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ALEXANDRIA, Va.-NCUA’s final member business lending regulation, approved at its last board meeting, has drawn a wide range of reactions from around the financial services industry. “When we put a proposal out, it’s what we believe at the time is the very best proposal,” one of the regulation’s sponsors, NCUA Vice Chair JoAnn Johnson said. However, as with every rule, the comments the agency receives helps to make every rule better. She said she feels that the rule was made better in this instance as well and the modifications helped to “allay concerns from Treasury.” Into the future, Johnson said, “We continually look to see if additional improvements can be made to the rule.” The two main concerns Treasury raised with the proposed rule in its comment letter to the agency were the elimination of the personal guarantee and not requiring credit unions to count loan participation purchases toward their member business lending cap. The provisions were amended in each case. In the final rule, only Reg-Flex credit unions may waive the personal guarantee requirement. Additionally, a distinction was made between loan participation purchases of member business loans and non-member loans; the non-member loans will not apply toward the 12.25% MBL cap under the final rule. Credit unions can apply with NCUA for lending transactions that could put them over the ceiling. Treasury declined to comment for this story on the changes NCUA made to the rule. Another area where Treasury had raised concerns over the MBL proposal was the raising of 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 the limits attached to unsecured lending.with safeguards put in place so that safety and soundness will not be undermined,” Johnson commented. The credit union industry was appreciative of the update, but felt it could have gone as far as the proposed rule, while the banking industry claimed a partial victory with the changes made. The banking groups had sent the agency comment letters ripping the proposal to shreds. After the board’s decision at its September board meeting, Independent Community Bankers of America Regulatory Counsel Chris Cole said, regarding the loan participations provision, “We hope that this will not be a distinction without difference.” He added that ICBA expects to see some applications to exceed the cap turned down. “If NCUA approves all applications, then any credit union that wants to buy a member business loan can and the regulatory scheme will be a scam,” he said. Cole stated that the rule is in violation of CUMAA and puts credit unions in riskier lending territory than they are used to and allows credit unions to go beyond their primary purpose of serving consumers, not businesses. “The most interesting part of this process is that Treasury got into the act,” Cole said. They must have seen that NCUA was going too far, he said, and called Treasury’s comments “unprecedented.” To the contrary, CUNA General Counsel Eric Richard said he does not find it unusual at all for Treasury to comment on an NCUA regulation and pointed out that they recently commented on the agency’s amendments to its prompt corrective action rule. However, moving forward, Richard said, “We continue to work with NCUA as well as Treasury,” to get a rule in the future that is closer to the proposal. “I think that Treasury would not want to be seen as a servant to the banking industry and I think they’ll be very open to suggestions from our side as well,” Richard stated. The provision in the proposal regarding personal guarantees came straight out of state regulations that had been amended and approved by NCUA. When those were approved, Treasury did not raise any concerns and has been tight lipped about its next moves, if any, on the subject, NAFCU Director of Regulatory Affairs Gwen Baker said. “The state rules are already done and approved.” NAFCU President and CEO Fred Becker said. “I guess the next time it might come up is if another state requested a waiver.” “NCUA provided the approval for those state rules to apply to federally insured state chartered credit unions,” Baker reaffirmed. “I suppose NCUA could change that decisions, but I haven’t heard anything.” America’s Community Bankers also spoke out against the rule. “While the final rule doesn’t give credit unions the carte blanche [of the proposal], we’re still disappointed with the changes made. We still believe the NCUA is overreaching,” ACB Regulatory Specialist Krista Shonk said. The “real clincher for us” was the loan participations provision, which ignores CUMAA and congressional intent. Following NCUA’s approval of the modified final rule, the American Bankers Association released this statement from Executive Vice President Edward Yingling: “ABA strongly opposes this rule because it contradicts congressional intent to limit business lending by credit unions. “However, the final rule scales back the scope of the original proposal and the modifications reflect concerns expressed by ABA. Specifically, the proposed rule makes it more difficult for credit unions to circumvent the aggregate business loan cap by swapping business loans. “Although we are pleased that NCUA scaled back its original proposal, we believe this is part of a slippery slope.As a federal regulator, NCUA will have to show it takes the congressionally mandated cap seriously.” Other sections of the final rule requires 25% equity in construction and development loans, down from 35%; permits 100% financing of consumer-type vehicle loans for business purposes; clarifies that loans to natural person credit unions and credit union service organizations are not member business loans under this rule; streamlines MBL documentation requirements; amends the PCA weighting of MBLs, and allows CUSOs to originate MBLs. -

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