Closed-End Pre-Approved Lending User Guide

Transcription

1 Consumer Deposit Consumer Lending Real Estate Lending Business Services Closed-End Pre-Approved Lending User Guide P.O. Box Mineral Point Road Madison, WI MXUG51 (1/14) CUNA Mutual Group 2013 All Rights Reserved

2 Contents Chapter 1: General Information Introduction 1 Process Summary for a Closed-End Pre-Approved Loan 1 Document Listing 2 Chapter 2: Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure Document Description 4 Document Sample Document Completion Instructions 6 Chapter 3: Truth in Lending Disclosure (Pre-Approved) Document Description 22 Document Sample Document Completion Instructions 24 Chapter 4: Pre-Approved Express Draft (Site Draft) Document Description 25 Document Sample Document Completion Instructions 27 Chapter 5: Pre-Approved Express Draft (Check) LOANLINER Check Stock Version Document Description 32 Document Sample Document Completion Instructions 34 Chapter 6: Check Stock (Sample of Paper Check) Document Description 36 Document Sample Document Completion Instructions 38 Chapter 7: Pre-Approved Express Draft (Check) Credit Union Check Stock Version Document Description 41 Document Sample Document Completion Instructions 43 Chapter 8: Pre-Approved Express Draft Confirmation Receipt Document Description 46 Document Sample Document Completion Instructions 48 Chapter 9: Frequently Asked Questions 50 Chapter 10: Additional Guidance Sample 1 Vehicle purchase with Credit Insurance, GAP & financed Filing Fee 59 Sample 2 Vehicle purchase with a trade in, financed Extended Warranty, and cash Filing Fee; without Debt Protection and GAP. 79 Sample 3 Boat purchase with a trade in, GAP purchased with cash, and a financed Filing Fee; without Debt Protection or Extended Warranty. 95 Pre-Approved Lending User Guide

3 Chapter 1: General Information Introduction This guide is designed to help you understand how to use the LOANLINER Pre-Approved Lending document suite. This guide describes each document in detail, including instructions for document completion. This guide also includes sample pre-approved loan transactions which may be helpful to you when completing loan documents at your credit union. 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 LOANLINER to provide you with excellent support and service for the LOANLINER Closed- End Pre-Approved Lending program. You can receive assistance by: Calling our team of operations and compliance experts at: Contacting the LOANLINER Department at: Fax: Mail: LOANLINER Documents PO Box 2991 Madison, WI Accessing the Compliance Resource Center at Lending and Compliance Support The LOANLINER program has been part of credit unions lending success for several decades and LOANLINER products are currently being used by thousands of credit unions. You will have direct access to this support via any of the channels described above or through your CUNA Mutual Group Account Team. Process Summary for a Closed-End Pre-Approved Loan Step 1 Credit union qualifies the member(s) to be pre-approved for a loan; Step 2 Step 3 Step 4 Step 5 Step 6 Credit union offers or promotes Payment Protection, GAP, and MRC (Extended Warranty) product and, if accepted, the member signs the Payment Protection forms. They will sign any GAP or MRC (Extended Warranty) documents in step 8; Credit union provides the member with the Pre-Approved Note, the Truth in Lending Disclosure (Pre-Approved) [as necessary], the Express Draft, and any Payment Protection product documents; Member shops for and negotiates the price of the property; Member and Dealer complete and sign the Express Draft, in accordance with the specified instructions; Dealer sends to credit union (i.e. by fax or other means specified by the credit union) a copy of the completed and signed Express Draft, the Purchase Agreement for the property, and other required documents; Pre-Approved Lending User Guide 1

4 Step 7 Step 8 Step 9 Credit union verifies information meets the loan requirements and pays the Dealer; Credit union contacts the member to discuss MRC (Extended Warranty) and, if accepted by the member, includes the cost in the loan transaction (if applicable) and on the Pre- Approved Express Draft Confirmation Receipt. This is also when the credit union will want to arrange with the member how to collect the signatures on the GAP or MRC (Extended Warranty) documents. Credit union books the loan and sends the Pre-Approved Express Draft Confirmation Receipt and, as a best practice, a copy of the completed Express Draft marked Copy (for the site draft) or Void (for the check) to the member. If the member elected Payment Protection, any documents they have not yet received should be delivered at this time. Document Listing LOANLINER DOCUMENT LISTING VERSION FORMAT TYPE 1 MEDIA TYPE DOCUMENT NUMBER STATES USED IN PRE-APPROVED LOAN AND SECURITY AGREEMENT AND TRUTH IN LENDING DISCLOSURE Standard Fixed/Variable Rate E NXX23* All other states plus federally chartered credit unions lending to borrowers in South Carolina FILING COPY Yes FILING STATES Arkansas, Ohio, South Dakota, Wyoming Right to Cure Fixed/Variable Rate E NRC23* Colorado, DC, Kansas, Maine, Massachusetts, Missouri, Nebraska, West Virginia and state chartered credit unions lending to borrowers in South Carolina Florida Fixed/Variable Rate E NFL23* Florida No Iowa Fixed/Variable Rate E NIA23* Iowa No Louisiana Fixed/Variable Rate E NLA23* Louisiana Yes Louisiana New Hampshire Fixed/Variable Rate E NNH23* New Hampshire No Virginia Fixed/Variable Rate E NVA23* Virginia No Wisconsin Fixed/Variable Rate E NWI23* Wisconsin No TRUTH IN LENDING DISCLOSURE (Pre-Approved) Standard Fixed/Variable Rate E NXX33* All states except for credit unions with Virginia N/A N/A credit insurance Florida Fixed/Variable Rate E NFL33* Florida N/A N/A Virginia Fixed/Variable Rate E NVA33* Credit unions with Virginia credit insurance N/A N/A PRE-APPROVED EXPRESS DRAFT Single Security Check Fixed/Variable Rate E NXX93* All States N/A N/A Multiple Security Check Fixed/Variable Rate E NXX91* All States N/A N/A Single Security Check! Fixed/Variable Rate E NXX97* All States N/A N/A Multiple Security Check! Fixed/Variable Rate E NXX95* All States N/A N/A Florida Single Security Check Fixed/Variable Rate E NFL93* Florida N/A N/A Florida Multiple Security Check Fixed/Variable Rate E NFL91* Florida N/A N/A Florida Single Security Check! Fixed/Variable Rate E NFL97* Florida N/A N/A Florida Multiple Security Check! Fixed/Variable Rate E NFL95* Florida N/A N/A Single Security Site Draft Fixed/Variable Rate E NXX73* All States N/A N/A Multiple Security Site Draft Fixed/Variable Rate E NXX71* All States N/A N/A Florida Single Security Site Draft Fixed/Variable Rate E NFL73* Florida N/A N/A Florida Multiple Security Site Draft Fixed/Variable Rate E NFL71* Florida N/A N/A PRE-APPROVED EXPRESS DRAFT CONFIRMATION RECEIPT Credit Insurance Fixed/Variable Rate E NXX83* All States N/A N/A Debt Protection Fixed/Variable Rate E NXX63* All States N/A N/A Florida Credit Insurance Fixed/Variable Rate E NFL83* Florida N/A N/A Florida Debt Protection Fixed/Variable Rate E NFL63* Florida N/A N/A CHECK STOCK Check Stock N/A P JXX92* All States N/A N/A * Document Version! Requires JXX92* 1 Media Type E = Electronic P = Paper Yes Colorado, DC, Nebraska Pre-Approved Lending User Guide 2

