CUNA Comment Letter

MBL Rule Revision to Enable CUs to Participate More Fully in SBA Loans

August 30, 2004

Ms. Mary Rupp
Secretary to the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Re:     NCUA’s MBL Proposal

Dear Ms. Rupp:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the National Credit Union Administration’s proposed changes to Part 723, Member Business Loans, to facilitate the ability of credit unions to make loans guaranteed by the Small Business Administration. CUNA, the largest national trade association serving credit unions, represents approximately 90 percent of the nation’s 9,400 state and federal credit unions. CUNA appreciates the input of our Business/SEG Services Committee and various leagues in our review of this proposal.

Summary Of CUNA’s Views

Discussion of CUNA’s Views

Last September, NCUA approved a number of changes to its MBL rule, which CUNA strongly supported. During the comment period, CUNA and others encouraged NCUA to remove inconsistencies between NCUA's MBL rule and the Small Business Administration's (SBA's) requirements for its 7(a) Loan Program. At that time, NCUA felt such changes were outside the scope of its proposal. Now, however, the agency has determined that it is appropriate to consider such changes as part of a new rulemaking procedure in order to facilitate participation in the SBA 7(a) Program.

Under the new proposal, federally insured credit unions would be able to make SBA guaranteed loans under SBA's less restrictive lending requirements, rather than under NCUA's more restrictive MBL lending requirements.

Under the proposal, the MBL rule’s collateral and security requirements would not apply to MBLs made as part of a SBA guaranteed loan program. (The MBL rule’s provisions on construction and development lending includes the requirements that the borrower must have a minimum of 25% equity interest in the project being financed and that the net member MBL balances for all construction and development loans must not exceed 15% of net worth; generally, the maximum loan-to-value ratio for all liens must not exceed 80%.)

The proposed exemption would allow federally insured credit unions to make construction and development loans under the safety and soundness standards established by SBA.

CUNA urged this action in a previous comment letter and welcomes this regulatory change. We applaud NCUA for developing this proposal, in cooperation with the Small Business Administration. This type of action is illustrative of public policy at this best.

There are two additional steps we would like to encourage NCUA to take concerning SBA loans by credit unions.

First, we encourage NCUA to make it clear that the new authority applies to SBA’s 504 and 7(a) Loan Programs. We also recommend that the agency continue its dialogue with SBA to ensure that, as new programs are developed or current ones enhanced, credit unions will not face unnecessary limitations that preclude or restrict their participation.

Second, the proposed rule complements NCUA's recent legal opinion on MBLs that states that loan maturity limits, usury ceiling and prepayment penalties are terms of SBA's lending programs for which federal credit unions may rely on SBA's rules, instead of on NCUA's MBL requirements. The opinion letter allows federal credit unions to provide more small businesses with working capital, furniture, machinery, land and buildings, and leasehold improvements.

We agree with the analysis of the legal opinion, but not with its scope. The supplementary language accompanying the proposal states that while NCUA's proposed rule change would apply to federally insured credit unions that are covered by NCUA's MBL regulation, the legal opinion only applies to federal credit unions. Since NCUA’s MBL rule applies to federal and state credit unions that are federally insured, we urge NCUA to apply the legal opinion to all federally insured credit unions by incorporating it into the regulation. We believe such action is fully consistent with Section 1757a of the Federal Credit Union Act, which governs member business lending for all federally insured credit unions.

Very shortly, CUNA will be filing another letter as part of our response to NCUA’s regulatory review, which will include additional comments on general issues relating to member business lending. Thank you for the opportunity to express our views. Please feel free to contact me at (202) 508-6736 if you wish to discuss our comments.

Sincerely,

Mary Mitchell Dunn
Senior Vice President and Associate General Counsel

Cc: NCUA Board Chairman JoAnn Johnson
NCUA Board Member Debbie Matz