December 9, 1997
James A. Caswell, Loan Manager
Oahu Education Employees Federal Credit Union
1226 College Walk
Honolulu, Hawaii 96817
Dear Mr. Caswell:
You have asked whether you must provide a disclosure
regarding required deposits on share secured loans, when the interest
rate on the existing share account is less than 5 percent. A
disclosure is required under the facts described in your letter.
Regulation Z requires disclosure statements
for certain lending transactions. 12 C.F.R. 226.17. "If
the creditor requires the consumer to maintain a deposit as a
condition of the specific transaction, a statement [is required]
that the annual percentage rate does not reflect the effect of
the required deposit." 12 C.F.R. 226.18(r). The Official
Staff Interpretation of Regulation Z states that the following
is not treated as a required deposit: "Requirement that
a borrower be a customer or a member even if that involves a fee
or a minimum balance." 12 C.F.R. pt. 226, Supp. I, §226.18,
paragraph 18(r)(6). Your credit union requires a member to open
a share account with a five dollar minimum balance; this is not
classified as a required deposit under Regulation Z. However,
if the credit union takes a security interest in the share account
or does not permit the member to withdraw funds from the share
account, the credit union is requiring the member to maintain
the account as a condition of the loan and the disclosure is required.
NCUA has no official authority to interpret
Regulation Z; that authority belongs to the Federal Reserve Board.
We contacted an attorney at the Federal Reserve Board and confirmed
our opinion that the disclosure is required under the circumstances
described in your letter. Should you have any further questions
on this issue, we suggest that you contact the Federal Reserve
Board's consumer information service at (202) 452-3667.
Sincerely,
Sheila A. Allbin
Associate General Counsel
GC/MJMcK:bhs
SSIC 3501
97-0950