ALEXANDRIA, Va. (6/18/15 UPDATED 11:47 a.m. ET)--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).
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.
“It is a sharp departure from the way we have approached member business lending in the past,” said Chair Debbie Matz in today's board meeting. “Now is an appropriate time to transition away from prescriptive regulatory limits toward general principles that will provide credit unions greater flexibility to serve business owners.”
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.
The proposal instead focuses on broad yet well-defined principles that clarify regulatory expectations for federally insured credit unions engaged in commercial lending activities.
The proposal rewrites the current rule to:
In response to today's board action, CUNA President/CEO Jim Nussle said, “NCUA’s proposed rule to remove the guarantee requirement, eliminate the need for waivers, remove loan participations against the MBL cap and remove the loan-to-value limits seem like a step in the right direction. CUNA is reviewing NCUA’s proposed principle-based rule and working with our members to assess the real regulatory relief this proposal offers, as well as conducting an economic analysis of the proposed cap calculation change.”
NCUA will accept public comments on the proposal for 60 days following publication in the Federal Register.