5 Differences between the Standard and State Specific Pre-Approved Loan and Security Agreement and Truth in Lending Disclosures Standard This version is used when a state specific version or right to cure version is not required. Right to Cure This version is used when a state specific version is not required but a notice of the borrower s right to cure in default is required. Florida This version is used exclusively for lending in Florida when the lender does not want the transaction to be subject to the Florida Documentary Stamp Tax under Section (1)(a) of the Florida Statues. Iowa Iowa is a right to cure state and has state specific default language. Louisiana Louisiana has state specific security agreement language. New Hampshire New Hampshire law has state specific requirements for car loans which are included in this version. Virginia This version is for Virginia credit unions due to Credit Insurance requirements. Wisconsin Wisconsin has state specific default provisions and security agreement language. Pre-Approved Lending User Guide 3

6 Chapter 2 Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure Document Description Electronic format only When Used: Purpose: Document Numbers: How Distributed: Printed Components: State-Specific Versions: This document is used when a borrower has been approved for a closed-end pre-approved loan. The Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure must be used in conjunction with A Pre-Approved Express Draft (Site Draft) or a Pre-Approved Express Draft (Check). The Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure provides: The disclosures required by Regulation Z; and The contract terms between the credit union and the borrower(s). Truth in Lending disclosures are given in the Fed Box area and need to be completed based on the maximum amount permitted to be borrowed. NXX23* A copy of this document must be given to a borrower (if joint borrowers, only one needs to receive a copy). Part 1 Credit union copy of the Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure Part 2 Borrower copy of the Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure Part 3 Filing copy, if applicable. NOTE: When recording the Filing Copy, also include a copy of the Pre-Approved Express Draft (Site Draft) or Pre-Approved Express Draft (Check) as it contains the Borrower(s) signature(s). Right to Cure, Florida, Iowa, Louisiana, New Hampshire, Virginia, and Wisconsin. *Indicates spaceholder for version number Pre-Approved Lending User Guide 4

7 To create these samples, pull the pdf into an InDesign file and add the circles to a seperate layer. Now make a high res pdf of the form with circle numbers to use as a graphic for the manual. (maz) Page 1 sample The Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure sets forth the terms and conditions of the loan offered and extended by to the borrower(s) identified herein and is comprised of the following documents: (i) a Truth in Lending Disclosure for each available Loan Type; and (ii) a Loan and Security Agreement. FIXED RATE VARIABLE RATE NAME AND ADDRESS STEP RATE DATE 4 BORROWER 1 Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure LOAN NUMBER EXPRESS DRAFT NUMBER ACCOUNT NUMBER GROUP POLICY NUMBER BORROWER 2 NAME (AND ADDRESS IF DIFFERENT FROM BORROWER 1) 10 LOAN TYPE TRUTH IN LENDING DISCLOSURE ( 'e' means an estimate) ANNUAL PERCENTAGE RATE FINANCE CHARGE Amount Financed Total of Payments Prepayment: If you pay off early you will not 15 The cost of your credit as a yearly The dollar amount the The amount of credit The amount you will have have to pay a penalty. rate. credit will cost you. provided to you or on paid after you have made Required Deposit: The Annual Percentage your behalf. all payments as scheduled. Rate does not take into account your 11 % $ 12 $ 13 $ required deposit, if any. 17 Property Insurance: You may obtain property insurance from anyone that is acceptable to the credit Filing Fees Non-Filing Insurance union. If you get the insurance from us, you will pay $ 18 $ 19 $ 20 Late Charge: 21 Your Payment Schedule Will Be: (Payment Schedule Disclosures are Estimates) Number of Payments Amount of Payments $ When Payments Are Due $ Security: Collateral securing other loans with the credit union may also secure this loan. You are giving a security interest in your shares and dividends and, if any, your deposits and interest in the credit union; and the goods or property purchased with and described in the Pre-Approved Express Draft. Variable Rate: 24 SEE YOUR LOAN AND SECURITY AGREEMENT FOR ANY ADDITIONAL INFORMATION ABOUT NONPAYMENT, DEFAULT, AND ANY REQUIRED REPAYMENT IN FULL BEFORE THE SCHEDULED DATE ITEMIZATION OF THE AMOUNT FINANCED ( 'e' means an estimate) Itemization of Amount Financed of 26 Amount Paid on Your Account 27 Prepaid Finance Charge $ $ $ Amounts Paid to Others on Your Behalf: (If an amount is marked with an asterisk (*) we will be retaining a portion of the amount.) $ To Approved and/or Independent Dealer $ To $ To $ One or more additional Truth In Lending Disclosure(s) for other available Loan Types may be included on a following page and shall be incorporated as part of the Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure. To CUNA Mutual Group 2012, 13 All Rights Reserved NXX235-e Pre-Approved Lending User Guide 5

8 Page 1 instructions Please refer to the document on the preceding page for the corresponding numbers. 1. Credit Union Information This space is used to identify the credit union (creditor) as required by Regulation Z, Section (a). Have your data processor set up your credit union s name, address, telephone number and logo to print. 2. Credit Union Name Enter the name of the credit union. 3. Rate Type Enter an X in the check box next to the type of rate you are offering. If, in addition, you are offering a Step rate, enter an X in that check box. For example, if you are offering a Fixed Step Rate, you would check both the Fixed Rate box and the Step Rate box. 4. Date Enter the date you prepared and delivered the document to the borrower(s). 5. Loan Number Enter the loan identification number as defined by the credit union. There is no regulatory requirement for what date this is, however it is intended to be used as a reference as to when the loan documents were provided to the borrower. 6. Express Draft Number Enter an Express Draft Number assigned to this transaction. The Express Draft Number that appears on the Pre-Approved Express Draft (Site Draft) or Pre- Approved Express Draft (Check) needs to match the Express Draft Number that appears on the Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure and the Truth in Lending Disclosure (Pre-Approved), if used for this loan. The Express Draft Number will be used to track this and other documents that are part of this transaction in your Pre-Approved Express Draft Log as discussed in the Pre-Approved Lending Planning Guide. If a credit union is using LOANLINER Check Stock (JXX92*) with a compatible Check Version of the Express Draft (NXX95* or NXX97*), the Express Draft number, which is supplied by the credit union at the time of the check stock order, will be printed on the LOANLINER Check Stock and be displayed in this location once the Express Draft (Check) is printed on the Check Stock. If a credit union is using their own check stock with a compatible Check version of the Express Draft (NXX91* or NXX93*), the credit union will need to ensure an Express Draft Number of their choosing appears on the Express Draft. If a credit union is using a Site Draft version of Express Draft (NXX71* or NXX73*) they will create a series of unique numbers to pull from and enter onto the Site Draft to ensure no two Express Drafts ever have the same Express Draft Numbers. 7. Account Number Enter the borrower s account number. 8. Group Policy Number Enter your credit union s CUNA Mutual Group Policy Number, often referred to as your Contract Number. 9. Borrower 1 Name and Address / Borrower 2 Name and Address Enter the name and address of each borrower. 10. Loan Type Enter the Loan Type that is represented by this Truth In Lending Disclosure. A Loan Type is an offer that is specific as to the Annual Percentage Rate (APR), term, collateral requirements and any other characteristics of the offer that may differ from other offers. Please refer to the Sample Loans section for an example of how Loan Type can be used. Pre-Approved Lending User Guide 6

9 Page 1 instructions (continued) Truth in Lending Disclosure Section The Truth in Lending Act requires certain disclosures be segregated from other information on a closed-end lending document per Regulation Z, Section (a). The area labeled Truth in Lending Disclosure is referred to as the Fed Box. Regulation Z (Section (c)) requires disclosures for Closed-End loans be based on the best information reasonably available at the time the disclosures are made. When any information needed to make and accurate disclosure is unknown to the credit union, they must make that disclosure based on the best information reasonably available at the time the disclosure is made. Because of the nature of the Pre-Approved Lending program, the Amount Financed, Finance Charge, Total of Payments, and Payment Schedule disclosures fall into this unknown category. Fed Box disclosures are to be made based upon the maximum approved loan amount and labeled as estimates as indicated. Filing Fees may also be listed as an estimate if it is unclear what the final amount of those fees will be. The Truth in Lending Disclosure contains the following items: 11. Annual Percentage Rate Your credit union must complete the Annual Percentage Rate (APR) for the loan requested, pursuant to Regulation Z, Sections (e) and The APR should not be labeled as an estimate due to Regulation Z thresholds which require re-disclosure if the APR changes by more than 1/8 of 1% in either direction. If you have more than one APR, that will be a separate Loan Type. Note: The APR will be the simple interest rate when the only finance charge is interest. If finance charges other than interest are to be included, the APR will be different than the simple interest rate and must be calculated using a calculation device sufficiently sophisticated to correctly compute the correct APR pursuant to Appendix J to Part Examples of finance charges on consumer loans include among other things: a) credit report fees; b) loan processing fees; and c) mandatory GAP coverage. 12. Finance Charge (Labeled with an e ) Your credit union must complete the total finance charge for the loan as required by Regulation Z, Section (d). See also Regulation Z, Section Note: Any prepaid finance charge should be included in this amount (i.e. loan processing fee). However, given the unique aspects of this program, charging a prepaid finance charge could trigger re-disclosure requirements given the potential impact on APR pursuant to Section (f). Contact the LOANLINER Department if you intend to offer a prepaid finance charge and have questions. 13. Amount Financed (Labeled with an e ) As with other Fed Box disclosures, the actual Amount Financed is unknown at the time of disclosure in Pre-Approved Loans and therefore must be estimated. Regulation Z, Section (b) requires that the amount financed be calculated in the following way: a) The pre-approved principal loan amount. Pre-Approved Lending User Guide 7

