Print
Yesterday, the National Credit Union Administration voted 3-0 today to propose a member-business loan rule that will provide federally insured credit unions with greater flexibility and reduce regulatory burden for credit unions participating in member-business lending (MBL). Your League, which has been a long advocate for raising the cap and making changes to member-business lending, called the NCUA's action "a hopeful sign." "These proposed changes make sense, are good for credit unions and members and, collectively, are a positive step for Maine CUs to help serve member business needs," stated your League's President John Murphy.
In the communication announcing the proposal sent to your League by the Credit Union National Association (CUNA), the proposed new approach will eliminate some unintended consequences of the prescriptive approach, such as causing credit unions to manage their lending practices to regulatory restrictions instead of focusing on sound risk management practices. Specifically, the proposed rule eliminates detailed collateral criteria and portfolio limits. The general aggregate statutory limit on MBLs in the current rule is the lesser of 1.75 times the credit union's net worth or 12.25% of the credit union's total assets.
The proposal noted that the MBL limit should not be expressed as an absolute percentage but rather as 1.75 times the applicable net worth requirement for a credit union to be categorized as well-capitalized, and instead focuses on broad yet well-defined principles that clarify regulatory expectations for federally insured credit unions engaged in commercial lending activities.
Other key provisions that the proposal removes or modified are:
- Allow a credit union to make the decision to waive a member from a personal guarantee;
- The 15% net worth limits on loans to one borrower, which will now increase to 25% if the additional 10% is supported by readily marketable collateral;
- Remove loan-to-value limits and remove the waiver process altogether;
- Lift limits on construction and development loans;
- The requirement that staff have two years of direct experience; and
- Clarify that participation in loans to non-members do not count against the statutory member business lending cap.
NCUA will accept public comments on the proposal for 60 days following publication in the Federal Register.
Resources: