regulatory and compliance issues and considerations

Also – consider the other changes coming such as the CARD Act affects on
periodic statements (which do not apply to closed-end loans) ….
Further, when reviewing information from vendors such as the following from
CUNA© be sure to assess the full nature of the question ----
Q: Can a credit union offer secured advances under [Multi-Featured Open-end
Lending Plan] MFOEL?
A. YES. Regulation Z allows credit unions to offer secured advances. The
commentary states: “Some creditors offer programs containing a number of different
credit features… Some features of the program might be used repeatedly (for example,
an overdraft line) while others might be used infrequently (such as the part of the credit
line available for secured credit). If the program as a whole is subject to prescribed
terms and otherwise meets the definition of open-end credit, such a program would be
considered a single, multi-featured plan.” (Regulation Z 226.2 (a)(20)).
Ask yourself this question – how many additional advances can the member
obtain under their new 60-month car loan under their “open-end” plan? Note – it
says “infrequently” --- not one single advance under a “sub-account” under
which the Credit Union does not allow future advances. Also – review your
periodic statements on these open-end loans to insure your compliance with 12
CFR 226.7 and after August 20, the CARD Act.
Q: How do credit unions make informed credit decisions at the time of individual
advance requests?
A: Credit information about borrowers may be routinely verified throughout the plan
through a credit update, credit report, or other means that a credit union establishes.
The credit union may refuse an advance request under the plan due to the deterioration
of the member's creditworthiness.
This does not address the “underwriting” issue or assessment with an
application, or assessment of a CR in connection with a risk-based lending
system. In fact – it appears to paint over this key element. Here is what we wrote
previously:
HOWEVER – the FRB has adopted rules that will allow Credit Unions to continue
to use “multi-featured open-end plans,” but will require a closed-end disclosure
in connection with such a subaccount or advance (i.e., a “clopen-end loan
disclosure”). Here is the crux of the new rules:
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