ALEXANDRIA, Va. (11/12/10)--While fully-automated loan application, underwriting, and funding systems are “legally permissible under the Federal Credit Union Act,” the National Credit Union Administration has urged that credit unions “be cautious and ensure an automated system meets various regulatory compliance requirements and addresses safety and soundness concerns.” In a recently released NCUA legal opinion, Associate General Counsel Hattie Ulan responded to a credit union’s question related to its establishment of a loan processing system for small personal loans. The credit unions system “would permit a member to apply online for a loan, would run a credit report and compare the member’s credit report score to the FCU’s lending criteria, and, on the sole basis of the credit report score, fund the loan,” according to the NCUA release. The NCUA recommended that credit unions take some precautions, though, such as preventing employees from acting as both approving loan officers and loan fund disbursers. The NCUA in a separate legal opinion recommended that credit unions “have loan officers make discretionary lending decisions” on loan applications that their automated loan system lending criteria may deny. The NCUA letter also warns that “relying on credit report information to deny membership may trigger, among other legal issues, potential problems and regulatory compliance requirements under the Fair Credit Reporting Act.” The NCUA also noted that automated loan application systems “may raise safety and soundness concerns because a human audit of the application and loans the system approves occurs only after funds have been disbursed.” For the full letter, use the resource link.