ALEXANDRIA, Va. (8/17/12)--Federal credit unions may offer multi-featured loan (MFL) plans that use one umbrella loan agreement for multiple subaccounts with both open- and closed-end credit features, National Credit Union Administration (NCUA) Associate General Counsel Frank Kressman confirmed in a recent legal opinion letter.
The NCUA letter responded to a question from a Securian Financial Group/Minnesota Life Insurance Co. representative.
According to the letter, Securian offers a loan plan that is designed to provide federal credit unions with an alternative to multi-featured open-ended loan plans. These loan plans would include both open- and closed-end features.
"The plan, as a whole, is designed to be treated as open-end credit even though the plan has closed-end features," the NCUA letter noted.
Members would sign an umbrella loan agreement when they first agree to take part in the loan product. The loan products would allow credit unions to underwrite individual, closed-end advance requests where appropriate.
Borrowers can request open-end fund advances, such as lines of credit, or closed-end fund advances, such as auto loans, as needed, under the loan plans.
Open-ended credit lines may be suspended, or loan terms can be changed, if a borrower's creditworthiness deteriorates over the course of the loan agreement. In addition, borrowers must apply and be approved for any closed-end loans before funds can be disbursed.
Kressman said that these types of lending plans that combine open- and closed-end credit are not inconsistent with Regulation Z requirements, as long as proper disclosures are provided. However, he warned, some of these loan plans may not comply with certain state laws.
In those cases, such MFL plans "would not be a practical or legal option" for federal credit unions in given states.
For the full NCUA letter, use the resource link.