CREDIT UNION

LOANLINER®
OPEN-END CONSUMER LENDING

“Plus System”
 CONTENTS:

Definition of Open-End Lending…………………………………………... 3

Flexible Agreement System ….…………………………………………… 6

Application…………………………………………………………. 7
Open-End Plan Signatures PLUS…………………………………... 8
Credit/Security Agreement & Insurance Certificate PLUS………… 9
Addendum………………………………………………………….. 10
Open-End Disbursement Receipt ………………………………….. 11

Miscellaneous forms
Subsequent Action…………………………………………………. 12
Notice to Cosigner/Guaranty Agreement………………………….. 14
Security Agreement………………………………………………… 15
Adverse Action…………………………………………………….. 16

Service and Support………………………………………………………. 17

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Open-End Lending

Definition
Under the Truth in Lending Act and its implementing regulation, Regulation Z, credit is considered open-end if
it satisfies the definition of open-end credit in the Act and Regulation. If a loan does not meet the definition of
open-end credit, it is closed-end credit. There is no definition of closed-end credit other than it is credit that is
not open-end credit.

“Open-end credit” is defined in Regulation Z as:

“Consumer credit extended by a creditor under a plan in which - -

(i) The creditor reasonably contemplates repeated transactions;

(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance;

(iii) The amount of credit extended to the consumer during the term of the plan (up to any limit set by the
creditor) is generally made available (replenished) to the extent that any outstanding balance is repaid and the
member is in adequate credit standing.

Regulatory Framework

♦ Credit Unions are often familiar with open-end credit because they offer lines of credit, overdraft protection and
credit cards. However, there is a common misperception that open-end credit is limited to only these types of
loans. Any loan except purchase money mortgages, mobile home loans, and Federal program loans can be
offered within open-end plan. The Commentary to Regulation Z, Section 226.2(a)(20)-2, recognizes that
lenders use open-end credit to make different types of loans:

Some creditors offer programs containing a number of different credit features. The consumer has a single
account with the institution that can be accessed repeatedly via a number of subaccounts established for the
different program features and rate structures. Some features of the program might be used repeatedly (for
example, an overdraft line), while others might be used infrequently (such as the part of the credit line available
for secured credit).

♦ Existence of a plan.
™ Usually the “plan” consists of a document called a credit agreement. This is the legal document that includes
all the promises made by the member under the plan as well as the required initial open-end Truth in Lending
disclosures.

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 ™ Since an open-end plan can be used for almost all types of consumer loans, usually each different type of credit
is designated as a “subaccount” under the plan. Examples of sub-accounts within an open-end plan include:

• New Vehicles (autos, trucks, motorcycles, • Overdraft Protection

recreational vehicles and boats may each be a • Stock Secured
separate subaccount) • Student Loans
• Used Vehicles • Computer Secured
• Share Secured • Signature
• Certificate Secured
• Line of Credit

™ The open-end plan, as a whole, must meet the definition of open-end credit. Each subaccount does not need to
meet the definition of open-end credit.

♦ Repeated transactions.
™ Credit unions require membership, and expect members to borrow from time to time, so credit unions naturally
satisfy this criterion. It does not matter if any sub-account is not reused or never used by a particular member.

♦ Finance charge imposed from time to time.

™ This is met by charging interest on all loans.

♦ Reusable line.
™ This is often misunderstood. It does not require the credit union to establish a credit limit for the plan or for any
subaccount. Some sub-accounts, such as overdraft protection or lines of credit, often have a credit limit. The
regulation is clear that you can underwrite each advance. As the Commentary [Section 226.2(a)(20)-5]
explains:

The total amount of credit that may be extended during the existence of an open-end plan is unlimited because
available credit is generally replenished as earlier advances are repaid. . . This criterion does not mean that the
creditor must establish a specific credit limit or replenished to its original amount

™ The credit union may refuse an advance under the plan due to the member’s financial condition or credit
worthiness. The credit union will want to have an updated picture of the member’s financial condition before
making the decision on an advance.

™ Open-end credit implies that the repayment is not strictly tied to a length of time, or term. Open-end credit
advances can be extended, replenished, or paid early without consequence within the structure of the plan. This
allows the credit union to be flexible in determining payments, as they are not tied to a 36-, 48-, or 60-month
NOTE. Member payment requests can be easily accommodated.

