MILWAUKEE (5/8/09)--Understanding their lending process and simplifying it to accommodate applicants and staff will help credit unions determine how multi-featured open-end lending can benefit them and their members. So says Robert Israelite, CUNA Mutual sales specialist, speaking to members of the Wisconsin Credit Union League Thursday at the league’s annual convention in Milwaukee. Israelite, who serves credit unions in southern Wisconsin and nine other states, provided information for the group on compliance changes to Regulation Z, which deals with how credit unions conduct their lending business. The Federal Reserve Board recently issued regulatory changes that specifically affect multi-featured, open-end lending--a practice used for nearly 30 years that allows a credit union and a member to have a single lending contract covering multiple lending products. Under the plan, the member can have multiple sub-accounts with different program features and rate structures. The final rule keeps the multi-featured, open-end lending program intact with the several commentary changes:
* Each sub-account is not required to have a self-replenishing credit limit; * Language was retained that views the plan as a whole while some features may be used infrequently; and * Credit unions are permitted to verify information in certain circumstances to assure continued creditworthiness.
Although credit unions have until July 1, 2010, to comply with the new rules, Israelite cautioned the group to “understand your entire lending process across all delivery channels from start to finish” to ensure the maximum benefits of multi-featured open-end lending. “The loan experience should be engaging and efficient,” he said. “Look at how many times a loan is handed off before it is closed. Each hand-off makes the entire process that much more complicated.” To illustrate, Israelite showed a complex diagram of what might be considered a typical lending transaction. “If this looks like your lending process, you probably need to simplify what you’re doing,” he said. Changes to the regulation may also require credit unions to change their policies, procedures and documents. Israelite urged the group to “work with business partners who understand these changes and whom you can trust.” Despite challenges to the practice of multi-featured open-end lending by some other financial institutions, Israelite stressed the importance of the ability to provide this product to credit union members. “Multi-featured open-end lending is still a viable and legal way to conduct lending transactions,” said Israelite. “The Federal Reserve Board had an opportunity to do away with multi-featured open-end lending by removing the commentary all together. They chose to keep it in.” The Credit Union National Association and CUNA Mutual will continue to analyze the recent Regulation Z changes to determine the extent that they may impact multi-featured, open-end lending.