Now that the NCUA has approved a final loan participation rule,some are still concerned about the long-term impact of some of theprovisions.

“While I am happy to see that the NCUA raised the limit to 100%of net worth from the proposed 25% of net worth, I still believethis limitation is arbitrary and has little association withmitigating loan default risk,” said Brian Lauer, a partner with the Messick & Lauer law firm inMedia, Pa.

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NCUA Board Approves New Loan ParticipationRule

Lauer, who specializes in representing credit unions and CUSOs,said the net worth increase “will put unhealthy pressure on buyingcredit unions to seek out unknown originating lenders. It willalso strain member relationships of selling credit unions as theypotentially struggle to broaden their network of buyers.”

In addition to raising the net worth limit, the NCUA Board onThursday approved a risk retention requirement for originatingfederal credit unions at 10%, as required by the Federal CreditUnion Act.

The risk retention requirement for other originating eligibleorganizations including federally insured, state-chartered creditunions, will be 5%, which is consistent with the standard forsecuritizers under the Dodd-Frank Act unless state law requires ahigher percentage, the NCUA Board said.

“It was nice to see that the NCUA acknowledged that CUSOs areseparate entities and therefore loans originated by a CUSO will notbe attributed to its owners for purposes of determining the singleoriginator concentration limit,” Lauer said.

He added, “CUSOs have been a powerful tool for credit unions toaggregate lending services through collaboration and this rule mayhave dramatically hindered that avenue for credit uniongrowth.”

Lauer said also not to be lost in the headline discussions ofconcentration limitations, is the “great shift” for state-charteredfederally insured credit unions that must now also comply with theentire federal loan participation rule.

Previously, state-chartered credit unions were only required tofollow state regulations which were sometimes vastly different thanthe federal rule, Lauer noted.

“This type of shift can severely hinder growth if the creditunion was not prepared to adjust,” he cautioned.

Still, Lauer is optimistic about working within the parametersof the final loan participation rule

“As usual, we will work through this regulatory change and thecurrent regulatory climate to help credit unions continue to grow.With adversity comes opportunity,” he offered.