How are Credit Scores Determined?

How are Credit Scores Determined?

It’s the time of year when credit unions see an increase in consumer lending. Members seek to secure home loans or financing for an automobile. That means two things are necessary. First, you are going to need compliant consumer lending and/or home equity lending forms. Oak Tree has forms to cover all lending and disclosure requirements to fund either loan type. Our home equity and consumer lending packages are customizable and contain all of the disclosure forms necessary to make the process as simple as possible. When your members ask “how are credit scores determined”, you should be prepared for some answers.

Secondly is a discussion about credit scores. They are perhaps the primary determining factor, and a proper understanding now can help your members secure the best financial opportunities later. Credit scores influence interest rates, loan amounts, collateral requirements, and ultimately whether or not to lend money to a borrower. Here is how they are determined:

Types of Credit. This is actually referring to the types of credit already used by a member and generates 10% of a member’s overall credit score. It’s comprehensive too, including things like a consumer’s mortgage, retail accounts, credit cards, and installment loans.

Amount Owed. This comprises 30% of an individual’s credit score. Things included here are items such as the total number of accounts (and their balances), how much of any credit line is used at any given time, and the ratio of installment amounts owed against the amount already paid.

Credit History Length. 15% of a consumer credit score comes from one simple factor: the amount of time an account has been active. Consumers with new accounts indicate more risk since they are considered new to the world of lending.

New Credit. This makes up 10% of an individual’s total score and accounts for how many credit accounts have been recently opened, and the total proportion of those accounts levied against things like recent inquiries, and any positive reestablishment of credit history if payment was a problem in the past.

Of course, anyone’s credit score will change over time, accurately reflecting current financial behavior. Negative information falls off after so many years regarding things like bankruptcy, lawsuits, or judgments. With all of these factors in the mix, it’s highly possible that an individual’s credit score will look different from one month to the next. This is good information to have on hand when it comes time to discuss lending with one of your members. Our lending forms packages can help you facilitate the process of underwriting to make it as simple as possible. The credit conversation, however, is up to you. It might be great to discuss the importance of credit scores beforehand with those members who are interested in consumer credit. News flash, Oak Tree can help you market those potential members. Contact us at MarketingServices@OakTreeBiz.com

This will allow them to make adjustments before they seek funding, and hopefully, improve their credit score. When the time comes for your members to start the process, you will be ready if you are an Oak Tree customer. They will too since you gave them all the information they needed to properly understand their credit score. If you need consumer lending, or home equity lending forms, contact us today. All of our forms are customized to your needs and can integrate with any data processor. We have you covered, so you can work with your members to improve their credit score so they get the best rates and terms available when it is time for them to borrow!

Oak Tree has been helping credit unions with their lending documents for over 37 years now.

5 Reasons Credit Union Lending Beats the Bank

5 Reasons Credit Union Lending Beats the Bank

The next time one of your members thinks about getting a loan to make home repairs, finance a new home, or purchase a vehicle, use the five tips below to help the member choose you as a lending option. People often operate under the assumption that a bank is the only place that can serve their lending needs. It might be time for you to shine a little light on the subject for the potential borrower. Listed below are our 5 reasons credit union lending beats the bank for lending.

5 Reasons Credit Union Lending Will Beat a Bank Every Time

1. Higher Approval Rates If your member’s credit is stained, dirty, or needs a bit of repair, your credit union is much more likely to be accommodating than a bank. Though the loan terms and processes are very similar, credit unions are known for listening to their members’ needs. Credit unions are most likely to understand that unique situations occur, and will work toward loan approvals. They will even adjust loan terms accordingly in some instances. Book any type of loan when you use Oak Tree forms.

2. Better Rates To explore this, let’s look at vehicle loans. Typically, most of us will secure a five-year loan for a vehicle. The rate at the credit union will be much lower than the interest rate at a traditional bank. It may only look like a 1% difference, but that 1% can add up to thousands of dollars put back into your member’s pocket during the life of the loan. Oak Tree forms stay on top of state and federal compliance laws and their ongoing changes, which supports low-interest rate loans.

