regulatory and compliance issues and considerations

(1) NO CLOSED-END DISCLOSURE GIVEN WITH “THE
ADVANCE/SUBACCOUNT” – IF --you merely verify loan file
credit information; and engage in no further underwriting of
the loan.
(2) A CLOSED-END DISCLOSURE BEING GIVEN WITH “THE
ADVANCE/SUBACCOUNT IF --you engage in any
“underwriting” in connection with the advance/subaccount.
1. PROBLEM: The FRB has declined to define “underwriting.” Brilliant –
huh? In a recent conference call – off the record – FRB Staff stated that
they would consider a Credit Union’s assessment of any additional
information including the pulling of a credit report to be “underwriting.”
2. So – is there any actions a Credit Union could take that would not be
underwriting? I believe there may be – however – the “safe harbour”
requires that we consider what “underwriting is” with a very broad view
of the concept unless or until there is further definition – or case law to
provide specific guidance. Is pulling a credit report “underwriting?” –
Maybe. Is pulling a beacon score off a credit report to assign an APR
“underwriting?” – Maybe. An example of the broad view of what
underwriting is can be viewed based on information in various
dictionaries – lender resources – etc. I find the following from Bank of
America’s website interesting in this regard:
What is underwriting? Once all the required documentation has been gathered, your
application is submitted to underwriting. Underwriting is the process of reviewing all of the
information and making a decision as to whether a borrower qualifies for a loan. Underwriters
evaluate your ability to repay the loan (income), your willingness to repay the loan (credit)
and the value of the property that you've identified (collateral).
• Loan application. The information provided on your application helps the lender answer
basic questions such as:
o What is the source of your income, and is the source stable?
o Is your income adequate to cover the expense of the new mortgage payment?
o How much long-term debt (debt that will not be paid within the next 10 months) do
you have?
• Credit history. Your credit history helps lenders evaluate your ability to manage debt. It
reflects how repayment of your bills has been handled in the past. In some cases where
borrowers don't have an extensive credit history, some lenders will consider alternative
payment records, such as rental payments and utility bills.
Q: Can a credit union still offer Open End Plans (MFOEL) to their members and
remain complaint with Regulation Z?
A: YES. Credit unions can continue to offer members the benefits of MFOEL. A credit
union will need to make adjustments to their policies, procedures and documents to
comply with the changes made to Regulation Z including: Credit unions will need
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Revised February 2010
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