10 Page 1 instructions (continued) b) Plus other amounts that are financed by the lender and are not part of the finance charge. Level Rate, Monthly Renewable Credit Insurance, and Monthly Renewable Debt Protection are not financed and should not be added when calculating Amount Financed. Single Premium insurance is financed and will be included in this amount. c) Minus any prepaid finance charge. 14. Total of Payments (Labeled with an e ) Your credit union must include the sum of the payments for the loan, Regulation Z, Section (h). The total of payments must equal the sum of the payments reflected in the payment schedule. For example: If the payment schedule contemplates 36 payments of $110 ($100 for Principal and Interest plus $10 for Monthly Renewable Credit Life insurance), the total of payments would show $3, Prepayment Regulation Z, Section (k) requires disclosure of any prepayment penalty. The language in the LOANLINER documents prohibits a prepayment penalty. Pursuant to federal law, federal credit unions cannot charge pre-payment penalties. 16. Required Deposit Per Regulation Z, Section (r), this language is required when the borrower must maintain a deposit as a condition of the loan. 17. Property Insurance If your credit union sells property insurance, you must enter the amount of the insurance premium. The term of the insurance must also be disclosed if it is less than the term of the loan, Regulation Z, Section (n). 18. Filing Fees (Labeled with an e as applicable) A filing fee is not considered a finance charge if the cost is itemized and disclosed, Regulation Z, Section (e). However, any amount charged by your credit union that is in addition to the actual fee charged by the government agency would be considered a finance charge, per Commentary to Regulation Z, Section (e). These fees must be disclosed whether you pass on the cost of filing fees (for example, a lien filing fee) to borrowers, directly or indirectly. These fees must be disclosed even if the borrower pays the fee in cash to the credit union or a third party, such as when the fee is included on the purchase order from the dealer. If the filing fee may vary, disclose the maximum possible filing fee amount and label it with an e for estimate. 19. Non-Filing Insurance (Labeled with an e as applicable) Enter the dollar amount of the non-filing insurance. This insurance premium is used to perfect the lien in lieu of actually filing the security interest, Regulation Z, Section (o). If the non-filing insurance may vary, disclose the maximum possible amount and label it with an e for estimate. 20. Late Charge The late charge is any dollar or percentage charge that may be imposed before maturity due to a late payment per Regulation Z, Section (l). This language must be provided by the credit union and may be printed on the documents. 21. Payment Schedule Enter the number and amount(s), of the payments per Regulation Z, Section (g). You do not have to label any of these with an e for estimate as the entire section is already labeled as an estimate. You may include amounts other than the amount financed and finance charges, such as Voluntary Payment Protection, in the payment amounts. Keep in mind, any additional amounts included in the payment schedule will also end up in the Total of Payments disclosure as the Total of Payments disclosure must equal the sum of all payments listed in the payment schedule. Pre-Approved Lending User Guide 8

11 Page 1 instructions (continued) The final payment amounts and due dates will be communicated to the borrower on the Pre- Approved Express Draft Confirmation Receipt that you must send out once the Pre-Approved Lending transaction is complete. Please review the Sample Loan Scenarios at the end of this user guide for more information. 22. Security The statement Collateral securing other loans with the credit union may also secure this loan must be disclosed as it supports the cross-collateral clause found in the Loan and Security Agreement. The statement You are giving a security interest in your shares and dividends and, if any, your deposits and interest in the credit union discloses that the member s shares/deposits will also be used to secure the loan. The actual Property being purchased and offered as security is described in the Pre-Approved Express Draft (Site Draft) or Pre-Approved Express Draft (Check). 23. Variable Rate The definition of a variable rate loan for closed-end credit is as follows: any loan in which the rate can increase after consummation in a transaction not secured by the consumer s principal dwelling. Step Rate loans, loans where the change in the interest rate has a predetermined timing and rate associated with it such as in Introductory Rate loans, are not considered variable rate by Regulation Z. Step Rate loans are discussed in the sample loan scenarios at the end of this guide. There are many types of variable rate closed-end transactions and they generally fall into one of the following categories: a) Changes that follow an external index such as the Prime Rate, Treasury Bill Rates, Eleventh District Cost of Funds, Treasury Securities, etc. These are indexes that are set up by an agency or group other than the credit union and are generally published in The Wall Street Journal, the financial pages of local newspapers, the Federal Reserve Statistical Release and Federal Reserve Board Bulletin. b) Changes that follow an external index that are beyond the control of the credit union such as the rate charged by another local financial institution. An example would be the fixed rate charged by XYZ Financial for 30-year fixed rate mortgages. These rates generally are not officially published like the indexes described above, but they are beyond the control of the credit union. c) Changes that follow an internal index of the credit union. An example would be the credit union s rate on 6-month certificates or the dividend rate paid on share accounts. d) Changes in the rate that are based entirely on the discretion of the credit union s board of directors. At any particular time the board of directors can decide that the interest rate will change on existing loans. e) Changes that are tied to some event or occurrence. Common occurrences in credit union loans which trigger an interest rate increase include: 1) when an employee leaves the employment of the credit union, 2) discontinuing payroll deduction or automatic payment, 3) failure to maintain minimum account balances, or 4) failure to maintain certain services. Pre-Approved Lending User Guide 9

