ALEXANDRIA, Va.—Credit unions are telling NCUA that it’s proposed revisions to its member business lending (MBL) regulations are much needed and well-written, but also believe the proposal could use some additions and adjustments, according to a sample of comment letters submitted to the agency.
The proposal is currently out for comment through Aug. 31.
Thomas J O'Shea, CEO at the $184-million Aspire CU in Clark, N.J., thanked NCUA for taking on the “arduous task” of modernizing the MBL rule.
“The efforts of the NCUA Board will do much to support growth of MBL’s in a safe and sound manner,” wrote O’Shea.
Saying he is supportive of the proposed changes, O’Shea still feels areas of the rule need further review.
“I am in agreement with your strategy to add the definition of a commercial loan and your description of the difference between a commercial loan and a member business loan. You indicate that a vehicle used to carry fare-paying passengers is a commercial loan and not necessarily an MBL. Would a personal vehicle used to transport fare-paying passengers on a part-time basis using an application developed by a transportation network company such as Uber or Lyft qualify as a commercial loan (these vehicles could exceed $50,000 in cost)?” asked O’Shea. “If so, how would we police such use and what would be the impact of this business use of a vehicle on our compliance with these revised rules? Should we include language in our member loan agreements prohibiting such use, if that was our preference?
“I am appreciative of your exclusion of any non-member participation interest in a commercial loan from the MBL cap,” continued O’Shea. “Presently, including participations against the cap of both credit unions (buyer and seller) unnecessarily suppresses the amount of loanable capital. However, in this day and age when a borrower could be a member of multiple credit unions, what would be the impact of a credit union participating in a loan where the borrower, or guarantor, is a member of both the originating and the participating credit union? While not intentional on the part of the participating credit union, would this loan now be included in the MBL cap for that credit union as well?”
O’Shea questioned, for purposes of complying with the statutory cap, if the calculation of net member business loan balances would only be recalculated every quarter on the submission schedule of 5300 reporting, or over some other time period.
“What would the timing and enforcement of this requirement look like?” he asked.
Noting that the proposal states that “NCUA will incorporate expectations regarding risk management practices, such as LTV ratios and portfolio concentration limits, into supervisory guidance issued with any final rule adopted by the board,” O’Shea said it is his CU’s experience that “supervisory guidance is cited by examiners as equivalent to the regulations and the rule of law. Further, supervisory guidance does not undergo the public comment period typically associated with the promulgation of a regulation. How extensive would the supervisory guidance be (level of detail and areas covered, for instance)? What would be the degree of enforcement/enforceability of supervisory guidance vs. the published rule, which states that the credit union is responsible for establishing LTV and concentration limits, for example? My fear is that the areas being de-centralized would simply migrate over into the supervisory guidance, thereby nullifying the ability of the individual credit union to establish reasonable policy limits based on their risk appetite and book of business.”
At Northern Colorado Credit Union in Greeley, Colo., CEO Walter Marx urged NCUA to do more with the MBL proposal.
He cited the needs of his $47-million CU, as well as those of others within the movement, to make more loan income to cover the growing costs of compliance and demands from members for more services.
“Loans are our relief for our bottom line since we do not charge exuberant fees and or have members that are fee happy. So the need for more lenient regulation on loans that have produced more income for us and less losses is always a plus,” wrote Marx. “As you consider changing the parameters of regulations on MBL, consider all and not just a Band-Aid (approach) . . . I am from the old adage ‘make hay while the sun shines’ and the sun is shining and will be shining for some time.”
Bob Morgan, CEO of the $475-million North Country FCU in South Burlington, Vt., wrote his letter to document the CU’s strong support for NCUA’s rule, recommending the proposal be adopted without revisions.
“The NCUA Board and staff deserve significant credit for the proposed changes which will allow a well-run credit union with proper policies, procedures, systems, and experience in Member Business Lending to make sound business decisions necessary to serve member businesses.
Morgan said his CU finds most beneficial the elimination of the personal guarantee requirement on member business loans, the elimination of regulatory mandated minimum loan to value requirement, and the exclusion of purchased participations from the MBL calculation and 12.25% cap.
“Addressing the exclusion of participations, Morgan wrote: “This will allow credit unions with seasoned programs to consider purchasing participated portion of member business loans from other credit unions without impacting their cap. This will foster greater collaboration within the movement, should enable a more vibrant participation market allowing credit unions a better ability to manage the statutory cap while serving member businesses.”
The comment deadline is August 31.