National Credit Union Administration (NCUA) has issued a legal opinion letter (11-0620) again addressing multi-featured lending plans (MFL). The letter reinforces earlier guidance from NCUA issued to federal credit unions in NCUA Letter (12-FCU-02, July 20, 2012). The legal opinion provides:
MFL plans, under which sub-accounts are established that are either open-end or closed-end, are permissible under Regulation Z, Truth-Lending, if certain conditions are met.
The key conditions are that all required Regulation Z disclosures must be provided at the required times and new advances under open end sub-accounts may not be underwritten prior to extending the advance.
The letter also notes that these MFL plans may not be permissible under state law. That is because Regulation Z requires certain disclosures when a loan is "consummated." When a loan is consummated is not determined under Regulation Z, however, but under state law. As noted by NCUA in a footnote in the letter, if state law defines consummation in way that makes a multi-featured lending plan illegal or impractical, than an "FCU may not use a MFL (including MFOEL, parenthesis added) in that state."
Credit Union National Association is working with CUNA Mutual Group to provide greater clarification on this state law issue.