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Multi-featured open-end lending guidance posted
ALEXANDRIA, Va. (9/22/10)--The National Credit Union Administration (NCUA) on Tuesday released letter to credit unions No. 10-FCU-02, which includes best practices related to multi-featured open-end lending (MFOEL). Last year, the Federal Reserve Board (Fed) issued comprehensive changes to the open-end lending rules under Regulation Z, which became effective as of July 1. Some of these changes affected MFOEL programs. Specifically, the Fed indicated that closed-end loan disclosures must be provided for closed-end loans, which could apply to loans offered under MFOEL programs. However, the Fed indicated that closed-end disclosures under these open-end MFOEL programs will not be necessary if credit under the program "as a whole" can be replenished, even if certain subaccounts are not replenished. Although underwriting individual advances will be prohibited, creditors will still have the right to periodically verify credit information and to adjust the credit limit and terms if the borrower’s creditworthiness has deteriorated. Although these changes will still allow credit unions to offer MFOEL programs, operational changes were still necessary. The letter now issued by NCUA is intended to provide additional guidance in complying with these new Regulation Z rules, including guidance as to the level of verification that should be undertaken with regard to these programs. The letter also identifies numerous best practices for credit unions that offer MFOEL accounts, which the NCUA defined as “single accounts with separate sub-accounts for different loan products.” These practices address the differences between verification and underwriting, as well as a number of other issues. One of the best practices that NCUA recommended for credit unions is using “closed-end lending practices and disclosures when it is appropriate to perform underwriting at the time of application.” The NCUA also said that credit reports should be used to verify continued creditworthiness, not to re-underwrite loans. As for the other issues, credit union staff should have the training needed to deal with MFOEL accounts, and credit unions should consider undertaking a review of their policies, procedures, and documents for Regulation Z compliance. Credit unions should also ensure that their data processor is equipped to handle MFOEL loans. A credit union should also maintain separate sets of policies and procedures for both open-end and closed-end lending policies. For the full NCUA letter, use the resource link.
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