment. Skip-a-payment fees are generally prohibited on closed-end consumer loans, and they can raise thorny compliance issues for open-end consumer loans. The League recommends that the credit union not charge skip-a-payment fees unless they work with knowledgeable compliance counsel to help navigate the complex rules.

 

Also, for both closed-end or open-end loans, the Wisconsin Office of Credit Unions says it expects credit unions to provide a way for members to agree in writing to the terms of any skip-a-payment promotion. In addition, the Wisconsin Consumer Act can require that the skip-a-pay agreement meet certain requirements and contain certain notices. Credit unions planning a skip-a-payment promotion need to consider:

  • How they will notify borrowers whose skip-a-payment requests are approved;

 

  • Whether a credit union official will sign skip-a-payment agreements; and

 

  • How a copy of the skip-a-payment agreement will be provided to those obligated on the loan.

 

See ii Release No. B073 for more details – before your holiday skip-a-pay promotion becomes the nightmare before Christmas!

 

If you have any questions, please contact me at (262) 408-6009.


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