3. Better Services Since credit unions are classified as nonprofit, they don’t answer to a shareholder board. Operation decisions are usually made by a volunteer board, rather than corporate office appointees. To that end, members feel much more comfortable talking to their credit union about payment options and services. It is much easier to talk to someone when you feel like they genuinely have your best interest at heart. In addition, Oak Tree seamlessly integrates your credit union forms into your data processing system with Data Linking, allowing for faster loan processing, and saving your members time.

4. Educational Resources Your credit union may have a resource center, which serves to educate your members on different finance options, financial products, and bank accounts they may have. Utilizing this resource can aid members in making a decision that best suits their needs when it comes time to secure a loan or otherwise. In addition, your credit union will probably go the extra mile, being a member-driven financial service institution. For instance, the credit union may determine the value of a vehicle so the member feels good about the loan before applying. Since the credit union is nonprofit, their answers are unbiased, so members know the credit union is not trying to inflate or deflate the value of the vehicle to stick them with a higher-rate loan. Oak Tree also offers training so your credit union staff is ready to use our forms and help members obtain the best loan.

5. No Selling Since they are nonprofit, credit unions essentially work for you. There is no incentive for them to sell you any new product or service. All profits generated by the credit unions go back to members, showing up in lower interest rates or new financial products, like different savings account loan options. This makes it easy to find a credit union that meets your needs. This, in addition to a faster loan processor, will lead to word of mouth from happy members.

Now you can put a bug in your member’s ear so to speak, the next time the subject of lending comes up. Use these 5 tips to promote yourself. Of course, Oak Tree will stand ready as your forms provider. The friendly, consistent, and trustworthy nature of your credit union, coupled with our compliant lending forms, will ensure that your members have a great borrowing experience. Members will be glad they made the switch!

Autonomy for Spanish-Speaking Members

Autonomy for Spanish-Speaking Credit Union Members

Pew Research Center reports that Latinos account for 52% of the population growth from 2010 to 2019. Although there has been a slowdown in immigration and the number of births by Hispanic women, the U.S. Hispanic population reached a record 20.6 million in 2019. This shows the significant growth of the Hispanic population overall. When a person can confidently join a credit union using forms in their mother language it gives them confidence in their actions and the institution. Spanish documents and forms provide autonomy for Spanish-speaking members.

Credit unions are in a unique position to serve the Hispanic population. Credit unions provide great services and profound support to their members on an individual basis. The emphasis on treating every member’s unique needs can be invaluable for the Hispanic population.

In order for credit unions to serve their members well, they need to provide all the resources they possibly can. For a credit union member, having confidence in the disclosures you are signing and understanding what you are agreeing to, is crucial.

For Spanish speakers whose first language may not be English, forms and documents in English can be a major hurdle. Having autonomy over your own financial decisions is invaluable for Spanish-speaking members and one way they can have that ownership is by being provided with forms and disclosures in Spanish.

Credit unions have the ability and responsibility to provide accessible documents for all of their members.

A credit union’s value comes from its members. After all, credit unions were created to serve their community members. Any limitation on membership can be detrimental to a credit union’s consumer roster. By not providing documents and disclosures in a potential member’s first language, a credit union can halt its growth potential. Credit unions need to provide adequate forms and disclosures for their Spanish-speaking members in order to bridge the gap of accessibility.

Spanish documents are available for all Oak Tree forms and lending documents. This includes membership documents, home equity lending, consumer lending, and business lending forms. We offer customizable forms solutions that follow all state and federal requirements.

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Credit Unions Changing Insurance Carriers

Credit Unions Changing Insurance Carriers

If you’ve been keeping up with the news, you might have noticed that certain insurance carriers are leaving the credit union market. Transamerica was the first to make the announcement, and others are sure to follow suit. This is certain to create waves. Changing insurance carriers is a big deal after all. There is a lot involved, and the process can be daunting. While this might affect some credit unions, causing much stress and mild panic, it will not affect you. By using forms from Oak Tree Business Systems, Inc., you are protected. Credit Unions Changing Insurance Carriers also have options.

