Multi-Featured Open-End Lending (MFOEL)
Note: It appears that only CUNA Mutual is requesting the following changes. If your credit union is using another MFOEL lending platform, please contact Jim Vilker with your provider’s specific changes, if required.
Three weeks ago, a few credit unions began to receive instructions from CUNA Mutual Group (CMG) regarding the requirements which Regulation Z has placed on the use of the Multi-Featured Open-End Lending (MFOEL) product line.
Last week the floodgates opened up and many of you have now begun to analyze the implications of CMG’s recommended changes. A number of changes are forthcoming regarding the advance request voucher, underwriting style, open-end plans disclosures, and last but not least the member’s periodic statement.
Although much of the buzz is around the use of CMG’s open-end program, we fully expect that other forms providers will be following suit. According to CMG, the deadline for the forms, disclosures, and underwriting guidelines changes is July 1, 2010. The deadline for the periodic statement changes takes effect with the July month-end statement run.
From a forms perspective, CMG stated in a conference call last week that they will be contacting CU*Answers directly with a list of all credit unions using MFOEL plans and doing a mass change.
To date we have not heard from CMG. The Lender*VP forms team will contact you directly once we receive the required changes and assess the time required to complete them.
IMPORTANT: The new form files must come directly from your forms provider and be received no later than April 23, 2010, to make the July 1st deadline.
We will not be contacting your forms provider on your behalf and this process must be managed by your lending team like any other custom forms change.
From the perspective of underwriting and processing new loan requests and advances on existing loans, there are no recommended changes to the CU*BASE GOLD software by CMG.
However, there are numerous changes required within your credit union regarding the manner in which you process, underwrite, and advance funds. In essence, the changes precipitated by Regulation Z will require that you actually begin using the open end system in the manner in which it was designed, by:
- Holding to the requirement that you cannot fully underwrite each time an advance is made
- Disburse funds on open-end loans which in the past you may have considered to be closed-end, such as automobiles
CMG stated that they expect many credit unions to begin using closed-end forms for their automobile and hard collateral loans and use open-end programs for lines of credit and overdraft protection loans, possibly even the credit card disclosures as well.
Loan Contract Screen
Remember that CU*BASE has supported open-end plan-type lending for over 12 years. The Open End Loan Contract screen (MNLOAN #1, Action Code LC) allows loan staff to electronically store the plan elements at the membership level. It was designed to identify that the member is enrolled in a plan for the future lending needs and has served our clients very well over the years.
The Loan Contract screen is intended to be informational only. It has never been necessary that any controls be placed on the member’s lending requests based on the limits entered into this screen. Controls remain at the loan suffix level and must be audited against the Loan Contract screen manually. Whether this will change because of the new Regulation Z changes has yet to be seen, and currently no clients have ever requested that these types of controls be put in place.
It is also important to understand that the CU*BASE loan system only supports the member being enrolled in one plan. This has been the way credit unions typically use the LoanLiner platform, but we remain concerned that someone out there has a member with multiple plans.
If that credit union is you, please contact me directly as soon as possible!
One section of the CMG’s document makes a recommendation that deals with their changes to periodic statements for MFOEL. These recommendations are based on their interpretation of the regulation and how it relates to the layout of the standard periodic statement.
CMG’s recommendations place the same requirements on regular statements that the credit card statements had to follow, including the aggregation of fees, interest, and placement of sub-accounts in close proximity to each other.
There are two major challenges from a programming perspective:
- The first challenge will be the work related to identifying which members have a plan, and then tying the all the loans which fall into a plan together with some type of identifying data element.
- The second challenge it then to aggregate these loans on a statement, combine the interest charges associated with them all, and pull the fees out of the transaction information and list them separately.
Let’s start with the effort to identify which members have a plan and which loans on the member’s account are tied to the plan. From a programming perspective we could take one of two paths:
1. The software would need to be changed to either allow you to tie the suffixes to the Loan Contract screen, where the data lives on the Loan Contract file (OPENDLF) itself, or
2. Allow you to identify at the loan account (MEMBERxx) level which ones belong to a MFOEL plan, one sub-account at a time.
Aggregation of the accounts on the statement, the associated interest and fees, and reformatting of the statement could potentially follow two paths as well:
1. Actually change the format of the existing periodic statement. The format and recommended aggregation remain in debate as the regulation and CMG’s document are open to interpretation and contain numerous ambiguities.
2. Generate a separate statement just for MFOEL programs and leave the existing statement alone.
Audit Duties For Your Team
From a credit union perspective, there are a couple of audit duties related to these recommendations which will simply require brute force to accomplish. This would include a review of every account on CU*BASE, comparing the information to the physical loan file. Staff would need to start a spreadsheet of the suffixes tied to the plan and be prepared to enter the cross reference once the programming has been completed.
This would also include verification that the Loan Contract screen contains the information required to identify the MFOEL plan under which the member falls.
On a side note, we do not anticipate changing the software to allow multiple MFOEL plans for any one member.
How Should We Proceed?
As you can see, like so many of the other regulatory mandates that have hit us lately, this latest change is no small endeavor. There remains a bit of debate on how far or close our credit unions will require us to take the current CMG recommendations.
What will be vital is that we communicate our wishes and understand the effort and costs involved in making these changes. These changes will dwarf the other ones we recently made for credit card and periodic statements—which were no small feat themselves!
As members of this CUSO, we need your voice!
Tell Us How We Should Proceed!
We will be making our final decision on how we will attack these changes no later than May 7, 2010, and will post our plans on the Kitchen. So if you have a preference on any points, or ideas or concerns you want to pass along, speak up now!
Post your ideas, preferences, and concerns on the Advisor Reg. Z / Credit CARD Act Open forum:
Or contact Jim Vilker directly: