NCUA’s revised Member Business Loan rule has been in effect for more than six months, and the agency addressed a number of questions about the rule and its implementation in a recent newsletter.
Chief among those questions is: What are NCUA’s expectations under the new member business and commercial lending rules?
The answer: NCUA expects credit unions to offer commercial loans in a safe and sound manner, structured appropriately for the member’s needs and within the member’s financial abilities.
The new rule requires active oversight by senior managers and the board, but also extends flexibility to credit unions to establish policies and program controls instead of prescriptive regulatory requirements.
The rule takes a more principles-based approach to managing a commercial loan program and allows management to tailor appropriate risk management practices to suit their credit union’s specific circumstances.
Per NCUA, credit unions should adhere to active risk management principles for sound lending. These include a well-developed program with appropriate monitoring and controls, and audit and oversight.
Credit unions should perform a comprehensive risk assessment and assign an initial credit risk rating at the loan’s inception. The credit union should reevaluate this credit risk rating after the loan closes through regular contact with the borrower and regular review of the borrower’s financial condition.
Other questions and answers can be found in the FAQ document available at NCUA.gov.