12 Page 1 instructions (continued) REQUIRED DISCLOSURES FOR VARIABLE RATE LOANS The following disclosures must appear in this section of the document: The Circumstances Under Which the Rate May Increase SAMPLE LANGUAGE: The APR may increase during the term of this transaction if: [the prime interest rate of (creditor) increases.] [the balance in your deposit account falls below $.] [you terminate your employment with (employer).] Any Limitation on the Increase SAMPLE LANGUAGE: [The interest rate will not increase above %.] [The maximum interest rate increase at one time will be %.] [The rate will not increase more than once every (time period).] The Effect of an Increase SAMPLE LANGUAGE: Any increase will take the form of: [higher payment amounts.] [more payments of the same amount.] [a larger amount due at maturity.] An Example of the Payment Terms that would Result from an Increase The example must be either a standard example that illustrates the terms and conditions of the type of credit offered by the credit union or it may directly reflect the terms and conditions of the particular transaction. Additional Variable Rate Information In addition to the Truth in Lending Disclosures, you must also explain any other terms of the variable rate which are directly related. These include: the margin, interest rate floors, rounding of index values or payments. 24. Contract Reference This is a statement per Regulation Z, Section (p) which explains the consumer should refer to the appropriate contract documents (Loan and Security Agreement) for information about nonpayment, default and prepayment penalties and rebates. Itemization of Amount Financed Section 25. Itemization of Amount Financed This is the amount shown in the Amount Financed disclosure. This is required per Regulation Z, Section (c). This amount must be disclosed in its estimated amount for Truth in Lending disclosure purposes on the Note, however once the loan terms are finalized, the Disbursement Details of the Pre-Approved Express Draft Confirmation Receipt will convey the final amounts to the borrower(s). 26. Amount Paid on Your Account This is the amount your credit union will use to pay off an existing loan balance connected to the Pre-Approved Loan. This amount would include any payment of an existing loan balance (principal and accrued interest) on a prior loan, such as when a member uses property with existing credit union financing as a trade-in. Only amounts paid to loan accounts should be shown here, per Regulation Z, Section (c)(1)(ii). Pre-Approved Lending User Guide 10

13 Page 1 instructions (continued) 27. Prepaid Finance Charge Prepaid finance charges include any portion of the finance charge paid prior to or at closing or settlement. They may be paid in cash or financed and withheld from the proceeds. Some common examples include: service fees, loan fees, loan guarantee insurance, credit report fees, residual value insurance and mandatory GAP coverage. Prepaid finance charges are subtracted from the principal loan amount and added to the finance charge for disclosure purposes. This will result in an APR that is different than the contractual interest rate. 28. Amount Paid to Others on Your Behalf These boxes are provided to disclose amounts paid to other persons by the credit union on the borrower s behalf. These persons must be identified by name with the exception of payments to government agencies, public officials, credit report agencies, appraisers and insurance companies may be generically identified with phrases like credit bureau or state agency. Since the Pre-Approved Lending program is designed with the option to only allow purchase of property from an Approved and/or Independent Dealer, this phrase has been pre-filled into the first line. The To Approved and/or Independent Dealer amount is the portion of the Amount financed which the borrower may spend at the dealer. However any other amount financed that is paid to someone other than the dealer must be listed on one of the other blank spaces with that person properly identified. If the loan transaction will include the payoff of a loan with another financial institution, such as when a member uses property with existing financing as a trade-in, you would list the estimated loan pay-off amount on its own line, if the credit union is sending a the pay-off to the financial institution. If the payoff of the other financial institutions trade-in collateralized loan is being handled by the dealer, you may include the pay-off loan amount with the other amounts being paid to the Dealer on your behalf. NOTE: Voluntary Payment Protection need not be disclosed in this section unless it is financed Single Premium Coverage in which case you should contact LOANLINER for more information. This section includes a sentence which reads as follows: If an amount is marked with an asterisk(*), we will be retaining a portion of the amount. An asterisk should be used whenever the borrower is financing a product for which the credit union imposes an upcharge. Typically, if the credit union sells mechanical repair coverage (MRC) or extended warranties and retains a portion of the amount, then an asterisk will be needed. An example would be if the borrower purchased an extended warranty from the credit union. The warranty may cost the credit union $300, but the credit union charges the borrower $400. The $100 difference is an upcharge on this product. The credit union needs to disclose that it is retaining a portion of the $400 that is being charged to the borrower. 29. Truth in Lending Disclosure This statement refers to a standalone Truth in Lending Disclosure in the event an additional Loan Type is offered to the member. Pre-Approved Lending User Guide 11