Let me explain:

Use Oak Tree and Transition with Confidence

The key is compliance. When a credit union decides to switch insurance carriers, or in this case, has to switch insurance carriers, they can do so confidently with Oak Tree. Our forms are always up to date and compliant. They will easily translate through the insurance carrier transition because they can be customized with the information you need. This makes Oak Tree forms easy to work with. You can customize them to work with your current insurance carrier or any insurance carrier you may choose to work with in the future.

The freedom to customize your forms to be used with your insurance carrier, or switch insurance carriers and continue using the same lending forms, is one of the advantages of using forms from Oak Tree Business Systems, Inc. A compliance issue involving lending forms should not be the deciding factor when it comes to switching insurance providers. No, on the contrary, it should be the least of concerns. Things like benefits, coverage, and discounts should be the determinants.

How Oak Tree Forms Help

All Oak Tree forms follow state and federal guidelines. We work diligently to make sure that each regulatory measure is met and constantly in compliance. This means you always have the most accurate, up-to-date lending forms and disclosure notices at your disposal. And yes, we can keep up with the changes. We deal with the changes occurring on a state and federal level every day and make sure the appropriate language is printed on your forms. The constant barrage of regulatory changes is more than enough to drive any compliance expert crazy. At Oak Tree, we do the work for you so you don’t have to think about it.

Furthermore, our other services dovetail nicely and promote the most efficient access to our compliant forms. For instance, we offer data linking in-house for many data processors, our forms are linked directly to your system. This provides ease of use, cost savings, and convenience – not to mention efficiency! We also provide electronically generated forms. The fact that they are electronically generated means they are the most current, up-to-date, compliant version on hand. We have laser-generated forms as well, for those instances where you need to customize certain items and require the capability to print them on demand.

Having different form options is convenient, efficient, and necessary. They speed up the process of doing business, which helps promote healthy customer relationships. It also helps you put your best foot forward regarding presentation, since customers are not waiting on you to find or fill out forms. Form options from Oak Tree make you look great.

Finally, we are one of the few in the industry that offers compliance support and training. This may not seem like much of an offering the first time you need forms, yet, wait until something happens, like a visit from an examiner. The support and training from Oak Tree are invaluable at that moment. Also, transitioning from one carrier to another can be very stressful, and there can be a tendency for details to fall through the cracks. However, unlike most instances in life where missed details rarely make a big impact; when it comes to forming compliance, details are everything. One missed clause or omitted disclosure statement can spell big trouble for your credit union. Our compliance support and training will make sure you transition your forms with ease.

So, while insurance carriers may come and go, Oak Tree Business Systems, Inc. will remain. No matter what challenges the industry may face, we stand at the ready to provide you with the best compliant forms available on the market. With that variable out of the equation, you can focus and choose the best insurance carrier to meet your credit union’s needs. Credit Unions changing insurance carriers is not a problem for Oak Tree.

(note: this is an older blog entry and has been edited since originally posted.)

NCUA’s Proposed Commercial Lending Rules 2015

Change may be ahead for credit union commercial lending as the NCUA has proposed a rule in an effort to allow for more business loan approvals. Business Lending is a growing interest to many credit unions, but it is currently limited by statute and regulation. One type of commercial loan, member business loans, in particular, has strict regulations that may soon change. Let’s take a look at NCUA’s Proposed Commercial Lending Rules 2015.

Currently, credit union commercial loans are limited to “1.75 times the actual net worth of the credit union,” or “1.75 times the minimum net worth required . . . for a credit union to be well-capitalized.” The CUMAA required a net worth ratio of 7% in order to be well-capitalized, This effectively created an MBL limit of 12.25% of a credit union’s total assets (1.75 x 7% = 12.25%). The 12.25% limit was explicitly codified the following year by NCUA regulations, which, among other provisions, also created a waiver application process through which borrowers could petition an NCUA Regional Director for relief from the various MBL requirements.”

