Rick W. Burden, Vice President
Notre Dame Federal Credit Union
P.O. Box 7878
Notre Dame, IN 46556-7878
You have inquired whether a student loan program proposed by your
federal credit union (FCU) is a line of credit and excluded from
the 12-year loan maturity limitation under 12 C.F.R. §701.21(c)(4).
The proposed credit program does not meet the definition of an
open-end credit plan under Regulation Z and, therefore, is not
excluded from the 12-year maturity limitation imposed by the Federal
Credit Union Act.
The loan program proposes that: 1) applicants receive loans in
an amount up to their first year's education costs (i.e., tuition,
books, room and board); 2) loan proceeds are disbursed at least
twice each year; and 3) applicants may apply during their second
school year for additional funds to cover education costs for
that year. Your letter stated that "[e]ach subsequent application
and loan proceeds will be added together into one loan account."
Payments on the loan begin after the applicant has graduated,
and the loan is amortized over fifteen years.
FCUs may "make loans, the maturities of which shall not exceed
twelve years except as otherwise provided herein, and extend lines
of credit to its members." 12 U.S.C. §1757(5). The
maturity of a member loan may not exceed 12 years, as provided
in 12 C.F.R. §701.21(c)(4). However, this regulation establishes
that "[l]ines of credit are not subject to a statutory or
regulatory maturity limit." The amortization of a line of
credit is determined by the contract between the parties.
NCUA has historically used the Federal Reserve Board's definition
of an open-end credit plan in Regulation Z to determine if a loan
should be classified as a line of credit. Regulation Z, 12 C.F.R.
§226.2(a)(2), defines open-end credit as follows:
Open-end credit means consumer credit extended by a creditor under
a plan in which:
The proposed credit program requires an applicant to apply for
the costs of school one year at a time. There is no preset credit
limit covering all of the funds an applicant will eventually have
access to while attending school. An application must be submitted
for each additional extension of credit and there is a time limit
for repayment. These limitations work to eliminate the revolving
feature of open-end credit whereupon an applicant reduces indebtedness
on the extension of credit before drawing on it again. As such,
the proposed credit program could not be considered a line of
credit and would be subject to the 12-year maturity limitation
on member loans.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/CJL:bhs
SSIC 3500
99-0926