Lines of credit and terminated memberships; New workshop at compliance seminar

first_img This post is currently collecting data… This is placeholder text continue reading » No credit union likes to see its members leave the credit union or to have to expel someone from membership. However, when a membership is terminated, certain processes and procedures kick in. For example, determining how to close accounts, refund any balance in those accounts and shutting off any debit cards. But what happens to outstanding loan balances?Under the Federal Credit Union Act, federal credit unions are prohibited from lending to nonmembers. For closed-end credit, this is rather straightforward – the borrower must be a member at the time of consummation. As long as this requirement is met, terminating a membership during the lending relationship does not have a huge impact on the loan. The loan agreement remains in place and the borrower is still obligated to pay back any outstanding balance regardless of their membership status.However, when it comes to open-end credit, such as a line of credit, HELOC or credit card, the analysis gets a bit more challenging. This is because credit is extended each time a new transaction is made. The effect of this is that the borrower must be a member at the time each new transaction is made. When a membership is terminated, any subsequent transaction on an open-end credit account would be considered lending to a non-member. So, what happens when a borrower ceases to be a member, yet still has available credit on his account?center_img ShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblrlast_img

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