The NCUA has issued revised guidance for multi-featured, open-end lending programs and best practices in a new letter to credit unions.
The guidance was issued, in part, to answer requests for further guidance interpreting interim rules released by the CFPB.
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.
In the supervisory letter to examiners, the NCUA directs examiners to not discourage the use of multi-featured open ended lending plans, said CUNA General Counsel Mary Dunn.
Previously, the NCUA had been discouraging credit unions from offering MFL programs, and there was a lot of confusion regarding what are permissible, including the question of periodical verification of credit history and other factors versus full-on underwriting, Dunn said.
The letter to credit unions also discusses a permissible blended approach to MFL that uses an umbrella loan agreement for a member’s open-end lines of credit and closed-end loans.
“Our intent is not to discourage underwriting of new loans under MFOEL plans, but to ensure that credit unions provide the required consumer disclosures,” NCUA Chairman Debbie Matz said in the letter.
“By following the best practices and/or the blended approach described in this letter, credit unions can continue to provide multi-featured lending in the best interests of members,” she said.