In July, the NCUA proposed new rules to MBL requirements. These proposed rules would eliminate “prescriptive risk management by loan-to-value ratios, minimum equity investments, portfolio concentration limits for types of loans, and personal guarantees from the principal of the borrower. The need for credit unions to petition for waivers of these requirements would thus also be abrogated.” Instead, the new rule will require credit unions that offer a member business loan to “create a comprehensive written commercial loan policy and establish procedures for commercial lending.” This rule also states that credit unions who have both “assets less than $250 million and total commercial loans less than 15% of net worth, that are not regularly originating and selling or participating out commercial loans, would not be required to create such a commercial loan policy at all.”

The current limit set to credit unions approving a loan is 15% of the credit union’s net worth. With the new proposed rule, a borrower is allowed an additional 10% of a credit union’s net worth as long as the “15% general limit is fully secured at all times with a perfected security interest by readily marketable collateral”.

The National Federal Credit Union states that the “end of the prescribed limit on the non-MBL commercial loans would not only provide necessary regulatory relief for the industry but also allow credit unions much-needed flexibility in their diversification strategies.”

If your credit union is currently processing MBL’s or is considering adding business loans to the mix, Oak Tree Business Systems, Inc. is the best solution for your business lending forms. We have the expertise and the programs to put you into this highly profitable lending area. Visit our Business/Commercial Lending forms page or chat with a forms expert today.

_{Source: Stephenson, H. Grant, and Hoying, Steven D. “NCUA’s Proposed Rules Concerning Credit Union Commercial Loans” Porter Wright Morris & Arthur LLP, Lexology, 16 Nov. 2015. Web. 20 Nov 2015.}

(note: this is an older blog entry and has been edited since originally posted.)

New Military Lending Act Regulations

New Military Lending Act Regulations Recent Changes Regarding Military Lending At Oak Tree Business Systems, Inc., we pride ourselves in maintaining forms that are up to date and compliant across all federal and state guidelines. Well, it is time for us to “up the ante” with this latest regulatory change. Protections have been expanded for active-duty service members and their families according to the revised regulations of the Military Lending Act. Now, loan products offered by credit unions and other depository institutions are covered by these regulations. The new requirements will take effect on October 1 of this year. The mandatory compliance date is October 3, 2016 (and not until October 3 of the following year, and possibly later for credit card accounts).

Why Did The Regulations Change?

The reason for the regulatory change has to do with why the MLA was enacted, to begin with. In 2006, Congress discovered that most active-duty members often looked to subprime lending sources to help them get relief during a financial crisis. Even though the loan provided short-term relief, the high-interest costs associated with carrying the new loan would throw these families into a cycle of unsustainable debt. This added to the stress that service members already feel in general, and this added stress would trickle down to their spouses and children. Therefore,  the MLA was established in 2007 to protect service members from predatory lending. The act was specific in that it only applies to active-duty members, and focuses on the following:

• Payday loans of under $2000 with terms of 91 days or fewer
• Non-purchase money loans with terms of 181 days or fewer secured by a motor vehicle title
• Tax refund anticipation loans

The MLA protects the consumer by limiting the interest amount that an institution may charge for these services. This limitation comes in the form of what is known as a Military Annual Percentage Rate, or MAPR. Creditors may not charge more than 36% MAPR. This differs from APR significantly, because finance charges normally excluded under Regulation Z are included under MAPR. The New Changes The new regulation changes extend to all consumer loans, not just short-term payday or tax refund anticipation loans. Under the new rules, the only types of transactions not subject to MLA regulations are:

• Dwelling secured loans, including loans to finance the purchase or initial construction of the dwelling, refinance transactions, home equity loans, home equity lines of credit, and first mortgages
• Loans to finance the purchase of a motor vehicle when the loan is secured by the vehicle
• Loans to finance the purchase of other types of personal property when the loan is secured by the property

So, What Does This Mean?

Essentially, it means that all of your forms must be updated to reflect the new changes, and kept up to date as each phase-in level date is established. You must be familiar with the new regulations to make sure that they are reflected in all of your applicable lending forms. Oak Tree Business Systems, Inc. will do just that. We will make sure that all of your lending forms are correct, include appropriate verbiage, and accurate, up-to-date MAPR so they are in compliance. Oak Tree is a leader in the industry with a proven track record of producing a compliant product every time. Give us a call if you have any questions regarding your forms, or if you are wondering how the new MLA regulations will affect your institution.