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Advantages of Open-End Credit

9 The Truth in Lending (TIL) Initial disclosures are required only once - - at the time of establishing the Plan.

9 The TIL disclosures are simpler than those for closed-end credit and there are no calculations.

9 The legal contract is only signed once - - at the time of establishing the Plan.

9 Facilitates cross selling: Initial Credit Insurance enrollment assures coverage on future loans

9 An open-end plan can easily be combined into a Member Service package.

9 Facilitates pre-approvals and funding.

9 Facilitates remote access to credit; No “application” process is needed, only a request & decision.

9 Credit Union still underwrites each loan advance.

9 Reduces paperwork for the credit union and members.

9 Reduces required signatures.

9 Flexibility in determining payments.

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Flexible Agreement System

The Flexible Agreement System consists of the Open-End Plan Signatures form, containing the plan
signatures and the Credit Agreement, and includes, or is accompanied by, the Credit Insurance Application.
The credit union keeps this signed form(s) in the members’ file. The Flexible Agreement System requires a
separate Application, but allows the credit union to use any application they wish (i.e. short application, full
application, custom application, and/or internet application).

The Credit and Security Agreement and Insurance Certificate is usually a pre-printed, folded 8 ½ x 3 ½
brochure. It can also be a computer generated document on normal 8 ½ x 11 stock. This is the borrower’s
copy which contains the Credit Agreement language, the Billing Rights Notice and Certificate of Insurance.

These forms, plus the Addendum, satisfy the requirements needed to establish the Open-End plan.

WHAT DOES THE "PLUS" OPTION ADD TO THE

FLEXIBLE AGREEMENT SYSTEM?
When a credit union chooses the "PLUS" option with their Agreement System, it simply means that:

The Credit Agreement and Security Agreement are combined into ONE agreement contained in the
document used to establish the Open-End plan.

The member agrees to terms and conditions of both agreements when they establish the Open-End plan. As a
result, the member is not required to sign a Voucher, Security Agreement, or Endorsement stamp at the time
of each advance for acknowledgement of their pledge of collateral as Security. In fact, loan funds can be
deposited directly into the borrower's account without getting a signature, if the credit union allows this
practice.

Documents used specifically with either agreement and the PLUS option will be labeled with “PLUS” after the
form name. For instance “Open-End Plan Signatures PLUS”; “Open-End Disbursement Receipt PLUS”.

When utilizing the PLUS option with an Agreement system, a Disbursement Receipt is used, rather than a
Voucher, because no signature is needed upon funding. In other words, the disbursement does not have to be
“vouched for”.

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Application or Express Application
(With or without credit card)

What is it?

This is a credit Application used to document member information and history. This same application can be
used to apply for a credit card (if credit union offers credit cards) without having to fill out a separate
application.

When do we use this form?

Use this form to gather personal and income information and history on the borrower:
a) On an initial open-end loan under the Flexible Agreement System
b) On Guarantors/Co-Signers
c) On closed end loans (if the credit union still offers any);
d) When an updated application is requested for a current member/borrower

Only one signed application is necessary in an open-end file.

There is no regulation regarding updating member information via Loan Origination software. The credit
union’s system should be checked and updated with each contact with a Member.

Some credit unions allow an updated application to be placed in the file on an “as needed” basis only.

CUMIS historically recommended that credit unions get updated signed applications no more than ONCE
EVERY TWO YEARS. However this issue has not been specifically addressed in several years.

Sometimes, State and Federal Examiners suggest how often a credit union takes an updated application. All
staff should confirm policy regarding updated applications with credit union management.

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Open-End Plan Signatures (PLUS)

What is it?

This form contains the language for the Credit Agreement, and it also includes language of a Permanent
Security Agreement (sections 15 – 23). By signing this form, the member is agreeing to all terms and
conditions of these agreements. This document is the credit union copy, which should be filed in the members’
file.

• Pre-printed paper version includes the Credit Insurance Application.

• Electronic version is accompanied by a separate Credit Insurance Application for LOANLINER accounts.

When do we use this form?

Use this form to set up a new borrowing member(s) up on an open-end plan. All borrowers will need to sign.
Every member requesting a loan will need to sign these forms and establish an Open-end Plan.

Since the member signs this agreement upfront, it is no longer necessary for the member to come into the credit
union and sign a separate security agreement or voucher with every loan request or offer of collateral. There are
no more pages to mail/fax to the member, once they have signed an open-end plan!

Key Features

• Member “signs up” initially, agreeing to the following:

1. The member(s) have received and read the LOANLINER Credit Agreement including the Addendum and the
Credit Insurance Certificate. Once they sign, they agree to be bound by the terms of all said agreements.

2. The member(s) grants the credit union a security interest in ALL individual and joint share and/or deposit
accounts. If the member defaults on ANY loan, the credit union can apply the balance of those accounts to any
amounts due.

• The credit union maintains this signed copy of the Credit Agreement in the member file for the duration of the
member’s relationship with the credit union.

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Credit/Security Agreement & Insurance Certificate PLUS
(Borrower Copy)

What is it?

This is the Borrower’s Copy of the Credit and Security Agreement, Billing Rights Notice and Insurance
Certificate. No signatures are required on this document.

• Usually preprinted into a folded 8 ½ x 3 ½ brochure containing all 3 functions

• May also be computer generated and laser-printed on 8 ½ x 11 stock. In this case the Certificate of Insurance is
a separate document.

• Included in this brochure is the “Permanent Security Agreement”.

When do we use this document?

This compact brochure, or set of documents, should be given to the member when the Open-End Plan
Signatures PLUS is signed which initiates the open-end plan.

In an effort to match the members’ records with the credit union records, please fill out the Credit Insurance
Schedule (on the back of the brochure) to match what the member elected on the Open-End Plan Signatures
PLUS document.

Key Features

• Preprinted compact brochure or computer generated 81/2 x 11

• Details conditions and terms of granting credit to the Member
• Joint Account access explained
• Permanent Security Agreement
• Your Billing Rights
• Credit Life/Credit Disability Certificate of Insurance

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Addendum

What is it?

This form supplies initial open-end account disclosures such as interest rates, fees and other charges associated
with the Open-End Plan.

The Addendum is required in conjunction with the LOANLINER Credit Agreement and Insurance Certificate.
It satisfies additional TIL disclosures and is incorparated into the plan. When the member signs the Plan
Signatures, they are stating they have received the Addendum.

When do we use this form?

This form is given to the member along with the borrower copy of the Credit Agreement and Insurance
Certificate when a Plan is signed.

• The Addendum must be given to the member when the Plan is opened/signed.
• The Addendum does not have to be signed.
• Updated Addendum may be given to Member at any time

Key Features

• Members can identify the various loan types offered under open-end and the interest rate associated with each.

• This form is best created as a Word document so that designated credit union employees can make changes as
needed. Loanliner can maintain the Addendum for the credit union, but this is not cost-effective or time-
effective.

10

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Open-End Disbursement Receipt PLUS

What is it?

This is the document given to detail all open-end loan advances. It documents the borrower’s repayment terms
and rates, as well as the collateral being offered as security for the loan (if applicable).

When do we use this document?

Complete this when disbursing all open-end loan advances or when initiating a line of credit under the PLUS
option.

Signatures are not required on this document . This is because the Security Agreement is provided and
signed for when the open-end Plan is initiated.

Some credit unions may use a version that includes a section for Subsequent Election of Voluntary Payment
Protection. This section is used to enroll a member in Payment Protection program without use of a separate
form. If this is being done, this document must be signed.

Key Features

• No signatures are required in order to disburse funds.

• Facilitates remote lending.

• Two copies are printed – one for CU and one for Borrower

Miscellaneous Information

In the Security Offered section, there is a check box and the words, “Consumers’ Claims and Defenses”. This
refers to the “Holder in Due Course” notice requirements outlined by the Federal Trade Commission’s
Consumers’ Claims and Defenses Rule. The Rule provides that anyone holding the credit contract is subject to
any and all claims and defenses that the consumer might have against the seller of goods.

The rule applies if your credit union is financing and selling the property (i.e. you are financing a car you
repossessed and are selling), if the credit union has a business relationship with the seller of the goods the
borrower is offering as collateral. If this is the case, you must check the box next to that statement.

11

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Subsequent Action

What is it?

• The Subsequent Action is a non-regulated document that combines several functions into one document. It is
most often used as a paper trail to track activity and it is efficient because a single form can be used to
document a variety of account activity. As the form name implies, the form allows you to document actions
that occur AFTER the open-end plan is established. This document can be used in various ways, as the credit
union desires.
• The following transactions can be done using this form:
• Add a borrower to an open-end Plan
• Release a co-borrower or guarantor from liability on a loan or the Plan;
• Release your security interest in the collateral;
• Extend/skip/modify payments;
• Subsequently elect Payment Protection; and
• Waive a previously made Payment Protection election.

Form Detail:
Borrower Information - Complete the name, account number and date in this section for all borrowers on
the open-end plan.

Addition of Borrower – Use this section when an individual borrower wants to permanently add a new
borrower to their open-end Plan. The new borrower should submit and sign a credit Application. Both
borrowers should then sign the Subsequent Action. Be sure to indicate whether the new borrower is responsible
for only future, or future AND past outstanding balances. In addition, the credit union may ask borrowers to
sign a new Open-End Plan Signatures form together to further document a joint plan.
Release of Borrower/Guarantor – Use this section to document the release of a borrower or guarantor
on an open-end plan or closed-end loan. Complete the date and name of borrower/guarantor being released
from their obligation. Indicate the level of liability from which that person is being released, for example, all
liability or only future liability from the date signing the document. Finally, indicate the account number which
is affected by the release of the borrower/guarantor. In addition, the credit union may ask the borrower to sign a
new Open-End Plan Signatures form to further document that the plan is now an individual plan.

Release of Security - Use this section to document the release of your security interest in collateral
previously offered as security under an open-end plan or a closed-end loan. Provide a description of the
collateral being released and indicate the reason why you are releasing the security interest.

12

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Subsequent Action (cont’d)

Modification Agreement - Use this section to document any change to payment terms for an existing
advance or loan. EXAMPLE: The credit union could reduce or extend the payments because the borrower
needs to reduce the monthly payment to a more manageable amount.
Document as deemed appropriate the information needed to confirm the change made (unpaid balance, rate of
interest, new monthly payment, payment frequency and start date of the new payment). Indicate the reason for
the extension and any collateral you have an interest in for the advance/loan. Change to only the payment due
date doesn’t require documentation.
If you are requiring the borrower to offer collateral as a condition of the extension, you must also get a signed
Security Agreement to obtain an enforceable security interest in that collateral.

Subsequent Election of Voluntary Payment Protection - Complete this section if a borrower wants
to add any credit insurance coverage to any advance, or on their Open-end Plan, if they did not elect coverage
initially. Sometimes Members overlook coverage, or only choose to cover certain types of advances.
After the lead-in paragraph, indicate what will be covered by the insurance election - a specific subaccount/loan,
the entire Open-End Plan, or a credit card. Confirm and check the coverage and unit cost selected, and indicate
who is covered. Finally, indicate whether you will increase the monthly payment or have the borrower make
more payments of the same amount until the balance is repaid. If this decision to add coverage is occurring 30
days or more from the date of the advance to be covered, it must be accompanied by an Evidence of Insurability
document.

Credit Insurance Waiver - Complete this section to waive insurance if the borrower originally insured an
advance or loan and now wants to cancel the coverage for some reason. Indicate the coverage(s) the borrower
is waiving and indicate the loan/subaccount number to which this waiver applies. Finally, indicate the effective
date of the waiver. Complete, and get signatures on, a separate document for each advance/subaccount
affected by a waiver of Insurance. This is needed for clarity and accuracy, and to prevent fraud.

If using a Subsequent Action, the credit union is making some change to an existing account. ALWAYS get the
Member’s signature to confirm any changes made to their account.

13

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Notice to Cosigner & Guaranty Agreement

Guarantors/Cosigners
Sometimes a borrower will not meet your guidelines for granting credit. In this case, you may request a
Guarantor on the account or on an advance.
NOTE: The borrower must be deemed able to make the payments on the loan themselves. If acceptable income
is determined, but repayment history is suspect, this suggests a Guarantor could make this a good loan. If
income is not deemed acceptable to satisfy repayment, this borrower needs a co-borrower for additional income,
not a Guarantor.
A “guarantor” or “Cosigner” is someone who guarantees repayment of the debt in case the borrower does not
repay. A guarantor is not a co-borrower under the Open-End plan, and does not receive funds from the
loan. Nor is the guarantor eligible for any credit insurance you offer on your Open-End accounts. The
Guarantor is simply agreeing to repay the debt if the borrower defaults.
The borrower may choose whoever is acceptable to the credit union as a Guarantor. You cannot require that
the Guarantor be the borrower’s spouse, although the borrower may request that the spouse be the Guarantor. A
Guarantor should be asked to complete an Application and should be subject to the same underwriting
standards would an applicant.

What are these documents?

These are the documents any guarantor/cosigner signs to promise repayment of the debt in the case the
borrower does not repay. For non-federal chartered Credit Unions, these are separated into two
documents. They are combined into a single document for credit unions with a Federal charter.

The Notice to Cosigner is a Federal requirement that explains what the Guarantor/Cosigner is agreeing to do.

The Guaranty Agreement is the binding contract between Guarantor/Cosigner and the Credit Union, stating
specifically what the Guarantor will repay.

When do we use these documents?

Complete these documents on any loan that includes a guarantor/cosigner. All guarantors on a loan must sign
these documents.

A copy of each of these documents should be given to the guarantor. The borrower neither signs, nor
receives, a copy of this document.

14

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Security Agreement

What is it?

This is a separate Security Agreement, which may be used when:

a) There is an Owner of Collateral that is not a borrower;
b) Affecting a lien in a “filing” state.

When do we use this form?

This document is most commonly used only if utilizing the PLUS option with the Agreement.

Owners of Collateral Other Than a Borrower

Whenever you have a collateral owner (name on a title) who is not your borrower (therefore never signed a
Security Agreement with you), they must sign a Security Agreement, pledging their interest in the collateral to
the credit union in case of default.

Effecting a Lien in a “Filing” State

In cases where you are effecting a lien in a “filing” state, you must have the signature of the borrower, the
description of the collateral and the security agreement all on one form.

The Security Offered section of this form allows you to identify the collateral being offered as security for the
advance. The following are considered “filing” states:

Arkansas Nebraska
Colorado Ohio
District of Columbia South Dakota
Louisiana* Tennessee
Mississippi Wyoming

.*Although Louisiana is listed as a “filing” state above, there are other circumstances involved in lending in that
state. Loanliner offers a separate Louisiana Voucher which includes the Security Agreement language
appropriate for the state.

15

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Adverse Action *AKA Denial Letter

What is it?

This form is used to comply with the Equal Credit Opportunity Act to provide notice of an adverse action taken
on a credit application or existing debt. The credit union is required to document that the action taken was based
solely on credit criteria, and not personal criteria (race, color, religion, national origin, sex, marital status, age,
or source of income).

This also complies with the Fair Credit Reporting Act to notify the borrower that negative information existed
on a credit report obtained from a third party, and played a role in the adverse action.

When do we use this form?

Send this form to notify applicants when:

a. the credit union is unable to approve a loan request

b. the credit union is unable to extend credit on the terms requested, but has a counteroffer

c. a credit limit has been decreased,

d. the credit union is unable to honor the request to increase a credit limit, or

e. additional information is needed to consider the loan request.

f. Negative information on the borrower’s credit report influenced the decision on the loan.

16

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved
 Service and Support

One of the key features of any product you use is the service and support that goes with it. You can rely on the
CUNA Mutual Group to provide you with excellent support and service for the LOANLINER® lending system.

To receive LOANLINER® assistance:

Contact your CUNA Mutual representatives:

Bob Farrell, Lending Sales Specialist (robert.farrell@cunamutual.com)

(800) 356-2644 ext. 1271

Meredith Sumenek, Sales Executive (meredith.sumenek@cunamutual.com)

(800) 356-2644 ext. 5846

Contact the LOANLINER® Systems Department at:

Phone: 1-800-356-5012

FAX: 1-608-233-4535

E-Mail: loanliner@cunamutual.com

Mail: LOANLINER® Systems Department

CUNA Mutual Group
PO Box 2991
Madison, WI 53701-2991

17

CUNA Mutual Group Proprietary and Confidential ©CUNA Mutual Group, 2005 All Rights Reserved