CUNA Comment Letter

Proposed Rule Regarding Loan Participations (Part 701.22)

September 2, 2003

Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates this opportunity to comment on the proposed revisions to NCUA’s loan participation rule. The proposal clarifies and amends the definition of “credit union organization” to conform to the credit union service organizations (CUSOs) rule. The definition of “financial organization” will also be broadened to include state and federal government agencies.

We recognize that this proposal is separate from NCUA’s recent proposed rule on member business loans and that NCUA must consider all comments received with regard to that proposal, including those from the United States Department of Treasury. However, we urge NCUA to retain the member business loan proposal in the final rule to the extent possible, as outlined in our June 3, 2003 comment letter, including the provisions regarding loan participations.

CUNA represents more than 90 percent of the nation’s 10,000 state and federal credit unions. This letter reflects the views of our member credit unions and of CUNA’s Federal Credit Union Subcommittee, chaired by Mr. Christopher Jillson, President and CEO of Sandia Federal Credit Union, Albuquerque, New Mexico.

Summary of CUNA’s Position

NCUA's loan participation rule provides that an FCU may engage in loan participations with "eligible organizations," which are defined as a credit union, credit union organization, or financial organization. The current definition of “credit union organization” excludes, among others, CUSOs that principally provide services to credit union members, as opposed to those whose business relates to the daily in-house operation of credit unions. The proposal will amend this definition by removing this distinction and will now include CUSOs that principally provide services to members. This is consistent with NCUA’s 1998 final rule that eliminated this distinction in the CUSO rule. NCUA also proposes to amend the definition of “financial organization” to include state and federal government agencies.

CUNA supports the proposal to amend the definition of “credit union organization.” Until 1998, NCUA’s CUSO rule distinguished CUSOs providing operational services to FCUs from those providing services to their members. NCUA acted properly in 1998 to remove this distinction, and we support NCUA’s proposal to now remove this distinction in the loan participation rule.

CUNA also supports the amended definition of “financial organization” that will include federal and state government agencies. This will provide FCUs with greater flexibility in choosing appropriate loan participation partners. Enhanced access to state and federal government supported programs will allow FCUs to more flexibly manage risk, and we agree with NCUA that this will provide greater access to underserved borrowers.

Thank you for the opportunity to comment on the proposed revisions to NCUA’s loan participation rule. If you or other Board staff have questions about our comments, please feel free to contact me at (202) 508-6736.

Sincerely,

Mary Mitchell Dunn
Associate General Counsel
and Senior Vice President