14 Page 2 sample Credit Union Loan No. Acct. No. Borrower(s) LOAN AND SECURITY AGREEMENT 30 In this Loan and Security Agreement ("Agreement"), all references to "Credit Union," "we," "our," or "us," mean the Credit Union whose name appears above and anyone to whom the Credit Union assigns or transfers this Agreement. All references to "you," "your," or "borrower" mean each person who signs the Pre-Approved Express Draft ("Express Draft") as a borrower. All references to the "Disclosure Statement" shall refer to the Truth in Lending Disclosure(s) provided as part of the Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure. All references to "Loan" shall mean, the amount actually borrowed pursuant to this Agreement, including without limitation any fees financed with the proceeds thereof and/or any amounts paid to others on your behalf or paid to us to satisfy a debt on your account. By signing the Express Draft (which is incorporated herein by reference) you acknowledge that you have received and read in full the Pre-Approved Loan and Security Agreement and Truth in Lending Disclosure and the Express Draft and agree to the terms, obligations and conditions set forth in this Agreement and the Express Draft SELECTION OF LOAN TYPE - You acknowledge and agree that we have provided a Disclosure Statement setting forth the estimated terms of each Loan Type being offered to you by the Credit Union. The Loan Type is specified on the Disclosure Statement(s) provided in connection herewith. You agree to fill-in the Loan Type you have selected on the Express Draft in accordance with the instructions set forth therein. You further acknowledge and agree that the terms of the Loan will correspond to the terms of the Loan Type you select but that certain terms may vary depending on the actual amount and date of the Loan PROMISE TO PAY - You promise to pay to the Credit Union the principal amount of the Loan plus interest on the unpaid balance until the entire outstanding balance plus interest has been repaid. The interest rate(s) applicable to each available Loan Type are set forth below. Interest will begin to accrue on the date we pay the Express Draft. Loan Type: The interest rate will be % per year Variable Rate: Loan Type: The interest rate will be % per year Variable Rate: COLLECTION COSTS PAYMENTS - You promise to make regular payments of principal and interest in accordance with the payment schedule set forth on the Pre-Approved Express Draft Confirmation Receipt (the "Confirmation") you will receive shortly after your purchase. You acknowledge and agree that the amount of the payments and the due dates of such payments may vary from those disclosed in the Disclosure Statement depending on the amount and date of the Loan. You may prepay any amount without penalty at any time. If you prepay any part of what you owe, you are still required to make the regularly scheduled payments, unless we have agreed to a change in the payment schedule. Because this is a simple interest loan, if you do not make payments when due, your final payment may be more or less than the amount of the final payment disclosed to you. If you elect voluntary payment protection, we will either include the premium or program fees in your payments or extend the term of your Loan. If the term is extended, you will be required to make additional payments of the scheduled amount, until what you owe has been paid. You promise to make all payments in a manner and at a location acceptable to us. Unless otherwise required by law, payments will be applied to amounts owed in the manner we choose LATE CHARGE - If you are late in making a payment, you promise to pay the late charge shown in the Disclosure Statement. If no late charge is disclosed on the Disclosure Statement, none will be charged TRADE IN - If you are trading in a vehicle or other property as part of the purchase transaction associated with this Loan, we have calculated the approved loan amount based on this fact. Thus, if you decide not to trade in your vehicle or other property as originally agreed, this Agreement is void SECURITY AGREEMENT. a. THE SECURITY FOR THE LOAN - You give us a security interest in the property described in the Security Offered section of the Express Draft ("Property"). The security interest you give includes all accessions (things that are attached to or installed in the Property now or in the future). The security interest also includes any replacements for the Property which you buy within 10 days of the Loan and any extensions, renewals or refinancings of the Loan. It also includes any money you receive from selling the Property or from insurance you have on the Property. If the value of the Property declines, you agree to give us more property as security if asked to do so. In addition to the Property, property securing other loans you have with us also secures this Loan, unless the property is a principal dwelling. In addition to your pledge of shares, we may also have what is known as a statutory lien on all individual and joint accounts you have with us. A statutory lien means we have the right under federal law and many state laws to claim an interest in your accounts. We can enforce a statutory lien against your shares and dividends, and if any, interest and deposits, in all individual and joint accounts you have with us to satisfy any outstanding financial obligation that is due and payable to us. We may exercise CUNA Mutual Group 2012, 13 All Rights Reserved NXX235-e Pre-Approved Lending User Guide 12

15 Page 2 instructions Loan and Security Agreement Section 30. Definition of Terms This paragraph defines the various terms used throughout the document including Agreement, Credit Union, you, Express Draft, and Disclosure Statement. It also details that by the borrower signing the Express Draft as defined, the borrower acknowledges receipt of this document and the Express Draft document as well as agreeing to the terms of both documents. 31. Selection of Loan Type This paragraph allows you to offer more than one Loan Type (see Pre-Approved Lending Planning Guide for more details on Loan Type). This paragraph clarifies that the borrower is required to properly complete the Pre-Approved Express Draft (Site Draft) or Pre-Approved Express Draft (Check) with the name of the Loan Type they have selected. It also captures their acknowledgement to the fact they were provided a Truth in Lending Disclosure for each Loan Type offered to them as part of the pre-approved loan transaction. 32. Promise to Pay This is the contractual promise to repay the principal loan amount plus interest. Your credit union must insert each Loan Type offered and corresponding interest rate as disclosed in the Truth In Lending Disclosure(s). If only offering one Loan Type, place N/A in the second line. If a loan type is fixed rate, enter the interest rate and add a period. to the end of the standard language The interest rate will be % per year. If a loan type is variable rate, variable step rate, or fixed step rate, in addition to listing the appropriate interest rate, additional language must be populated to the right of and below the standard language The interest rate will be % per year. Please see the Sample Loan Scenarios at the end of the user guide for more details. 33. Collection Costs Any collection costs your credit union wants to impose that are permissible under state law must be disclosed here. This language may be imprinted. 34. Payments This is the borrower s promise to make payments as specified in the Pre-Approved Express Draft Confirmation Receipt they will receive shortly after purchase. It also discloses to the borrower that there is no prepayment penalty and if payments are not made as scheduled, the final payment may be more or less than the final payment that was disclosed. Also, if Voluntary Payment Protection is elected, the premium or program fees may be included in the payment otherwise the loan term will be extended. 35. Late Charge This describes that if your borrower is late in making a payment, they promise to pay the late charge shown in the Truth in Lending Disclosure that corresponds to the Loan Type they have selected, if a late charge is disclosed. 36. Trade In This clarifies that the LOANLINER Closed-End Pre-Approved Lending Documents are void if a borrower decides not to a trade-in after telling the credit union they would. This is because when a credit union knows that a trade-in will be involved in a pre-approved loan transaction ahead of time, certain disclosures must be made in the Fed Box on page 1 of the Note and on any associated Truth in Lending disclosures. Pre-Approved Lending User Guide 13

16 Page 2 instructions (continued) 37. Security Agreement a) The Security for the Loan This paragraph grants your credit union a security interest in the property described on the Pre-Approved Express Draft (Site Draft) or Pre-Approved Express Draft (Check). It also permits your credit union a security interest in accessions, proceeds of the collateral, and allows you to obtain additional collateral if the market value of the collateral declines, among other things. This paragraph also discusses specific pledge of collateral, general pledge of shares, and statutory lien. NOTE: For state chartered credit unions located in states where statutory liens are not allowed, however the general pledge of shares and dividends would apply. Pre-Approved Lending User Guide 14

