Multi-featured open-end lending survives Reg. Z changes—
what now?
If your credit union has a successful multi-featured open-end (MFOE) lending
program, be relieved that MFOE survived the Fed’s Reg. Z rule changes. You can
also be relieved that the implementation date for the new rules is July 2010. Be
relieved, but don’t put the matter on a shelf for the next year, says Bill Klewin,
CUNA Mutual Associate General Counsel.
“July 2010 isn’t nearly as far away as it may seem, especially when you take into account all the
other regulatory changes coming down the pike at the same time as the open-end lending
changes,” Klewin says, referring to rule changes regarding credit cards, Reg. E, and RESPA,
among others.
All credit unions that have MFOE plans will probably need to adjust their plans to conform to the
new rules, Klewin says. The first step toward complying with the rule changes is to stay
informed. Industry lending experts are analyzing the rule changes now, working out the necessary
steps for compliance. He recommends checking loanliner.com/regz regularly for updates.
Based on the preliminary review of the new Reg. Z language and Commentary, Klewin notes that
your credit union’s MFOE plan may need changes in any of these three areas:
1. Products—The documentation for your MFOE plans will likely change, and specific
sub-account options, such as lines of credit, may need to be added or changed.
2. Policies—The new Commentary may change the circumstances under which your credit
union may verify creditworthiness, and when advances may be denied.
3. Procedures—Your staff will need to be trained in any new open-end procedures. This
may be a good opportunity to provide training in the overall purpose and advantages of
open-end lending.
CUNA Mutual lending specialists will be working with card processors, data processors, and loan
processing system vendors, coordinating any adjustments the Reg. Z compliance will require,
including those related to the company’s LOANLINER® products, Klewin says. The company
will also collaborate with state credit union leagues to help get the word out as specific
compliance procedures are confirmed.
Bill Klewin will be speaking about the content and impact of the Reg. Z rule changes at the
Compliance and Auditors Conference, conducted by the American Association of Credit Union
Leagues on April 15-17 in Tempe, Arizona.
What is multi-featured open-end credit?
Under an MFOE plan, the credit union has a single lending contract with a member,
creating a sign-once, borrow-for-life opportunity. The plan will have multiple subaccounts with different program features and rate structures. Some features may be used
repeatedly, like an overdraft line, while others might be used infrequently, such as a
credit line secured by collateral.
Here’s how open-end credit is defined in Regulation Z [Section 226.2(a)(20)]:
1. Creditor reasonably contemplates repeated transactions
2. Creditor may impose a finance charge from time to time on an outstanding unpaid
balance
3. The amount of the credit may be extended to the consumer during the time of the plan
(up to any limit set by the creditor) and is generally made available to the extent that any
outstanding balance is paid.
Form number: LL-0209-5EED
© CUNA Mutual Group, March 2009