in Compliance & Regulatory
By: Nicola Foggie, NJCUL Vice President, Compliance and Regulatory Affairs
Yesterday, the NCUA and credit unions won a huge victory! U.S. District Court Judge James Cacheris dismissed a lawsuit brought by the Independent Community Bankers of America (ICBA) against the National Credit Union Administration (NCUA), this past September. The Banker’s suit against the agency challenged NCUA’s 2016 member business lending rule (MBL). The American Bankers Association supported the ICBA litigation that challenged the MBL rule and amendments that changed the statutory MBL cap, including making it easier to exclude nonmember loans from the cap calculation. According to the court’s opinion, the lawsuit was dismissed based on ICBA’s lack of standing and timeliness. In his opinion, Judge Cacheris stated that even if the ICBA had established standing and timeliness, the court said it still would have found that the rules satisfied the requirements established by the Administrative Procedures Act and existing case law.
NCUA approved the final MBL rule (Part 723 (12 C.F.R. §723) at the agency’s February 2016 open Board meeting. The final rule is substantially similar to the 2015 proposed MBL rule. One significant change is that the final MBL rule eliminates the personal guarantee requirement. The rule became effective January 1, 2017, but the elimination of the personal guarantee requirement became effective 60 days after publication in the Federal Register.
So, what does this victory mean for covered credit unions?
It’s time to rebuild your MBL policy! The new rule offers credit unions greater operational flexibility when it comes to business lending. Credit unions can now comfortably move to finalize policies, procedures, and implement staff training without fear of the lawsuit hanging over the agency and credit unions’ heads. According to CUNA’s economics and statistics department, 2,260 credit unions offer MBLs, and the balance of total outstanding MBLs is about $60 billion, up from $39 billion in 2010. Meaning, there is a great deal of untapped opportunity here for credit unions who want to additionally serve their members and at the same time grow their business loan portfolio. The new rule eliminates most of the current rule’s prescriptive limitations, replacing them with what NCUA calls a “broad, principles-based regulatory approach.” The new MBL regulation primarily contains requirements specifically stated in the Federal Credit Union Act. The agency cautions credit unions to also exercise greater policy oversight, which they can do by examining the supervisory guidance the NCUA released November 2016.
To remind credit unions, the final rule:
- Permits credit unions to tailor their member business lending programs to fit their strategic goals and their members’ needs;
- Gives credit union loan officers the ability, under certain circumstances, to not require a personal guarantee;
- Replaces explicit loan-to-value limits with the principle of appropriate collateral and eliminating the need for a waiver;
- Lifts limits on construction and development loans;
- Exempts credit unions with assets under $250 million and small commercial loan portfolios from certain requirements; and
- Affirms that non-member loan participations do not count against the statutory member-business lending cap.