NCUA, Missouri regulator seek equitable solution to resolve state's MBL rule dilemma

ARLINGTON, Va. and JEFFERSON CITY, Mo. - What constitutes a member business loan? That's the question at the center of the decision by the NCUA Board to table consideration of Missouri's proposed member business lending rule from the agency's July 13 regular meeting until a later date. Missouri's proposed MBL rule written by John Smith, director of the credit union commission of the Missouri Division of Credit Unions, (CU Times, July 19.) would exempt from the definition of MBL "a loan granted by a credit union to another credit union or corporate credit union service organization or natural person credit union service organization" Under Missouri law, it is permissible for a credit union to belong to another credit union and for credit unions to make loans to other credit unions. This conflicts with NCUA's MBL rule 721.1 concerning the definition of a member business loan. According to the rule, the agency considers "a loan granted by a corporate credit union to another credit union" to be a MBL. Among the handful of differences between Missouri's proposed MBL rule and NCUA's, this is the most glaring. For several years after NCUA first promulgated its member business lending rule in the early 90's, state-chartered credit unions were obligated to follow the agency's MBL rule unless a state could prove that it's rule was "substantially equivalent" to NCUA's. That changed two years ago when Congress passed The Credit Union Membership Access Act and included MBL-related provisions in the law that deleted the substantially equivalent requirement and substituted wording that gave NCUA the regulatory authority to determine whether a state's MBL rule posed a safety and soundness risk to the National Credit Union Share Insurance Fund (NCUSIF). In essence, said NASCUS President Doug Duerr, "H.R. 1151 put the burden of proof on NCUA's shoulders, as far as member business lending is concerned." Safety and soundness, however, is the secondary issue of concern to NCUA over Missouri's proposed MBL rule. Duerr said NCUA General Counsel Bob Fenner, and Mike McKenna, senior attorney for the agency told him "safety and soundness is not the issue here. The issue strictly is the definition of member business loan in the Missouri rule." "There are clearly differences in the way the two laws are written, they're not interpretative differences," Duerr commented. According to Fenner and McKenna, said Duerr, the congressional definition of a member business loan as mandated by federal law and the definition of MBL for the purpose of writing a MBL rule has to be the same. NCUA therefore, is obligated to define a member business loan as it's written in the statute. "That doesn't mean that state regulators can't treat the definition of a member business loan differently than NCUA does, but everyone has to start at the same point, at the same definition," Duerr emphasized. "The definition issue of a member business loan is a preemptive issue, specified by Congress," Duerr emphasized. Smith told Credit Union Times he was disappointed in the board's action. He said he was "led to believe by NCUA Region IV Director" that there would not be a problem with the state's proposed MBL rule. Since there will be no regular meeting by the NCUA Board in August, the earliest the board can consider the state's proposed rule is September. Duerr said there is a "negotiated solution in the making" between Smith and the NCUA Board "that will not in any way affect the way credit unions in Missouri make loans to other credit unions. "There is every indication this solution will be reached," he continued. "There is a strong interest by NCUA and Smith to find an equitable solution." -ekingoff@cutimes.com