Modernized MBL rule proposed by NCUA

June 19, 2015

ALEXANDRIA, Va. (6/19/15)--The National Credit Union Administration unanimously proposed a modernized rule for member-business lending (MBL)--one the agency says removes prescriptive and arbitrary limits and replaces them with a "broad principles-based regulatory approach.”

The rule changes were proposed during the NCUA's open board meeting Thursday.

The proposed MBL rule is intended to give credit unions freedom and flexibility to determine their best approach to business lending. (See related story: CUNA: New MBL rule could be ‘step in the right direction.’)

“Commercial lending may not be appropriate for every credit union, but that’s a strategic decision for each board of directors to make,” said NCUA Chair Debbie Matz. “Credit unions know their members better than we do, and this modernized business lending rule reflects that reality.”

The agency noted that the credit union system’s total member business lending portfolio has grown to $51 billion in 2015 from $4 billion in 2000. The low rate of delinquencies and charge-offs for commercial loans at credit unions overall indicate solid performance.

“In my view, the proposed rule shows a good faith attempt at regulatory relief,” said board member J. Mark McWatters of the agency plan.

“Those who wake up in the morning and live member business lending every day, I welcome your comments,” he said, encouraging credit union comment. “We want a rule that represents regulatory relief and protects the safety and soundness that protects the share insurance fund.”

Among the restrictions removed or modified by the proposed rule are:

  • The requirement for a personal guarantee;
  • The 80% limit on loan-to-value ratios;
  • The limit on unsecured MBLs;
  • The requirement that staff have two years of direct experience;
  • Detailed limits on construction and development loans;
  • The restrictive definition of “associated borrower;” and
  • The 15% of net worth limit on loans to one borrower, which will now increase to 25% if the additional 10% is supported by readily marketable collateral.

In his comments, Vice Chair Rick Metsger said the most common complaints he hears from credit unions are the current MBL rules are too restrictive and the waiver process is too time consuming, causing potential borrowers to take their business elsewhere.

“Many credit unions have given up on serving their members’ commercial lending needs because existing limits and the waiver process prevent them being competitive and meeting their members’ needs in a timely fashion,” Metsger said.

Under the proposed rule, credit unions would be able to write their own policies and limits on collateral and security requirements, equity requirements and loan limits. Nearly 700 credit unions that hold a small portfolio of commercial loans would be exempt from the requirement to establish a policy.

If the proposed rule is adopted, the NCUA would conduct specialized training for examiners at a one-time cost of about $1.9 million before implementing the rule. The NCUA also would provide supervisory guidance for credit unions.

Comments on the proposed rule must be received within 60 days of publication in the Federal Register.

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