CUNA Asks Regulators for More Open-end Loan Guidance
Multi-featured, open-end lending has been used by credit unions as a tool to assist in establishing long-term borrowing relationships with their members, and has served as a convenient way for consumers to obtain advances at the point of a transaction.
The Federal Reserve in 2010 changed the rules for MFOEL plans, saying that occasional or routine verification of certain credit information is permissible, but such verification may not be done as a condition of granting a particular advance for MFOEL plans to be treated as open-ended.
The NCUA issued guidance in 2010 to help federal credit unions comply with the Fed's Reg Z changes, but CUNA said confusion still abounds for credit unions concerning the concept of "occasionally or routinely" verifying certain credit information as well as the verification of credit information in connection with a consumer's request for certain advances under a MFOEL plan.
In a letter to CFPB Director Richard Cordray and NCUA Chairman Debbie Matz, CUNA and CUNA Mutual Group said that additional verification that allows for safe and sound lending practices should meet the requirements of the Truth in Lending Act and "serve credit union members well."
The letter also noted that credit unions are confused as to whether or not so-called hybrid or blended MFOEL plans, which combine elements of open- and closed-end loans, would comply with existing Reg Z rules. Financial institutions have used a combination of prior open-end loan agreements and closed-end loan disclosures in connection with these types of plans, but there is concern that this approach may not satisfy current regulatory requirements. CUNA and CUNA Mutual have asked for clarification on this issue, and also suggested the CFPB and NCUA give credit unions the time needed to comply with any regulatory changes or guidance that may result.
CUNA earlier this month met with Cordray on MFOELs and other issues, and the CFPB director at that time acknowledged that he was unaware of the issue until it was raised by CUNA senior staff. Cordray at that time had no immediate answer to the problem, but said he would have discussions with credit unions and the NCUA to determine what, if anything, should be done.
For the full CUNA/CUNA Mutual letter, click here.