CUNA Regulatory Comment Call
July 3, 2008
Advanced Notice of Proposed Rulemaking - Member Business Loans
- The National Credit Union Administration (NCUA) Board has issued an advance notice of proposed rulemaking (ANPR) in which the agency has requested comments on how the member business lending (MBL) rules should be revised or clarified.
- NCUA is specifically reviewing the following provisions of the MBL rules:
- Loan-to-value (LTV) ratio requirements.
- Collateral and security requirements.
- Credit union service organization (CUSO) involvement in the MBL process.
- MBL loan participations.
- Comments are due by August 25, 2008. Please submit your comments to CUNA by August 14, 2008.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and
Deputy General Counsel Mary Dunn at
email@example.com and to Senior Assistant General Counsel Jeff Bloch at
or mail them to Mary and Jeff c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the ANPR. You may also access it on the Internet at the following address:
NCUA's policy is to review all existing regulations every three years. This review is conducted on a rolling basis, which means that one-third of the regulations are reviewed each year. This ANPR has been issued as result of this process and also as a result of input from CUNA and others who have sought revisions in areas that are not dictated by statutory requirements, such as loan-to-value ratios and waiver provisions.
BRIEF DESCRIPTION OF THE ANPR
Although NCUA is receptive to comments on any aspect of the MBL rules, the agency is focusing on the following areas:
LTV Ratio Requirements and Unsecured MBLs
Generally, the MBL rule requires all MBLs to be secured by collateral. For the most part, the maximum LTV ratio allowed for liens is 80%, unless the amount in excess of 80% is covered by private mortgage insurance or is otherwise insured, guaranteed or subject to an advance commitment to purchase by certain government agencies. The MBL rule contains exceptions to the LTV ratio requirements, such as:
- Well-capitalized natural person credit unions and corporate credit unions that maintain required minimum capital levels are permitted to make unsecured MBLs. Unsecured MBLs to any one member or group of associated members are limited to the lesser of $100,000 or 2.5% of a credit union's net worth, and all unsecured MBLs may not exceed 10% of net worth.
- In certain circumstances, credit card lines of credit offered to nonnatural person members are excluded from the LTV requirements.
- Vehicle MBLs are generally excluded from the LTV requirements.
NCUA believes construction and development (C&D) loans are the riskiest type of MBL and, therefore, require greater regulatory restrictions. However, the agency is willing to consider easing restrictions on C&D loans, based on comments in response to the ANPR.
Experience Requirement and CUSO Activities
Under the MBL rule, a credit union must use the services of an individual with at least two years of direct experience with the type of lending the credit union is engaging in, and the experience must provide the credit union with sufficient expertise with regard to the complexity and risk involved with that MBL. NCUA has noted that there appears to be confusion regarding how to comply with the two-year experience requirement or how the requirement is to be calculated using both in-house employees and third-party contractors.
NCUA also notes possible confusion as to how CUSOs may provide this expertise to non-owner credit unions and credit unions that wholly or partially own the CUSO. This also includes possible uncertainty on the application of the conflict or interest provision in the MBL rule to circumstances in which a CUSO or other third-party is used to fulfill the two-year experience requirement.
Credit unions may sell participation interests in their MBLs to the same extent as for non-business loans, and the NCUA loan participations rule provides the basic regulatory requirements, which also apply to MBL loans. The MBL rule specifically addresses MBL loan participations by instructing credit unions how they must account for MBL participations for member and non-member loans and how they will affect the credit union's aggregate limit on net MBL balances.
NCUA believes some credit unions have not focused on the link between the MBL and the general loan participations rule and have also experienced difficulty in accurately accounting for MBL participations. NCUA is also concerned that some credit unions may not be aware of the waiver process that is available when nonmember MBL participations may otherwise cause a credit union to exceed the aggregate limit on MBLs.
The MBL rules provide waivers from a number of requirements in the MBL rule. NCUA is concerned that credit unions may not be taking full advantage of these waiver opportunities.
QUESTIONS TO CONSIDER REGARDING THE MBL ANPR
(NCUA has specifically requested comments on these issues)
- Do you support easing restrictions on C&D loans? How can this be done in a manner that addresses NCUA's concerns that this may adversely affect safety and soundness? Are the current waiver provisions sufficient if these restrictions are not eased?
- There have been suggestions that the LTV requirements for loans on fleet vehicles should be modified so credit unions are more competitive in this area and that the term "fleet" should be defined more narrowly so it captures fewer vehicles. Do you support this approach and will this have safety and soundness ramifications?
- Do you have any general suggestions for changing, improving, or clarifying the MBL LTV requirements, such as raising or eliminating the limits, or suggestions regarding the unsecured MBL exception? Should there be a regulatory credit limit on business credit cards? Do you agree the proposed changes will clarify and simplify the current rules, as intended by NCUA?
- Has NCUA clearly explained how a credit union is to establish the value of a property for purposes of calculating the LTV ratio, defined what costs and fees may properly be included in calculating a borrower's equity in a project, and explained how the unsecured MBL exception should be applied when making an MBL under the Small Business Administration guaranteed loan program?
- Would the differences between various types of collateral support using a tiered approach to LTV limits so that a loan secured by safer collateral would have a higher LTV limit?
- Do you have any comments or suggestions regarding the two-year experience requirement? Specifically, do you have suggestions for clarifying how this requirement can be met or calculated using both in-house employees and third-party contractors? Do you have suggestions for clarifying what role CUSOs may play in providing that expertise to non-owner credit unions and credit unions that wholly or partially own the CUSO? Is there confusion as to the applicability of the conflict of interest provision in the MBL rule to circumstances in which a CUSO or other third-party is used to meet the two-year experience requirement?
- What additional guidance should NCUA provide with regard to loan participations? Specifically, is more information needed so credit unions are aware of both the general loan participations rules and the related rules that are in the specific MBL rules? Is more information needed regarding the waiver process that is available if nonmember MBL participations may otherwise cause a credit union to exceed the aggregate limits on MBLs?
- Do you believe credit unions are taking full advantage of the provisions that allow credit unions to seek waivers from a variety of the requirements in the MBL rules? If not, why is this the case and is this the result of procedural problems and, if so, how can NCUA resolve these issues?
- Would the MBL rules be more effective with more, less, or the current degree of regulatory limits? Are there any other issues with regard to the MBL rules that NCUA should address?
- Other comments?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Lilly Thomas Assistant General Counsel (202) 508-6733 email@example.com
Luke Martone Senior Regulatory Counsel (202) 508-6743 firstname.lastname@example.org