More Lending Guidance

August 16, 2012 at 7:34 am 1 comment

Ok, I know getting your day started with a discussion of Multifeatured Lending Plans may send you for a third cup of coffee, but considering the importance of these plans to credit unions it’s worth it. 

Yesterday evening, NCUA released a legal opinion letter in which it gave a thumbs up to a Multifeatured Lending Plan (MFL) developed by Securian Financial Group.  The plan was developed in response to restrictions placed in 2010 on traditional multifeatured open-end lending plans provided by credit unions.  Together with a recent guidance issued by NCUA, the documents provide badly needed clarity to the type of lending services credit unions can provide.  For all the acronyms, the bottom line is this:  when you underwrite a loan closed-end disclosures have to be provided. 

Securian wanted to get NCUA’s blessing on an MFL plan.  Under Securian’s lending product a member signs a single umbrella loan agreement, which includes agreement on the general terms of lending.  The plan consists of multiple subaccounts.  Some of the accounts authorize traditional closed-end loans such as car loans and other accounts may authorize open-end loans such as personal lines of credit.  Where a line of credit is established, the credit union does not underwrite any particular advance “but it may occasionally or routinely verify that the members’ credit standing has not deteriorated.”  If it has, then adjustments can be made to decrease the members’ line of credit.  In contrast, however, if the credit union offers a car loan through a subaccount, and the loan is underwritten prior to being granted, then the member must be provided closed-end disclosures for these loans.

As I explained in a previous blog, this all comes down to what disclosures need to be provided to whom and under which circumstances.  Without an operational background, I can’t speak to the advantages of umbrella plans for credit unions or their members, but just keep in mind that you can still provide whatever loans you want to as long as you appropriately provide disclosures.

Entry filed under: Compliance, Regulatory. Tags: , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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