Regulatory Changes to Reg Z Affect Lending Procedures

CUNA Mutual Group
March 9, 2009 | COMMENTS

Changes to Regulation Z recently issued by the Federal Reserve Board mean changes to the way credit unions conduct their lending business. The amended regulatory language and how it affects lending procedures was recently explained by CUNA Mutual Group Associate Counsel William Klewin during a regulatory panel discussion at CUNA's annual Governmental Affairs Conference.
 
The regulatory changes specifically affects multi-featured, open-end lending, a practice used for nearly 30 years allows credit unions to have a single lending contract with a member covering multiple lending products. Under this plan, the member can have multiple sub-accounts with different program features and rate structures.
 
“Some features of the program might be used repeatedly, like an overdraft line, while others might be used infrequently, such as the part of the credit line available for secured credit,” said Klewin. “On the other hand, if the program as a whole is subject to prescribed terms and otherwise meets the definition of open-end credit, the program would be considered a single, multi-featured plan.”
 
Because regulatory observers feared a change that would negatively impact multi-featured, open-end lending practices, credit union organizations—including CUNA Mutual—worked to raise awareness of the issue and prepare for potential disruptions to credit unions' lending practices. Among other efforts, CUNA Mutual met with Federal Reserve Board staff to discuss the issues and propose alternatives, filed comments with the Board and continued to work with credit union organizations and regulators following the comment period.
 
Klewin said the final rule keeps the multi-featured, open-end lending program intact with the following commentary changes:

• Each sub-account is not required to have a self-replenishing credit limit
• Language was retained that views the plan as a whole while some features may be used infrequently
• Credit unions are permitted to verify information in certain circumstances to assure continued creditworthiness

“The rule changes require credit unions to review their products, policies and procedures to identify any necessary changes as a result of the new regulations,” Klewin said. He further suggested the affected credit unions work closely with their data processing and loan origination system providers to support any needed changes.
 
In addition to communicating best practices around Reg Z change implementations, CUNA Mutual continues to post updates on these changes to www.loanliner.com/regz, which Klewin recommended as a good source for real-time information.
 
CUNA Mutual Group provides financial services to credit unions and their members. For more information contact Rick Uhlmann at 608-231-8940 or rick.uhlmann@cunamutual.com.