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Get the information you need on Regulation Z right here. Check back often as information changes when new requirements are announced.
April 23, 2010
With apologies to Rudyard Kipling, Regulation Z contemplates two ways to make loan disclosures to borrowers, open-end and closed-end. The rules are very clear-if a lending plan meets the definition of open-end lending, open-end lending disclosures must be given; if the plan doesn't meet the definition of open-end lending, closed-end disclosures must be given. There can be no "hybrid" programs. It's that simple.
Lately, we've been seeing credit unions that are contemplating such "hybrid" programs. These hybrid programs work as follows: A member signs a Master Promissory Note. This document provides the terms and conditions under which the member will borrow money. Some subaccounts are "open-end" subaccounts and some "subaccounts" are "closed-end" subaccounts. The idea is that when a credit union wishes to "underwrite" a loan, it provides a closed-end disclosure at the time of a loan request and relies on the Master Agreement the borrower had previously signed for contract and security interest provisions.
For many years, we contemplated such a "hybrid" approach, including again reviewing such an approach after the most recent regulatory changes affecting the definition of open-end lending. We had outside counsel review the "hybrid" approach and the attorney rejected the approach. We don't believe the hybrid approach will meet regulatory scrutiny. We will neither create documents to allow such an approach, nor will we warrant such an approach under the LOANLINER Warranty.
Why?
- The Federal Reserve Board staff (FRB) categorically rejected such a "hybrid" approach. We proposed such an approach to the FRB, and they made it clear that open-end plans require open-end disclosures, and closed-end plans require closed-end disclosures.
- As the FRB said, if a loan is a closed-end transaction, it should be treated as a closed-end transaction. This means that the borrower needs to receive the required closed-end disclosures and must receive them in a timely fashion. The closed-end rules are clear. The borrower must receive the disclosures before the consummation of the transaction. With the "hybrid" approach, the borrower signs agreeing to the terms of the loan before he or she receives the required disclosures. As a lender, you can't have it both ways. You can't say that "consummation" occurs when the borrower receives funds, but then rely on the Master Promissory Note as the contract terms, which Note the borrower signed some time in the past.
- We believe that if the credit union staff wishes to "underwrite" individual transactions, it should "do it right". In other words, the credit union should treat the transaction as a closed-end loan and not as part of a "hybrid" plan. The member should receive their disclosures before the "consummation" of the transaction. They should sign the Note and Security Agreement.
Additional tools and resources on Regulation Z compliance can be found at www.loanliner.com/regz, or e-mail loanlinercompliance@cunamutual.com.
When all is said and done, no matter what lending strategy a credit union chooses after the changes are effective on July 1, 2010, LOANLINER Document Solutions can help. We have a host of open-end and closed-end documents and disclosures to support any lending transaction. For more information on available document solutions, contact a compliance analyst at 800.356.5012.
April 19, 2010
New Regulation Z rules, effective July 1, 2010 mean most credit union’s will have to manage the lending process for multi-featured, open-end accounts differently than today. In support of the “application” versus “verification” requirements in the rules, loanliner.com announces the addition of two new advance request templates to its set of customizable online lending documents.
Resources:
January 22, 2010
Regulation Z changes relating to multi-featured, open-end lending plans require more than a mere document swap. To ensure appropriate action is taken before the compliance deadline of July 1, 2010, credit union leaders will have to analyze current processes, policies and procedures related to these member-friendly lending plans and make the necessary changes to ensure programs reflect any requirements of the new rules.
Legal and compliance experts within CUNA Mutual and the LOANLINER® Documents division have completed an extensive analysis on the regulation and are confident credit unions can continue to use multi-featured, open-end lending programs to deliver exceptional, convenient service to their members. But, there's work to be done.
Analysis on processes such as how an application is taken at plan opening and what information is gathered up front must be completed. Following the compliance date, an application may only be taken once at plan opening, followed by verification of certain information from that point forward. It's important to look at the application and subsequent advance processes used to ensure subsequent "applications" are not being taken.
A review of procedures that support the specific differences between underwriting and verification as outlined in the regulation also must be completed. Language used in marketing and advertising efforts should support the regulatory requirements. And, a check-in with data processors and loan origination software suppliers to ensure they are able to help track and manage meaningful plans as well as update your periodic statement should be completed. To help you get started, LOANLINER has published the below suggested timeline to compliance.
| Suggested Timeline to Compliance To Regulation Z Open-End Lending Requirements |
| February |
March |
April |
May |
June |
July |
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Engage cross-functional team to analyze impact and change required. Include executive team, lending, compliance, operations, IT, marketing and finance. Review resources available in Lending Resource Center, including:
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Attend a national Constant Compliance Conferences on Regulation Z
- March 15 in Orlando
- March 19 in Las Vegas
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Finalize assessment of future-state lending programs based on new regulation |
Finalize policy, product and process changes |
Implement policy, product and process changes based on decision |
Compliance date |
| Cross-functional team begin comparison of current processes vs. changes needed to comply |
Continue assessment. Will you stay with open-end, move to closed-end or use both lending programs? |
Begin making necessary policy, product and process changes based on final decision |
Notify members of any changes |
Implement document changes |
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| Begin assessment of future-state lending programs based on new regulation |
Continue work with DP/LOS providers to ensure support of direction |
Assess training needs based on new processes |
Finalize document changes |
Implement account addendum |
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| Attend an active Webinar (scroll to the bottom of the page and select "The New Reg Z" training) |
Contact LOANLINER to complete questionnaire for new addendum (needed for all open-end plans, including lines of credit and overdraft programs) |
Assess marketing needs based on new regulation |
Conduct training based on direction |
Finalize training |
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| Work with DP/LOS to ensure they can support direction |
Consult with counsel as needed |
Continue work with DP/LOS providers to ensure support of direction |
Revise marketing materials, web and advertising based on direction |
Finalize revisions to marketing, web and advertising |
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Contact CUNA Mutual Sales Executive or Account Consultant for assistance |
Develop new Addendum/Account Opening Disclosure |
Finalize work with DP/LOS providers |
Test any new document mapping with system providers |
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Consult with LOANLINER compliance analysts as needed at 800.356.5012, option 2. Or, via e-mail |
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LDP-0110-6A482009 Source: CUNA Mutual Group. © Originally published in August, 2009, this document is intended to provide an overview of requirements for credit union lending operations to comply with changes to Regulation Z that become effective July 1, 2010. Activities have been compressed based on available time to compliance deadline. Activities contained herein are intended for informational purposes and may not include all pertinent information based on specific situations within individual credit unions. For more information, contact a compliance analyst at LOANLINER Documents Division at 800.356.5012, option 2.
With the work needed to analyze your operation and make any necessary changes to your lending practices and policies, the time to start is now. The July 1, 2010 compliance deadline is just around the corner.
Questions? Comments?
If you have questions regarding Regulation Z, submit them by email.
Or, contact our team of compliance experts at 800.356.5012, option 2, then option 3, or via email.
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