NCUA’s new member business lending (MBL) rule, effective Jan. 1, is one of the biggest changes to credit union business lending in decades. The agency received hundreds of comments from credit unions supporting the proposal and outlining how it would help them better serve their members.
According to CUNA’s economics and statistics department, 2,260 credit unions offer MBLs, and the balance of total outstanding MBLs is about $60 billion, up from $39 billion in 2010.
Advocacy efforts by CUNA, state leagues, and credit unions helped bring about the new rule. But now that the effective date is almost here, how should credit unions prepare?
After all, the new rule eliminates most of the current rule’s prescriptive limitations, replacing them with what NCUA calls a “broad, principles-based regulatory approach.”
The new MBL regulation primarily contains mostly requirements specifically stated in the Federal Credit Union Act.
“The NCUA’s principles-based regulatory approach is predicated on the expectation that credit unions will maintain prudent risk management processes and sufficient capital commensurate with risk,” says Jared Ihrig, CUNA’s chief compliance officer.
“By allowing credit unions greater flexibility and autonomy in the way they offer member business loans,” he adds, “credit unions should be able to serve more members while maintaining appropriate safety and soundness measures, which we’re confident they will do.”
First and foremost, he says, credit unions will need to examine the supervisory guidance the NCUA released in November. This will be “a good first step in ultimately determining the rule’s impact, because it will clarify how the new standards are going to be enforced,” Ihrig says.
“That’s what we’ll have to look at to determine how examiners will approach the new regulation once it goes into effect,” he says, “and what they’ll be looking for specifically.”