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

According to a supervisory letter the NCUA released in July,credit unions can take a blended approach to multi-featuredlending, retaining the open ended option of occasionally orroutinely verifying a member's credit standing still qualifies himor her for the current revolving credit limit. When a memberrequests a single-disbursement, non-replenishing closed-endsub-account, the credit union can pull fresh credit reports andconfirm a members' financial status, but must also provide therequired disclosures. 

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

While this process reduces a credit union's risk, itinconveniences members by asking them to come into a branch, reviewdisclosures with a service representative and sign documents with awet signature, Levy said. Additionally, it increases branch trafficand ties up employees who could be assisting members or selling anew product or service, he said.

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

If members are deployed overseas by the military, on vacation orotherwise unable to visit a branch, they can use cloud-basedtechnology to provide a legal e-signature and approve disclosureselectronically.

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

Levy said one of IMM's 650 credit unions using cloud-basede-signatures for lending transactions was able to save branch andlending employees an hour per day. The company's offering can beintegrated into most credit union core and lending systems, henoted. Employees receive email notifications when signatures havebeen received from members.

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

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

Murray said CUNA Mutual also brings disclosure and mobiledelivery expertise to the table. “We learned to optimize thepresentment of forms and disclosures on mobile devices, and nowwe're carrying that forward to this electronic signaturecapability,” Murray said. 

CUNA Mutual said it provides the electronic delivery of requireddisclosures and wording required to be in compliance withRegulation Z.

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

“This is a branch extender,” he said.

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

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

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

While he doesn't have any hard numbers, Levy estimatedapproximately 80% of IMM credit union clients had migrated toopen-ended lending. However, the financial crisis exposed the riskof umbrella loan approval when members experienced quick changes intheir income.

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