17 Page 3 sample Credit Union Loan No. Acct. No. Borrower(s) LOAN AND SECURITY AGREEMENT (continued) our right to enforce this lien without further notice to you, to the extent permitted by law. You pledge as security for this Loan all shares and dividends and, if any, all deposits and interest in all joint and individual accounts you have with the Credit Union now and in the future. The statutory lien and/or your pledge will allow us to apply the funds in your account(s) to what you owe when you are in default. The statutory lien and your pledge do not apply to any Individual Retirement Account or any other account that would lose special tax treatment under state or federal law if given as security as well as any amounts protected by law. b. WHAT THE SECURITY INTEREST COVERS/CROSS COLLATERAL PROVISIONS - Our security interest described in section 7.a. of this Agreement secures the Loan and any extensions, renewals, modifications or refinancings of the Loan. The security interest also secures any other loans, including any credit card loan, you have now or receive in the future from us and any other amounts you owe us for any reason now or in the future, except any loan secured by your principal dwelling. c. OWNERSHIP OF THE PROPERTY - You promise that you own the Property or, if this Loan is to buy the Property, you promise you will use the Loan proceeds for that purpose. You promise that no one else has any interest in or claim against the Property that you have not already told us about. You promise not to sell or lease the Property or to use it as security for a loan with another creditor until the Loan is repaid. You promise you will allow no other security interest or lien to attach to the Property either by your actions, inactions, or by operation of law. d. PROTECTING THE SECURITY INTEREST - If your state issues a title for the Property, you promise to have our security interest shown on the title. We may have to file what is called a financing statement or some other document or instrument to protect our security interest from the claims of others. You irrevocably authorize us to execute (on your behalf and in a form satisfactory to us), if applicable, and file one or more financing, continuation or amendment statements pursuant to the Uniform Commercial Code (UCC) or any other document or instrument pursuant to applicable state law. You promise to do whatever else we think is necessary to protect our security interest in the Property. You also promise to pay all costs, including but not limited to any attorney fees, we incur in protecting our security interest and rights in the Property, to the extent permitted by applicable law. e. USE OF PROPERTY - Until the Loan has been paid off, you promise you will: (1) use the Property carefully and keep it in working order and in good repair; (2) obtain our written permission before making major changes to the Property or changing the address where the Property is kept; (3) inform us in writing before changing your address; (4) allow us to inspect the Property; (5) promptly notify us if the Property is damaged, stolen or abused; (6) not use the Property for any unlawful purpose; and (7) not retitle the Property in another state without telling us. f. PROPERTY INSURANCE, TAXES AND FEES - You promise to pay all taxes and fees (e.g. registration fees) due on the Property. You also promise to keep the Property insured against loss and damage in the amount and with the coverages we reasonably require from an insurance company that is acceptable to us. You may provide the property insurance through a policy you already have, or through a policy you get and pay for. You promise to make the insurance policy payable to us and to deliver the policy or proof of coverage to us if asked to do so. If you cancel your insurance and get a refund, we have a right to the refund. If the Property is lost or damaged, we can use the insurance settlement to repair the Property or apply it towards what you owe in our sole discretion. You authorize us to endorse any draft or check that may be payable to you in order for us to collect any refund or benefits due under your insurance policy. If you do not pay the taxes or fees on the Property when due or keep it insured, we may pay these obligations, but we are not required to do so. Any money we spend for taxes, fees or insurance will be added to the unpaid balance of the Loan and you will pay interest on those amounts at the same rate you agreed to pay on the Loan. We may receive payments in connection with the insurance from a company which provides the insurance. We may monitor our loans for the purpose of determining whether you and other borrowers have complied with the insurance requirements of our loan agreements or may engage others to do so. The insurance charge added to the Loan may include (1) the insurance company's payments to us and (2) the cost of determining compliance with the insurance requirements. If we add amounts for taxes, fees or insurance to the unpaid balance of the Loan, we may increase your payments to pay the amount added within the term of the insurance or term of the Loan. g. INSURANCE NOTICE - If you do not purchase the required property insurance, the insurance we may purchase and charge you for will cover only our interest in the Property. The premium for this insurance may be higher because the insurance company may have given us the right to purchase insurance after uninsured collateral is lost or damaged. The insurance will not include liability insurance coverage and will not satisfy any state financial responsibility or no fault laws DEFAULT - You will be in default under this Agreement if you do not make a payment of the amount required on or before the date it is due. You will be in default if you break any other promise you made under this Agreement. You will be in default if you die, file for bankruptcy, become insolvent (that is, unable to pay your bills and loans as they become due), or if you made any false or misleading statements in your loan application. You will also be in default if something happens that we believe may seriously affect your ability to repay what you owe under this Agreement or if you are in default under any other agreement you have with us. You will be in default if any Property you have given us as security is repossessed by someone else, seized under a forfeiture or similar law, or if anything else happens that significantly affects the value of the Property or our security interest in it ACTIONS AFTER DEFAULT - When you are in default, we may demand immediate payment of the entire unpaid balance of the Loan. You waive any right you have to receive demand for payment, notice of intent to demand immediate payment and notice of demand for immediate payment. If we demand immediate payment, you will continue to pay interest at the rate provided for in this Agreement, until what you owe has been fully repaid. We will also apply against what you owe any shares and/or deposits given as security under this Agreement. We may also exercise any other rights given by law when you are in default. When you are in default, we may also take possession of the Property. You agree the Credit Union has the right to take possession of the Property without judicial process if this can be done without breach of the peace. If we ask, you promise to deliver the Property at a time and place we choose. You agree that we may obtain a key or other device necessary to unlock and operate the Property when you are in default. We will not be responsible for any other property not covered by this Agreement that you leave inside the Property or that is attached to the Property. We will try to return that property to you or make it available for you to claim. After we have possession of the Property, we can sell it and apply the money to any amounts you owe us. We will give you notice of any public disposition or the date after which a private disposition will be held. Our expenses for taking possession of and selling the Property will be deducted from the money received from the sale. Those costs may include the cost of storing the Property, preparing it for sale and attorneys fees to the extent permitted under state law or awarded under the Bankruptcy Code. If you have agreed to pay the Loan, you must pay any amount that remains unpaid after the sale money has been applied to the unpaid balance of the Loan and to what you owe under this Agreement. You agree to pay interest on that amount at the same rate as the Loan until that amount has been paid EACH PERSON RESPONSIBLE - Each person who signs, or otherwise authenticates, the Express Draft as a borrower will be individually and jointly responsible for paying the entire amount owed under this Agreement. This means we can enforce our rights against any one of you individually or against all of you together DELAY IN ENFORCING RIGHTS - We can delay enforcing any of our rights under this Agreement any number of times without losing the ability to exercise our rights later. We can enforce this Agreement against your heirs or legal representatives CONTINUED EFFECTIVENESS - If any term of this Agreement is determined by a court to be unenforceable, the other terms will remain in full force and effect NOTICES - Notices will be sent to you at the most recent address you have given us in writing. Notice to any one of you will be notice to all USE OF LOAN - You promise to use your Loan for consumer (personal, family or household) purposes, unless the Credit Union gives you written permission to use the Loan also for agricultural or commercial purposes. CUNA Mutual Group 2012, 13 All Rights Reserved NXX235-e Pre-Approved Lending User Guide 15

