Loan Participation Cap Reg Is Roundly Decried
Credit unions, credit union trade associations and CUSOs have weighed in against the NCUA's December 2011 proposal to cap and limit credit unions’ use of loan participations in an attempt to protect them from concentration risk.
NCUA accepted comments on the proposed regulation until Feb. 21.
NAFCU's letter criticized the proposal for being arbitrary and for not giving CU's a way of mitigating its impact through waivers. Like CUNA, NAFCU also attacked the proposed rule over the suggestion that loan participations presented the sort of systemic risk that would warrant such a rule.
“While loan participation delinquency rates are higher than delinquency rates of other loans credit unions make, we believe that the NCUA has clearly overstated the risk participations pose,” NAFCU said. The association pointed out that loan participation delinquency rates are not as high as delinquency on bank-issued loans as reported to FDIC. The association also pointed out that there was no record of CUs with large portfolios of loan participations necessarily failing in greater numbers.
Historically, state-chartered, federally insured credit unions have looked to state law and regulation to govern their loan participation activities, NASCUS asserted. “Taken together with NCUA's proposed expansion of credit union service organization rules to cover state-chartered credit unions, this proposed rulemaking would leave very little flexibility for states to authorize distinct powers for their credit unions,” NASCUS wrote.
NASCUS wrote that “preempting state law and homogenizing the system is not the best regulatory response to possible systemic risk related to loan participations.”