While Dana Sumner admits to having “butterflies” in his stomach over NCUA’s final member business lending (MBL) rule, he says credit unions should view the changes as an opportunity.
“A lot still needs to be decided before we’re comfortable with these rules,” says Sumner, president/CEO of the consulting firm DFTC. “These are the biggest changes we’ve seen in the member business lending arena for some time.”
He says NCUA’s overhaul of its MBL regulations will allow credit union business lenders to expand their efforts and, with changes to loan participation rules, mitigate geographic risk.
“This is an exciting time,” Sumner says. “Be as open-minded as possible, but don’t take this lightly. NCUA will hold our feet to the fire regarding the business loans we do, and we’ll have to understand the rules very well.”
NCUA’s final MBL rule, which becomes effective Jan. 1, 2017, contains several key changes from the current rule, says Jared Ihrig, CUNA’s chief compliance officer.
Key changes in the final rule include:
• Giving credit union loan officers the ability, under certain circumstances, to not require a personal guarantee;
• 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 of less than $250 million and small commercial loan portfolios from certain requirements; and
• Affirming that nonmember loan participations do not count against the statutory member business lending cap.
But credit unions won’t be able to assess the rule’s impact until NCUA provides more guidance to clarify how the new standards will be enforced, Ihrig says. He expects the agency to release supervisory guidance sometime in late fall.
NCUA examiner training began in April and will continue with additional sessions scheduled for as late as September or October of this year, he adds.
“So that supervisory guidance probably won’t be issued until late fall; possibly November or December,” 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, and what they’ll be looking for specifically.”
Board members will be affected by the final MBL rule as well, Sumner adds.
“NCUA is placing big importance on the board understanding member business lending and the risks involved,” he says. “This must occur. We advise having a director be a liaison for the rest of the board on MBLs. The board ultimately is accountable for the safety and soundness of business lending activities.”
In October, CUNA will be conducting a two-part webinar series, designed specifically for credit union board members, to provide a better understanding on the MBL process.
Ihrig and Sumner addressed a session at the CUNA Business Lending Certification School in Madison, Wis.