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Fed action continues CU multi-featured open-end lending
WASHINGTON (12/22/08)—Changes adopted last week by the Federal Reserve Board to its Regulation Z will permit credit unions to continue offering multi-featured open-end lending, such as under LoanLiner. Credit union members have used multi-featured open-end lending for the last 25 years as a convenient and efficient means of accessing credit from their credit union. The Fed plan as proposed may have put that authority in jeopardy and the Credit Union National Association (CUNA) and CUNA Mutual Group launched a substantial effort to inform the Fed of the possible problems credit unions might face under the Reg Z plan as proposed. The proposal would have required "closed-end" disclosures for certain types of loans provided under these types of programs, instead of the "open-end" disclosures that are currently used. The goal of CUNA and CUNA Mutual was to preserve the ability to use the current disclosures. The groups told reminded the Fed that have been no problems or concerns raised by credit union members that have used these programs. “Working with CUNA Mutual, we met several times with the Fed to ensure that this approach would essentially be preserved in these much-anticipated rules, and we appreciate the Fed’s consideration of our views,” said CUNA President/CEO Dan Mica after the Fed action. “However,” he added, “some changes may be necessary by credit unions to fully comply with the new regulation. We will be carefully reviewing the details and providing guidance to leagues and credit unions regarding these changes, including verifying creditworthiness and other issues.” The final rule approved by the Fed last Thursday made fairly comprehensive changes to the format, timing, and content requirement for the five main types of open-end credit disclosures that are required under its Regulation Z. The types of disclosures covered include credit card application and solicitation disclosures, account-opening disclosures, periodic statements, change-in-term notices, and advertising provisions. It is unclear the extent to which disclosures provided with open-ended lending under LoanLiner may need to be revised. As mentioned, the rule did not change timing requirements for making advances under an open-end lending plan. The Fed won’t require that each subaccount under a plan have a self-replenishing credit limit. Also, credit unions are permitted to verify continuing creditworthiness, but may not conduct additional underwriting. Credit unions and other lenders must comply with the new rules by July 1, 2010. Until then, current lending processes and disclosures may be used. CUNA's Regulatory Advocacy will be providing analysis of the final rule and its implications for LoanLiner and other issues on its website.

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