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By now you have likely heard quite a bit about the proposed amendments to the NCUA’s Member Business Lending rule. As a whole, the comments have been favorable and the industry seems poised to welcome a less restrictive regulatory structure. This lifting of restrictions will allow credit unions to compete in the marketplace for member business loans by making sound loans on a case-by-case basis relative to the circumstances of a particular deal.

The existing MBL rule outlines “how” a credit union should underwrite a loan. The proposed MBL rule tells the credit union “what” the goal is (a well documented loan with risks that have been reasonably mitigated) and allows the credit union to decide how to underwrite such loans. As long as the credit union can articulate what they did was commercially reasonable to an examiner, and the examiner accepts the explanation, the credit union can make business loans on its terms. This is the difference between a prescriptive regulatory philosophy and a principal based regulatory philosophy.

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Guy Messick

Dig Deeper

Credit Union Times

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