January 16, 2008

Joseph S. Melchione, Esq.

Styskal, Wiese & Melchione, LLP

550 North Brand Boulevard, Suite 550

Glendale, CA 91203-1988

Re: Line of Credit as Open-end Credit for Maturity Limit Purposes.

Dear Mr. Melchione:

You have asked if an extension of consumer credit by a federal credit
union (FCU) meeting the definition of "open-end credit" under Regulation
Z is a \"line of credit\" under NCUA's regulations, meaning it will not
be subject to a maturity limit. Yes, that is correct. You also have
asked specifically about a prior legal opinion, OGC Op. 92-0232, and its
discussion of a particular loan product as a "hybrid or bifurcated
loan." We are aware that older opinion has created some confusion and
this opinion supersedes OGC Op. 92-0232.

The Federal Credit Union Act authorizes an FCU to make loans, which are
subject to certain maturity limits, and "extend lines of credit to its
members," which are not subject to maturity limits. 12 U.S.C. §1757(5).
NCUA regulations use the same terms, loans and lines of credit, in
addressing maturity limits. 12 C.F.R. §701.21(c)(4). Section
701.21(c)(4) specifies that lines of credit are not subject to any
maturity limits.

As noted in OGC Op. 99-0926, NCUA historically looks to Regulation Z's
definition of open-end credit to determine if a loan is a line of credit
and, therefore, not subject to a maturity limit. The Board of Governors
of the Federal Reserve System (Fed) is responsible for implementing the
provisions of the Truth in Lending Act and has done so in Regulation Z,
12 C.F.R. Part 226; the provisions of Regulation Z apply to all
federally-insured credit unions.

Regulation Z defines open-end credit as consumer credit extended by a
creditor under a plan in which:

> \(i\) The creditor reasonably contemplates repeated transactions;\
> (ii) The creditor may impose a finance charge from time to time on an
> outstanding unpaid balance; and
>
> \(iii\) The amount of credit that may be extended to the consumer
> during the term of the plan (up to any limit set by the creditor) is
> generally made available to the extent that any outstanding balance is
> repaid.

12 C.F.R. §226.2(a)(20). Regulation Z defines "closed-end credit" as any
consumer credit other than open-end credit. 12 C.F.R. §226.2(a)(10).

In OGC Op. 92-0232, we concluded a particular loan product was "neither
a line of credit nor a closed-end loan" but described it as a "hybrid or
bifurcated loan," where the first part of the product would be
considered a line of credit, without a maturity limit, and the second
part provided "a closed-end loan or 'refinancing' of the line of
credit," to which the 20-year maturity limit for second mortgages would
apply.

Upon reconsideration, we believe OGC Op. 92-0232 is incorrect in
concluding that a loan could be neither open-end credit nor closed-end
credit; in the 15 years since it was issued, the opinion has created
some confusion. Accordingly, we will remove OGC Op. 92-0232 from NCUA's
website; this letter supersedes that opinion letter and clarifies our
interpretation regarding application of the Regulation Z definition of
open-end credit in determining if a loan product is a line of credit for
purposes of NCUA regulations.

NCUA's interpretation of Regulation Z, confirmed as correct by legal
staff at the Fed, is that any extension of consumer credit is either
open-end credit or closed-end credit. Accordingly, an extension of
consumer credit by an FCU meeting the Regulation Z definition of
open-end credit is, for NCUA's purposes, a line of credit and not
subject to maturity limits. An extension of consumer credit by an FCU
that does not meet the Regulation Z definition of open-end credit is,
therefore, closed-end credit and subject to applicable maturity limits
under the FCU Act and NCUA's regulations.

Credit unions should note, however, that, where an open-end credit
account is converted to a closed-end transaction under a written
agreement, a closed-end transaction is converted to an open-end credit
account under a written agreement, or payment terms are subsequently
added to the initial agreement of a home equity plan, the credit union
must comply with all Regulation Z disclosure requirements related to
these circumstances. Supplement I to 12 C.F.R. Part 226 - Official Staff
Interpretations, Subpart B -- Open-End Credit, §226.5(b)(1), Comment 4
and §226.5b, Comment 5, and Subpart C -- Closed-End Credit, §226.17(b),
Comment 2.

This opinion provides a general explanation of how NCUA views the
relationship between Regulation Z and Part 701 of NCUA's regulations. It
does not analyze or draw conclusions regarding any particular loan
product or plan. Please contact Staff Attorney Frank Kressman or me with
any additional questions.

Sincerely,

Michael J. McKenna

Deputy General Counsel

GC/FSK:bhs

07-1024