NCUA Puts Member Business Lending Rule Changes in Effect Jan. 20

ALEXANDRIA, Va. – Revisions to NCUA’s member business lending rule will take effect Jan. 20. At its Dec. 15 board meeting, NCUA approved revising its MBL rule to clarify the minimum capital requirements a federally insured corporate CU must meet to make unsecured MBLs to members that are not CUs or corporate CUSOs, which generally must maintain a minimum capital ratio of 4% or a different minimum under certain circumstances. NCUA had proposed to amend the MBL rule’s capital requirements for unsecured MBLs to accommodate the differences between the general capital requirements for natural person credit unions and those for corporates. The proposed amendment is adopted in the final rule without change, according to the agency. The regulator also revised the definition of a construction or development loan to include certain loans to borrowers who already own or have rights to property and the definition of net worth to be more consistent with its definition in the Federal Credit Union Act and NCUA’s prompt corrective action regulation. Construction and development loans are subject to more stringent regulatory limitations than other MBLs because they pose a significantly greater risk than other less speculative MBLs, NCUA said. The loans are typically used to finance the development of residential real estate projects, such as condominiums and single and multi-family housing; and commercial real estate, such as hotels, strip malls, and office buildings. The definition of net worth in the MBL rule is also slightly different than in the Federal Credit Union Act and PCA regulation. To avoid confusion, NCUA proposed to revise the definition of net worth in the MBL rule to be the same as in PCA. The PCA rule’s definition of net worth expands slightly the definition in the Act. PCA and Act definitions both state that secondary capital accounts are counted in the net worth of low-income credit unions. The MBL rule also clarifies that a state may rescind a state MBL rule without NCUA’s approval. While NCUA says it has long taken the position that a state, which has a state MBL rule in place previously approved by NCUA for use for federally-insured state chartered CUs, may rescind that state MBL rule without NCUA approval. The effect has been that these CUs subject to the previous state MBL rule would be subject to NCUA’s MBL rule. Since questions had arisen, the agency sought feedback on clarifying which rule applies. Regarding government guaranteed loan programs, NCUA sought comments on whether credit unions should be allowed to partner with others beyond the SBA. Some from the industry suggested including the Farm Service Agency and United States Department of Agriculture (USDA) loan programs while others encouraged partnering with all government guaranteed loan programs. NCUA has entered into a memorandum of understanding with the USDA to identify and promote appropriate USDA Rural Development programs to credit unions. So far, it has acknowledged at least two programs permissible for FCUs. NCUA has also entered into a similar memorandum of cooperation with the Export-Import Bank of the United States. While it will consider allowing CUs to expand to other programs, the regulator said “there are significant differences in the terms of various government guarantee programs, some with complex participation and guarantee requirements that could be problematic for inexperienced credit unions.” NCUA said “although (it) is not ready to expand the universe of permissible programs to include all government programs in this rulemaking,” it will take the comments received into account as it considers future amendments to the MBL rule. [email protected]