18 Page 3 instructions b) What the Security Interest Covers/Cross Collateral Provisions This paragraph states that the security interest in the property described on the Pre-Approved Express Draft (Site Draft) or Pre-Approved Express Draft (Check) secures the Loan. It also states that the security for the loan will also be security for certain other debts with the credit union, now and in the future. c) Ownership of the Property This clause details the borrower s promises as they relate to the ownership of the property. The borrower(s) promise that they own or will use the loan proceeds to purchase the collateral shown in the Security Offered Section of the Pre-Approved Express Draft. They further promise that they will not sell or lease the collateral or give anyone else a security interest in it until the debt has been paid, nor will they allow any other security interest or lien to be attached to the Property. d) Protecting the Security Interest This paragraph requires the borrower to promise to assist the credit union in any way to protect the security interest. It also requires the borrower to identify your credit union as lien holder on the title. e) Use of Property This paragraph outlines the responsibilities of the borrower to maintain the collateral. f) Property Insurance, Taxes and Fees This paragraph contains information about taxes, fees and property insurance on the collateral. The borrower is required to pay all taxes and fees plus insure the property and name the credit union as loss payee on an insurance policy. Any amounts spent by your credit union on taxes, fees or property insurance can be added to the loan balance and be subject to interest at the same rate as the original loan. Your credit union has the option of increasing the borrower s payment to the extent necessary to repay the loan in the original scheduled term. g) Insurance Notice This paragraph states that if your borrower does not purchase property insurance, your credit union can purchase and charge your borrower for insurance that covers only your credit union s interest in the property. 38. Default This paragraph describes the events that will result in default. Be sure to read this paragraph to determine whether a loan may be deemed to be in default. The default language will vary by version, due to state law requirements. Be sure to read this paragraph before deciding whether you can call a loan in default. If you have questions, consult your legal counsel. 39. Actions After Default This section includes a statement allowing the credit union to accelerate the unpaid balance of the loan in the event of default. If this paragraph gives the borrower a right to cure the default, be sure you comply with the applicable state law on timing and content of the Right to Cure Notice. When a debt is accelerated, interest will continue to accrue on the unpaid balance at the same rate. Lastly, this section allows your credit union to exercise any other rights given by law when your borrower is in default. 40. Each Person Responsible This paragraph explains that each borrower who signs, or otherwise authenticates, the Pre-Approved Express Draft (Site Draft) or Pre-Approved Express Draft (Check) will be held individually and jointly responsible for paying the entire amount owed under the Agreement. Pre-Approved Lending User Guide 16

19 Page 3 instructions (continued) 41. Delay in Enforcing Rights This statement provides that your credit union can delay enforcing any rights under the Agreement without losing the ability to exercise those rights later. It also permits your credit union to enforce the Agreement against a borrower s heirs or legal representatives. 42. Continued Effectiveness This statement provides that if a court finds any part of the Agreement unenforceable, that the remainder of the Agreement will remain in effect. 43. Notices This paragraph states that your credit union will send notices to the most recent address your borrower gave your credit union in writing and that notice to one is notice to all. 44. Use of Loan This paragraph was added to the Agreement due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) which provides certain protections against court-ordered reduction (cramdown) of a secured balance due on purchase-money secured debt acquired for personal, family or household purposes. This provision will prove that the property was purchased by the borrower for consumer purposes. Pre-Approved Lending User Guide 17

20 Page 4 sample Credit Union Loan No. Acct. No. Borrower(s) LOAN AND SECURITY AGREEMENT (continued) NO ORAL AGREEMENTS - THIS AGREEMENT CONSTITUTES A "WRITTEN LOAN AGREEMENT" PURSUANT TO SECTION OF THE TEXAS BUSINESS AND COMMERCE CODE, IF SUCH SECTION APPLIES. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES NOTICE TO NORTH DAKOTA BORROWERS PURCHASING A MOTOR VEHICLE - THE MOTOR VEHICLE IN THIS TRANSACTION MAY BE SUBJECT TO REPOSSESSION. IF IT IS REPOSSESSED AND SOLD TO SOMEONE ELSE, AND ALL AMOUNTS DUE TO THE SECURED PARTY ARE NOT RECEIVED IN THAT SALE, YOU MAY HAVE TO PAY THE DIFFERENCE NOTICE FOR ARIZONA OWNERS OF PROPERTY - It is unlawful for you to fail to return a motor vehicle that is subject to a security interest, within thirty days after you have received notice of default. The notice will be mailed to the address you gave us. It is your responsibility to notify us if your address changes. The maximum penalty for unlawful failure to return a motor vehicle is one year in prison and/or a fine of $150, NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER OTHER PROVISIONS - CUNA Mutual Group 2012, 13 All Rights Reserved NXX235-e Pre-Approved Lending User Guide 18