(note: this is an older blog entry and has been edited since originally posted.)

2015 Integrated RESPA/TILA Disclosures

2015 New Integrated RESPA/TILA Disclosures

Implementation and Transition November of 2013 was a busy time for Federal regulators as they approved final rules combining some of the RESPA rules with other rules still required under The TILA. Congress’s intent is to create an entirely new set of disclosures that when in place, will provide consumers with information (both new & old) formatted in such a way that provides the utmost clarity and consumer understanding. Let’s discuss the New Integrated RESPA/TILA Disclosures.

The new integrated disclosures will fall into two categories (e.g. “Loan Estimate” and “Closing Disclosure”). The “Who, What, When, Where & Why” The new integrated disclosures will need to be provided by creditors or mortgage brokers that receive an application [Emphasis Added] from a consumer for a closed-end credit transaction secured by real property on or after August 1st, 2015. Creditors are prohibited from using the new disclosures for applications that are received prior to that August 1st date and will instead need to follow the current disclosure requirements under Regulations X and Z, and use the existing forms (e.g. Truth-In-Lending disclosures, GFE, Settlement Statements, etc.). The Federal regulators have built in a “transition period” or overlap of time, during which both sets of disclosures will need to be available and creditors will need to use the forms/disclosures that are appropriate to the specific transaction at hand. As applications received prior to August 1st, 2015 are consummated, withdrawn, or canceled, use of the existing GFE, Settlement Statements, and Truth-In-Lending forms will, for the most part, no longer apply. Closed-end reverse mortgages will still be subject to the current disclosure requirements under Regulations X and Z. As this particular “overlap” of disclosures can be particularly tricky, you really need to contact our Client Services Department for full details (Jenny@oaktreebiz.com – 800.537.9598). While August 1st may seem like a long way off, from a practical standpoint it isn’t, and for that reason, the construction of the new forms at Oak Tree is well underway to be certain of their availability in time for the new deadline. Given the size of the new documents and the scope of the transaction-specific information that must be mapped or otherwise programmed by your data processor, once you receive your proofs you will want to approve and return them as quickly as possible.

ELECTRONIC FUND TRANSFER AGREEMENT (REGULATION E) The Electronic Fund Transfer Act is a consumer protection statute that, among other things, limits a consumer’s potential liability for unauthorized transactions made with an approved account access device. The exact amount of the liability is for the most part, determined through the use of a tiered approach that is driven by the time within which a consumer notifies the financial institution. For example, when a consumer notifies a financial institution within two (2) business days after his learning of the loss or theft of the access device, the regulation provides that the consumer’s liability will be restricted to the lesser of $50.00 or the sum of the unauthorized transfers that occur before notice. In the event that the consumer fails to notify the financial institution within two (2) business days after learning of the loss or theft of the access device, the consumer’s liability will increase to the lesser of $500.00, or: (i) $50.00 or the amount of unauthorized transfers that occur within the two (2) business days, whichever is less plus (ii) The amount of unauthorized transfers that occur after the close of two (2) business days and before notice to the institution, provided the institution establishes that these transfers would not have occurred had the consumer notified the institution within that two-day period. The consumer may be liable for additional amounts, depending on the specific set of circumstances.

Since this regulation only establishes a consumer’s maximum liability, institutions are permitted to reduce these limits. Such is the case with the Zero Liability Rules that have been issued by both Visa and MasterCard. With respect to MasterCard, their revised zero liability rule now requires that the consumer use reasonable care in safeguarding the Card from loss or theft; and upon becoming aware of such loss or theft, promptly report that loss or theft to the Credit Union.

There’s more detail to be had here (“the fine print”) and we’re always available to pass it along to you. When you use Oak Tree for your credit union document needs, you can be sure we are keeping an eye on these kinds of changes to keep your forms compliant. We will ensure you are ready for the next “New Integrated RESPA/TILA Disclosures”.

(note: this is an older blog entry and has been edited since originally posted.)