Loan participation proposal is helpful update, further clarification needed

February 28, 2023

CUNA generally supports NCUA’s proposed rule on loan participations, it wrote to the agency Tuesday, but believes NCUA could do more to clarify the rules. NCUA’s proposal would amend rules regarding the purchase of loan participations and the purchase, sale, and pledge of eligible obligations and other loans.

“We agree that by removing certain prescriptive limits and other qualifying conditions, and replacing them with risk-focused, principles-based requirements, this proposal will strike an appropriate balance between mitigating risk to the National Credit Union Share Insurance Fund, protecting credit union members, and fostering growth and stability in the credit union system,” the letter reads. “Further, the proposed changes should increase credit unions’ ability to engage in lending arrangements with other financial institutions and third parties, including fintech companies providing lending services, expanding their access to diverse loan origination channels, new markets and potential new services to their members.”

NCUA’s shift away from prescriptive limitations is consistent with CUNA’s previous requests. CUNA also noted the changes would better help credit unions understand which rule applies to certain types of transactions.

"The ability to conduct transactions under these rules is extremely valuable to credit unions,” the letter reads. “Specifically, the ability to buy and sell loan participations is a very valuable tool for managing the balance sheet and addressing liquidity needs.”