Blended multi-featured plans

Smooth sailing over a year later

by Catherine Klimek

It’s been over a year since the National Credit Union Administration issued its approval of blended multi-featured lending plans, so it seems a good time to review their status in the industry. Luckily for credit unions, blended plans are here to stay.

Prior to 2008, most credit unions used single-signature, open-end lending plans exclusively for all their loan types. This included traditionally closed-end loans, such as vehicle loans, as well as revolving open-end lines of credit. All loan types were subaccounts under one “multi-featured” umbrella plan and, as such, all were considered to be “open-end” under Reg Z. Open-end disclosures were given for all loan types, and this was compliant. Credit unions made loans as smoothly and easily as an elite sailboat crew clipping through calm waters with the wind at their back.

That all changed, however, in December 2008, when the Federal Reserve Board changed Reg Z. During a routine review, the FRB had become concerned that open-end lending plans did not require closed-end Fed Box disclosures (the Truth in Lending disclosure required by section 226.17 of Reg Z) for vehicle loans. The FRB reasoned that vehicle loans under multi-featured plans were indistinguishable from vehicle loans made under a closed-end promissory note. The only difference was that one loan received open-end disclosures, and the other received closed-end disclosures. To eliminate that inequality, the FRB changed the rules to require that, when using a multi-featured lending plan, the Fed Box must be given on any loan that is underwritten.

This was a sea change for the industry. It was as if the sailboat had just run aground. The result was much confusion as the industry tried to recalibrate its course. Different market participants interpreted the rules differently and therefore provided differing solutions. Some advised credit unions to change their processes to avoid underwriting closed-end advances; others provided new loan documents providing the Fed Box for closed-end advances so that credit unions could continue underwriting those advances. It was this second solution under which blended plans were born.

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