ARLINGTON, Va. and WASHINGTON – With the clock ticking to the Feb. 21 deadline, both CUNA and NAFCU got their comments in on time on NCUA's Notice of Proposed Rulemaking concerning specialized lending activities. They concur that the proposed definition of "third-party servicer" in the NPR needs to be changed to be more inclusive of subsidiaries that are majority owned by two or more federally insured depository institutions. Beyond that point, NAFCU also made it clear that while it appreciates NCUA's efforts to provide federally-insured credit unions with guidance on specialized lending activities, NAFCU filed its comment letter on the agency's Notice of Proposed Rulemaking 12 C.F.R. Parts 701 and 741 concerning specialized lending activities and stated it nonetheless is "not certain that regulation of indirect, outsourced lending activities is necessary at this time." "NAFCU believes credit unions should use sound business practices when participating in any lending activities. While NAFCU appreciates the agency's efforts to provide credit unions with guidance on specialized lending activities, NAFCU is concerned that the proposal is not sufficiently well-defined and may have unintended consequences for credit unions that are operating safe and sound indirect lending programs," stated NAFCU President/CEO Fred Becker in the trade association's comment letter. NAFCU's letter offers comments in two areas of the NPR in addition to wholly-owned subsidiaries – indirect outsourced programs and net worth. On the first, NAFCU responds to NCUA's statement that "the proposed rule is narrowly tailored and intended to cover indirect vehicle loans serviced by third-parties." Section 701.21(h)(3) of the NPR defines a "third-party servicer" as any entity "that receives any scheduled periodic payments from a borrower pursuant to the terms of a loan and distributes the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan." Accordingly, NAFCU states, "the proposed rule applies to all credit unions that rely on vendors to accept payments from borrowers of indirect vehicle loans (and distributes these payments to the credit union). NAFCU points out that the preamble to the proposal refers to loans as "indirect, outsourced programs," and "appears to be narrower in scope.Thus, reading the preamble it is unclear, for example, whether coverage would extend to an indirect lending arrangement where the credit union retains substantive control over the lending relationship but uses some minimal third-party servicing for underwriting and loan processing." NAFCU recommends NCUA clearly define the types of lending programs covered by the rule so CUs will better understand whether compliance with the rule is necessary or whether the CU will have to seek a waiver. Concerning the NPR's definition of the term "net worth," NAFCU recommends the definition in the regulation reference the Federal Credit Union Act since "NAFCU is concerned that accounting principles regarding the merger of credit unions may change in the near future. As part of this change, the net worth of a credit union may not be accurately reflected. To avoid unintended consequences of this proposed accounting rule change, NAFCU supports the passage of the Net Worth Amendment for Credit Unions Act. However, should the law change, and if the proposed regulation is implemented as drafted, the definition of net worth for the purposes of indirect vehicle lending will become narrower in scope in the regulation than in the Federal Credit Union Act." In her letter to NCUA, CUNA's Mary Mitchell Dunn, associate general counsel and senior vice president also stated in her letter that concerning the agency's proposed limit on the aggregate amount of a CU's vehicle loans and interest that "the agency does not sufficiently discuss how it arrived at the 50% level, except that it is less restrictive than the Office of the Comptroller of the Currency's limits on asset backed securities collateralized by loan receivables." She continued that, "In the absence of such information, higher and more flexible limits, as some credit unions have suggested, seem reasonable, such as 75% of net worth for the first 17 months, as long as due diligence requirements are met." As for the waiver process, Dunn stated that, "While we support the waiver process, we also encourage NCUA to consider whether a more efficient process would be to adopt more flexible limits in the rule accompanied by the due diligence requirements rather than credit unions that meet due diligence requirements to undergo the burden of having to seek a waive." Along those lines, she added, CUNA also recommends NCUA consider if RegFlex CUs should be eligible for an exemption from the rule, "as long as they have satisfied the agency's due diligence and other requirements." -

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