Why Reading Disclosures Is Important
A disclosure details all material facts relevant to a transaction. Federal or state laws require financial institutions to provide disclosures containing information on terms to their customers. Reading disclosures can seem like deciphering a bunch of mumbo jumbo. But, disclosure statements contain the critical information you need to make an informed decision about which financial institution, and its products and services to choose.
Disclosure statements are legal documents. You should read the disclosures you receive when you open an account at your credit union. To understand your legal rights and responsibilities as well as the rights and responsibilities of the credit union, read the documents you receive from the financial institution. Read the entire disclosure document. Don’t be shy about asking for explanations, clarifications, and answers to your questions before you open an account or take out a loan. You should understand the disclosure statements prior to signing any documents.
Opening an Account
The key sections in a disclosure document at account opening are:
- Membership agreement
- Par value for one share
- Fee schedule
- Electronic funds transfer (EFT) policy
- Funds availability policy
- Overdraft protection policy and your right to opt-in/out
- Pledge of deposits in share accounts for any obligations owed the credit union
- Explanation of dividends, including frequency, minimum balance requirements, etc.
- Information on accounts with joint owners
- Share Certificates, including early withdrawal penalties
Credit Transactions (Loans)
The key sections in a disclosure document when taking out a loan are:
- Annual Percentage Rate (APR), including if it can change, how it is calculated and the use of an index on variable-rate or adjustable-rate loans
- Grace period, if any
- Fees and costs associated with the loan, including application fee, origination fee, credit report cost, late fees, reoccurring monthly fees, appraisal cost, etc.
- Cross-collateralization clause
- Property insurance requirements and collateral protection insurance if adequate insurance is not maintained
- Co-signor notice
Disclosure statements provide you with all of the facts that you need to make an informed decision. By reading through them and making sure to understand them, you safeguard yourself from making a bad decision. Keep and compare your documents from your credit union. This will help you make the best use of your rights under federal law and avoid liability.