Cloud-based computing and e-signatures are the aspirin to the multi-featured open ended lending headache credit unions have been suffering from since the NCUA first issued the rules back in 2009, said John Levy, executive vice president and co-founder for Integrated Media Management, a Linden, N.J.-based technology vendor.

According to a supervisory letter the NCUA released in July, credit unions can take a blended approach to multi-featured lending, retaining the open ended option of occasionally or routinely verifying a member's credit standing still qualifies him or her for the current revolving credit limit. When a member requests a single-disbursement, non-replenishing closed-end sub-account, the credit union can pull fresh credit reports and confirm a members' financial status, but must also provide the required disclosures.

“Specific advance requests are fully underwritten,” the NCUA said in the July letter.

While this process reduces a credit union's risk, it inconveniences members by asking them to come into a branch, review disclosures with a service representative and sign documents with a wet signature, Levy said. Additionally, it increases branch traffic and ties up employees who could be assisting members or selling a new product or service, he said.

“If members do come into a branch to sign closed-end documents and receive disclosures they can sign their name on a signature pad or iPad, and view disclosures electronically rather than collect pieces of paper,” Levy said.

If members are deployed overseas by the military, on vacation or otherwise unable to visit a branch, they can use cloud-based technology to provide a legal e-signature and approve disclosures electronically.

The E-Sign Act of 2000 cleared the way for the technology's use, Levy said. The use of e-signatures not only transforms the signature from a physical act into a process, it also provides an electronic audit trail for each step.

Levy said one of IMM's 650 credit unions using cloud-based e-signatures for lending transactions was able to save branch and lending employees an hour per day. The company's offering can be integrated into most credit union core and lending systems, he noted. Employees receive email notifications when signatures have been received from members.

Dan Murray, vice president of lending products for CUNA Mutual Group, agreed that technology is a good answer to the question of how to comply with a mix of providing both open ended and close ended loans. The company announced on Aug. 21 it had partnered with DocuSign, an e-signature provider to provide secure electronic signature solutions to credit unions so they can speed up the lending process and provide options for MFOEL.

According to CUNA Mutual, the partnership will help credit unions close loans faster so they can earn interest sooner, eliminate missing or incomplete documents and meet compliance requirements, all while improving member service.

Murray said CUNA Mutual also brings disclosure and mobile delivery expertise to the table. “We learned to optimize the presentment of forms and disclosures on mobile devices, and now we're carrying that forward to this electronic signature capability,” Murray said.

CUNA Mutual said it provides the electronic delivery of required disclosures and wording required to be in compliance with Regulation Z.

Levy said not only does leveraging technology help credit unions clear regulatory and risk management hurdles, it also helps credit unions compete against large banks.

“This is a branch extender,” he said.

Gen X and Gen Y members may be drawn to credit unions that offer e-signatures and cloud-based technologies. Murray said, adding the average age of smart phone loan borrowers is 32.

“These generations want to use the mobile and internet channels for their financial lives, and it seems that technology gets the credit union well positioned for that, as well,” he said. “Credit unions have to be in these channels to remain relevant.”

Open-ended lending gained popularity when it was introduced because it made the process of extending loans to members, and generating revenue, much easier, Murray said.

While he doesn't have any hard numbers, Levy estimated approximately 80% of IMM credit union clients had migrated to open-ended lending. However, the financial crisis exposed the risk of umbrella loan approval when members experienced quick changes in their income.

“I have heard from our support group, pro services and sales that almost everyone they talk to has said they moved or will move to a blended approach,” Levy said.

Instant Insights /

Technology May Be the Cure for MFOEL Migraines

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