WASHINGTON (3/28/16)--With the National Credit Union Administration’s (NCUA) member business lending (MBL) rule finalized, all that’s left is for credit unions to gain an understanding of how the rule will affect them. The Credit Union National Association’s (CUNA) compliance staff has put together a CompNote on the rule, which is now available.

The rule, which becomes effective Jan. 1, 2017, completely overhauls the NCUA’s MBL regulations, removing almost all MBL requirements not present in the Federal Credit Union Act. The NCUA called the approach a “broad, principles-based regulatory approach,” and it is predicated on the expectation that credit unions will maintain prudent risk management processes and sufficient capital commensurate with risk.

The rule’s purpose is to allow credit unions greater flexibility and autonomy in offering commercial loans to member businesses. CUNA worked closely with the agency to ensure its waiver of the personal guarantee requirement would be effective sooner than the rest of the rule. CUNA will continue to work with the agency to comment on guidance for the benefit of all credit unions. 

Key changes in the new rule include:

• Giving credit union loan officers the ability, under certain circumstances, to not require a personal guarantee (this provision is effective May 13);
   
• Replacing explicit loan-to-value limits with the principle of appropriate collateral and eliminating the need for a waiver;
   
• Lifting limits on construction and development loans;
   
• Exempting credit unions with assets under $250 million and small commercial loan portfolios from certain requirements; and
   
• Affirming that non-member loan participations do not count against the statutory member-business lending cap.

CUNA’s detailed analysis includes a section-by-section breakdown of the final rule, including what each change means for a credit union.