Friday, March 31, 2017

GAO: Privately Insured CUs Comply with Disclosure Requirements; But Rules Can Be Clarified

The Government Accountability Office (GAO) reported that privately insured credit unions largely complied with the Bureau of Consumer Financial Protection (CFPB) requirements to disclose that they do not have federal deposit insurance.

Federal law (12 U.S.C. § 1831t(b)) requires that any depository institution that does not have federal deposit insurance clearly and conspicuously disclose that the institution is not federally insured.

Regulation I, which is administered by the CFPB, requires disclosure that an institution does not have federal deposit insurance (1) at locations where deposits are normally received (stations or windows) except enumerated exceptions, (2) on the institution’s main Internet page (website), (3) in all advertising except enumerated exceptions, and (4) in periodic statements and account records. Also, Regulation I generally requires depository institutions to obtain a written acknowledgment from depositors that the institution does not have federal deposit insurance.

GAO found that 45 of the 47 privately insured credit unions that they visited displayed a disclosure at teller windows. However, 7 of the 17 credit unions with drive-through windows did not have disclosures at the window. GAO noted that the dimensions and font sizes of the disclosure signage varied among credit unions, with some having signage too small to be easily read, or not placed conspicuously.

GAO also reviewed 102 privately insured credit union websites and found that almost all of these websites complied with CFPB’s requirement to disclose on their main Internet page that the institution is not federally insured. However, on 28 of 99 websites the disclosures were not easily seen or readable. Over half of the websites used used a font size that was smaller than that used for the other text on the same webpage.

With respect to printed material, 8 of the 36 credit unions had at least one item that did not contain a disclosure.

While compliance with Regulation I is high, GAO believes that Regulation I may be interpreted and enforced differently by different credit unions and state regulators. GAO wrote: "Without clarity on whether or not drive-through windows are required to have disclosures, some credit unions may continue to not display them at these windows. Additionally, without more clarity or guidance around dimensions and font sizes for disclosures, the disclosures may be too small to be easily read or noticed."

GAO recommended that the CFPB should issue guidance to:
  • clarify whether drive-through windows require disclosures; 
  • describe what constitutes clear and conspicuous disclosure, including minimum signage dimensions and font size for disclosures; and 
  • explain and provide examples of which communications are advertising.

Read the GAO Report.

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