The NAFCU Journal July-August 2020 - 61

Ability to Repay

Many credit unions work to help members during difficult times but want to
ensure any lending practices are within
the defined risk appetite, including considering someone's ability to repay the
loan. One area of flexibility may come in
the form of assessing creditworthiness
for members who apply for modifications. For example, for a member facing
a temporary gap in employment, a credit
union might place more emphasis on
past performance or future expected
income. The credit union may allow different documentation to be submitted by
the member to prove creditworthiness.

Sometimes when a member faces a hardship, it is anticipated that the hardship
will be only temporary. In these cases,
some credit unions attempt to look
beyond the member's current income
or other typical criteria. Credit unions
might focus on the member's reasonable
expectation of future income once the
hardship ends or on historical income
such as a W-2 instead of requiring a
current pay stub.
Using alternative data may also provide
some flexibility in determining a member's ability to repay. Credit unions may
innovate their practices to look beyond
traditional criteria to also assess debit
and savings history, rental history, utility
or mobile phone bill payment history
and more. Credit unions have reported
using many different nontraditional data
points such as cash flow information,
address stability and payment history.
Consider a member who has made rent
payments timely and consistently for five
years but now faces a temporary hardship expected to last about five months.
Using this and other information about
the member, a credit union may decide
that is it highly likely this member will
benefit from a loan modification and
will repay their debts and increase their
financial health once the hardship ends.
THE NAFCU JOURNAL  JULY-AUGUST 2020

Regulators have indicated that the
use of alternative data must stay
consistent with applicable consumer
protection laws, including fair lending
requirements. The application
process, qualifying conditions and
documentation requirements for a loan
modification done using alternative data
will generally be a business decision for
the credit union. Whichever additional
information a credit union decides to
use, NCUA still expects compliance
with internal lending policies.

to older members. It is important
to note discrimination need not be
overt or written into a policy to be
inappropriate. A practice in offering
modifications that causes a disparate
impact on a certain class of members
may lead to a fair lending issue. Therefore, a credit union may want to ensure
that it offers loan modifications in a
way that is consistent among its membership. This might be accomplished
through written procedures administered by a well-trained lending staff.

Fair Lending

Modifying loans can be a useful way
to help members through hard times.
However, loan modifications must
be in compliance with all applicable
federal and state laws. As each credit
union's or member's circumstances can
be different, talking to competent local
counsel might be appropriate before
executing any modification agreements
to ensure the modification agreement
is enforceable.

Credit unions are prohibited from
discriminating against a member on
the basis of age, sex, race and other
protected factors regarding any aspect
of a credit transaction. This means that
credit unions offering restructurings,
payment deferrals or other loan modifications to accommodate members'
needs must offer these options in a nondiscriminatory manner. For example, it
may be inappropriate to allow younger
members certain loan modification or
deferment options that are not available

Loran Jackson is regulatory compliance
counsel for NAFCU.
61



The NAFCU Journal July-August 2020

Table of Contents for the Digital Edition of The NAFCU Journal July-August 2020

The NAFCU Journal July-August 2020 - Cover1
The NAFCU Journal July-August 2020 - Cover2
The NAFCU Journal July-August 2020 - 1
The NAFCU Journal July-August 2020 - 2
The NAFCU Journal July-August 2020 - 3
The NAFCU Journal July-August 2020 - 4
The NAFCU Journal July-August 2020 - 5
The NAFCU Journal July-August 2020 - 6
The NAFCU Journal July-August 2020 - 7
The NAFCU Journal July-August 2020 - 8
The NAFCU Journal July-August 2020 - 9
The NAFCU Journal July-August 2020 - 10
The NAFCU Journal July-August 2020 - 11
The NAFCU Journal July-August 2020 - 12
The NAFCU Journal July-August 2020 - 13
The NAFCU Journal July-August 2020 - 14
The NAFCU Journal July-August 2020 - 15
The NAFCU Journal July-August 2020 - 16
The NAFCU Journal July-August 2020 - 17
The NAFCU Journal July-August 2020 - 18
The NAFCU Journal July-August 2020 - 19
The NAFCU Journal July-August 2020 - 20
The NAFCU Journal July-August 2020 - 21
The NAFCU Journal July-August 2020 - 22
The NAFCU Journal July-August 2020 - 23
The NAFCU Journal July-August 2020 - 24
The NAFCU Journal July-August 2020 - 25
The NAFCU Journal July-August 2020 - 26
The NAFCU Journal July-August 2020 - 27
The NAFCU Journal July-August 2020 - 28
The NAFCU Journal July-August 2020 - 29
The NAFCU Journal July-August 2020 - 30
The NAFCU Journal July-August 2020 - 31
The NAFCU Journal July-August 2020 - 32
The NAFCU Journal July-August 2020 - 33
The NAFCU Journal July-August 2020 - 34
The NAFCU Journal July-August 2020 - 35
The NAFCU Journal July-August 2020 - 36
The NAFCU Journal July-August 2020 - 37
The NAFCU Journal July-August 2020 - 38
The NAFCU Journal July-August 2020 - 39
The NAFCU Journal July-August 2020 - 40
The NAFCU Journal July-August 2020 - 41
The NAFCU Journal July-August 2020 - 42
The NAFCU Journal July-August 2020 - 43
The NAFCU Journal July-August 2020 - 44
The NAFCU Journal July-August 2020 - 45
The NAFCU Journal July-August 2020 - 46
The NAFCU Journal July-August 2020 - 47
The NAFCU Journal July-August 2020 - 48
The NAFCU Journal July-August 2020 - 49
The NAFCU Journal July-August 2020 - 50
The NAFCU Journal July-August 2020 - 51
The NAFCU Journal July-August 2020 - 52
The NAFCU Journal July-August 2020 - 53
The NAFCU Journal July-August 2020 - 54
The NAFCU Journal July-August 2020 - 55
The NAFCU Journal July-August 2020 - 56
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The NAFCU Journal July-August 2020 - 58
The NAFCU Journal July-August 2020 - 59
The NAFCU Journal July-August 2020 - 60
The NAFCU Journal July-August 2020 - 61
The NAFCU Journal July-August 2020 - 62
The NAFCU Journal July-August 2020 - 63
The NAFCU Journal July-August 2020 - 64
The NAFCU Journal July-August 2020 - Cover3
The NAFCU Journal July-August 2020 - Cover4
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