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585_Multi-Featured Open End Lending 061610

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					BOARD POLICY

SECTION: LENDING
SUBJECT: MULTI-FEATURED, OPEN END LENDING
APPROVED BY BOARD OF DIRECTORS: 06/16/2010
EFFECTIVE DATE: 07/01/2010
REPLACES POLICY DATED:
REVIEWED:

It is the intention of the credit union to employ a Multi-Featured Open End Lending (MFOEL)
program in compliance with guidelines established by the Federal Reserve Board and
incorporated into Regulation Z, the Fair Lending Act, which are effective July 1, 2010 and
beyond.

MFOEL OVERVIEW

MFOEL is a repeatable process that involves the following main concepts:

• A creditor reasonably contemplates repeated transactions;
• A finance charge will be imposed from time to time on outstanding balance;
• The amount of credit is generally made available to the extent that any outstanding balance is
repaid;
• The member is not guaranteed future advances with a Plan;
• The credit union retains the ability to verify continued creditworthiness of the member; and
• The credit union retains the ability to verify collateral value with particular advance requests.

BENEFITS OF MFOEL

• Reduces paperwork
• Reduces need for signatures
• Makes repeat transactions easy
• Facilitates remote delivery
• Streamlines process for staff
• Reduces regulatory burden
• Establishes a borrowing relationship
• Provides a market differentiator (unique lending approach)
• Integrates payment protection
• Improves member experience

UNDERWRITING (ACCOUNT APPLICATION) VERSUS VERIFYING (ADVANCE REQUEST)

Underwriting – Account Application

Underwriting connotes a formal process with certain characteristics. The Federal Reserve Board
refers to this as “separately applying”. In the context of lending, these characteristics can
include:
• There is a lack of a prior relationship with the person “applying”, which requires the gathering
of de novo information;
• There is a lack of information about the potential borrower;
• The completion of a document called “Application” is required which asks for the de novo
information about the potential borrower;
• There is a gathering of information including characteristics which are unlikely or impossible to
change;
• There is the application of a specific decision-making process, notwithstanding any existing
relationship or information between the parties; and
• There is no expectation by the lender of making more loans to the borrower.

It is the policy of the credit union to obtain an MFOEL Plan Account Opening Application. For
existing plans where creditworthiness was not determined at time of Plan Opening, we will take
a full application and establish creditworthiness at the time of the next advance request. Further,
for new plans, we will take the type and extent of borrower data we consider necessary to
establish creditworthiness, whether or not the member requests an advance at the time of Plan
Opening. If a member does not want creditworthiness established at time of Plan Opening, a
Plan will not be opened. The purpose of this application will be to obtain a collection of
meaningful, comprehensive borrower data and credit report information to facilitate the
execution of account underwriting. This provides a broad set of foundational information, a
subset of which can then be occasionally or routinely verified in evaluating future advance
requests.

Verifying – Advance Request

Verify connotes something less formal, but with certain characteristics. In the context of lending,
these characteristics can include:

• There is an existing relationship or contemplation of an ongoing relationship;
• The lender has existing relevant knowledge about the requester;
• The lender updates and ensures the accuracy of information the lender already has about a
borrower when he or she requests an advance;
• The lender only updates the type of information that can or has changed, such as salary or
number of dependents;
• The lender intends to lend money if the borrower is still creditworthy;
• The lender intends to confirm the continuing creditworthiness for some, but not all, advances,
depending on predetermined lending policies; and
• There is an anticipation that the borrower will ask for further advances.

It is the policy of the credit union not to underwrite each loan request but rather to verify
information sufficient to determine the continued creditworthiness of the borrower. Borrowers
will not be required to complete a new application for credit at the time of subsequent advance
requests. Borrowers will be asked to verify as little information as needed to make a credit
decision.

There is a clear process difference in form, in function and from a member's perspective
between establishing the lending relationship at Plan Opening vs. requesting advances under
an existing plan. The borrower applies for credit one time at Plan Opening. Once a Plan is open,
the borrower has a reasonable expectation that he or she will receive an advance, as long as he
or she remains creditworthy. This means that once a plan is opened, a lender is verifying
continuing creditworthiness and not underwriting subsequent advances. There are clear policies
and/or procedures that identify what transactions by class will cause additional verification for an
advance request. These policies and/or procedures take the form of a Verification Matrix or
Matrices which show what “triggers” will cause the information to be either verified or updated.
Sample "triggers" that could cause additional verification may include the dollar amount of a
particular advance request, length of time since creditworthiness was last verified, or advance
type such as verifying a loan-to-value ratio for a secured advance request. The Verification
Matrix or Matrices may be changed or added to, from time to time, to reflect current market
conditions and underwriting standards.

Continued creditworthiness of borrowers may be routinely or occasionally verified throughout
the plan through a credit update, credit report or other means. The credit union may refuse an
advance request under the plan due the member's creditworthiness and/or if sufficient collateral
is not offered.

VERIFICATION MATRIX

Matrix for Occasional Verification for Multi-Featured, Open-End Lending
Plans




                                                                                                                                               Telephone Numbers
                                                                                                                           Debt/Income Ratio
                                                                         Ownership Status
                                                       Current Address
                                      Plan holder ID




                                                                                            Credit Report


                                                                                                            Credit Score




                                                                                                                                                                   Employment


                                                                                                                                                                                Income
Trigger(s)

Plan Opening Application              X                X                 X                                                                     X
Initial Plan Advance                  X                X                 X                  X               X              X                   X                   X            X

Unsecured Advance < 2,500             X                                                                                    X
Unsecured Advance > 2,500             X                                                     X                              X
Unsecured Advance > 10,000            X                                                     X               X              X                   X                   X            X
Secured Advance (Auto, Etc.)          X                                                     X               X              X                   X                                X
Share Secured Advance                 X
VISA - Initial Request                X                                                     X               X              X                   X                                X
VISA Increase Request                 X                                                     X               X              X                   X                                X
Overdraft Protection Setup            X                                                     X               X              X                   X                                X
Overdraft Protection Increase         X                                                     X               X              X                   X

Credit Report Expired (120 days)      X                                                     X               X
Credit Score Declined > 50 Points     X                                                                                    X                                                    X
Time Since Last Advance > 2
Years                                 X                X                                    X               X              X                                       X            X

				
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