While NACUSO acknowledges the NCUA must make risk management apriority when it comes to business lending, the association hasexpressed concerns about the regulator targeting all CUSOs andcredit unions.

NACUSO expressed those concerns in a May 6 letter to LarryFazio, NCUA director of examination and insurance, regarding theagency's letters to credit unions that deal with the safety andsoundness of business lending programs.

“While we recognize that the NCUA must prioritize all areas ofrisk management in order to be an effective safety and soundnessregulator and that business lending carries with it – if notmanaged properly – a significant risk that the agency mustmonitor,” NACUSO wrote, “the reality is that all business lendingCUSOs and credit unions should not be subjected to unnecessaryregulatory and compliance burden because a couple of high-profile credit unions and CUSOsgenerated losses in the business lending field.”

NACUSO said the NCUA's Letter to Credit Unions 13-CU-02 andSupervisory Letter 13-01 “are in danger of hindering and evendiscouraging those credit unions and CUSOs that are running solidbusiness lending programs and, in doing so, providing neededdiversification to loan portfolios and a vital loan income sourceduring a challenging period of tighter margins and enhancedcompetition.”

The association said it is most concerned about what appears tobe a checklist approach to granting personal guarantee waivers.

“While we believe the previous RegFlex system of an automaticwaiver authority being granted to credit unions with solid CAMELratings and strong net worth worked much more efficiently and putcredit unions on equal footing with community banks, the regionaldirectors have worked hard to manage their difficult positionsmoothly and to approve a significant number of appropriate waiverrequests,” NACUSO wrote.

NACUSO said the regional directors appropriately deferred to thecredit union experts on the loan details knowing that each loan isunique and circumstances certainly justify at times that the lenderwill make an exception to the personal guarantee.

“Again, while less than ideal, this system at least held inplace the notion that commercial lending is not one-size-fits-alland that there is no cookie cutter approach that can be taken onindividual business loans,” NACUSO wrote.

“If regional directors took into consideration the pastrelationship of a business member with the credit union whenconsidering granting a personal guarantee waiver rather thanprohibit personal guarantees if there is not a five yearrelationship,” NACUSO wrote, “credit unions would have theflexibility to add members who have investment-grade credit,providing valuable diversification and not losing them to banks whoare not restricted by the personal guarantee requirement.”