Multi-featured open-end lending guidance revised

July 23, 2012

Multi-featured open-end lending guidance revised

July 23, 2012 – NCUA on Friday issued revised guidance for federal credit unions on multi-featured, open-end lending that provides an overview of best practices for ensuring proper underwriting and disclosure for different types of loans.

The guidance, NCUA Letter to Federal Credit Unions 12-FCU-02, was issued in part to answer credit unions' request for further guidance interpreting the latest rules in this area. The Federal Reserve Board previously regulated such activity under Regulation Z, but that authority was transferred to the Consumer Financial Protection Bureau last year. The CFPB has republished the Fed's rule and staff interpretation as its own. That interim rule includes the Fed's 2009 revisions on multi-featured lending as well as the 2010 revisions under the Credit CARD Act.

The NCUA guidance reinforces that, in a multi-featured, open-end lending program, a credit union may not conduct new underwriting for individual requests for new advances. Verification of credit history, debt load and other factors can be reviewed on a periodic or ad hoc basis – as must be disclosed at account opening – but those activities cannot be triggered by new requests for advances.

If a credit union does verify credit history and other factors in response to a request, then the transaction must be treated as a closed-end loan and the credit union must follow closed-end loan disclosure rules.

The letter also addresses "blended" multi-featured lending, where a master contract is established covering both open-end and closed-end loans.

A supervisory letter for examiners is attached to NCUA Letter 12-FCU-02; the letter explains how examiners can check for compliance with rules on multi-featured lending programs.

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