ALEXANDRIA, Va.-NCUA's final member business lending regulation,approved at its last board meeting, has drawn a wide range ofreactions from around the financial services industry. “When we puta proposal out, it's what we believe at the time is the very bestproposal,” one of the regulation's sponsors, NCUA Vice Chair JoAnnJohnson said. However, as with every rule, the comments the agencyreceives helps to make every rule better. She said she feels thatthe rule was made better in this instance as well and themodifications helped to “allay concerns from Treasury.” Into thefuture, Johnson said, “We continually look to see if additionalimprovements can be made to the rule.” The two main concernsTreasury raised with the proposed rule in its comment letter to theagency were the elimination of the personal guarantee and notrequiring credit unions to count loan participation purchasestoward their member business lending cap. The provisions wereamended in each case. In the final rule, only Reg-Flex creditunions may waive the personal guarantee requirement. Additionally,a distinction was made between loan participation purchases ofmember business loans and non-member loans; the non-member loanswill not apply toward the 12.25% MBL cap under the final rule.Credit unions can apply with NCUA for lending transactions thatcould put them over the ceiling. Treasury declined to comment forthis story on the changes NCUA made to the rule. Another area whereTreasury had raised concerns over the MBL proposal was the raisingof the unsecured loan limit. NCUA went ahead with its proposed$100,000 cap or 2.5% of net worth (whichever is less), up from$50,000 in the previous rule. “We felt very confident about thelimits attached to unsecured lending.with safeguards put in placeso that safety and soundness will not be undermined,” Johnsoncommented. The credit union industry was appreciative of theupdate, but felt it could have gone as far as the proposed rule,while the banking industry claimed a partial victory with thechanges made. The banking groups had sent the agency commentletters ripping the proposal to shreds. After the board's decisionat its September board meeting, Independent Community Bankers ofAmerica Regulatory Counsel Chris Cole said, regarding the loanparticipations provision, “We hope that this will not be adistinction without difference.” He added that ICBA expects to seesome applications to exceed the cap turned down. “If NCUA approvesall applications, then any credit union that wants to buy a memberbusiness loan can and the regulatory scheme will be a scam,” hesaid. Cole stated that the rule is in violation of CUMAA and putscredit unions in riskier lending territory than they are used toand allows credit unions to go beyond their primary purpose ofserving consumers, not businesses. “The most interesting part ofthis process is that Treasury got into the act,” Cole said. Theymust have seen that NCUA was going too far, he said, and calledTreasury's comments “unprecedented.” To the contrary, CUNA GeneralCounsel Eric Richard said he does not find it unusual at all forTreasury to comment on an NCUA regulation and pointed out that theyrecently commented on the agency's amendments to its promptcorrective action rule. However, moving forward, Richard said, “Wecontinue to work with NCUA as well as Treasury,” to get a rule inthe future that is closer to the proposal. “I think that Treasurywould not want to be seen as a servant to the banking industry andI think they'll be very open to suggestions from our side as well,”Richard stated. The provision in the proposal regarding personalguarantees came straight out of state regulations that had beenamended and approved by NCUA. When those were approved, Treasurydid not raise any concerns and has been tight lipped about its nextmoves, if any, on the subject, NAFCU Director of Regulatory AffairsGwen Baker said. “The state rules are already done and approved.”NAFCU President and CEO Fred Becker said. “I guess the next time itmight come up is if another state requested a waiver.” “NCUAprovided the approval for those state rules to apply to federallyinsured state chartered credit unions,” Baker reaffirmed. “Isuppose NCUA could change that decisions, but I haven't heardanything.” America's Community Bankers also spoke out against therule. “While the final rule doesn't give credit unions the carteblanche [of the proposal], we're still disappointed with thechanges made. We still believe the NCUA is overreaching,” ACBRegulatory Specialist Krista Shonk said. The “real clincher for us”was the loan participations provision, which ignores CUMAA andcongressional intent. Following NCUA's approval of the modifiedfinal rule, the American Bankers Association released thisstatement from Executive Vice President Edward Yingling: “ABAstrongly opposes this rule because it contradicts congressionalintent to limit business lending by credit unions. “However, thefinal rule scales back the scope of the original proposal and themodifications reflect concerns expressed by ABA. Specifically, theproposed rule makes it more difficult for credit unions tocircumvent the aggregate business loan cap by swapping businessloans. “Although we are pleased that NCUA scaled back its originalproposal, we believe this is part of a slippery slope.As a federalregulator, NCUA will have to show it takes the congressionallymandated cap seriously.” Other sections of the final rule requires25% equity in construction and development loans, down from 35%;permits 100% financing of consumer-type vehicle loans for businesspurposes; clarifies that loans to natural person credit unions andcredit union service organizations are not member business loansunder this rule; streamlines MBL documentation requirements; amendsthe PCA weighting of MBLs, and allows CUSOs to originate MBLs.-

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