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ALEXANDRIA, Va. – In a recent legal opinion letter (02-0737), NCUA Associate General Counsel Sheila Albin stated that a federal credit union’s board of directors can only approve certain types of loans, but can be more involved in other loan decisions. Albin’s letter quoted the Federal Credit Union Act as saying “loans must be approved by the credit committee or a loan officer..” The letter continued, “Generally, if a credit committee or a loan officer does not consider a loan application first, an FCU’s board of directors may approve a loan only if the FCU Act provides specific authority for the board to act on that type of loan.” She provided the example of a loan to a director over $20,000 plus pledged shares. “We understand that an FCU’s board may not want to delegate the authority to approve every type of loan or may want to be involved in the decision-making on some loans, such as loans that are part of a new area of lending for the FCU or particularly large loans,” Albin said. “An FCU may, consistent with the FCU Act, restructure its lending processes in various ways to increase its board’s involvement.” A federal credit union board could appoint itself or some of its members to serve as the institution’s credit committee if provided for in the bylaws, for example. Or the credit unions could create two levels of review and approval for certain loans. However, Albin added, “We caution that FCUs must comply with the various statutory and regulatory requirements for lending, including the experience requirements placed on member business lending. 12 C.F.R. 723.5(a). We also caution that FCUs may only make loans as provided in their written lending policies. Id.; 12 C.F.R. 701.21(c)(2).” The expanded role of the board must be outlined in lending policies and the institution must be careful to maintain the “proper segregation of duties.” Lending policies must also ensure credit unions do not make loans ad hoc or in an arbitrary manner.

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