FCUs can conditionally purchase SCCUs loans with prepayment penalties

ALEXANDRIA, Va.-Federal credit unions can enter into loan purchase agreements with state chartered credit unions that charge prepayment penalties, so long as they do not take in fees from the prepayment penalty. According to NCUA Associate General Counsel Sheila Albin in a November 5 legal opinion letter, the state chartered credit union also may not continue to collect the fees. “The FCU Act allows an FCU to make loans under several conditions including that the borrower may `repay his loan, prior to maturity in whole or in part.without penalty,’ ” Albin wrote to Attorney Guy Messick, who worked with NAFCU Director of Legislative Affairs Gwen Baker on the issue. Therefore, the federal credit union can purchase the loan if it does not entail prepayment penalties. However, Albin continued, “ We believe an SCCU’s collection of any part of a prepayment penalty that would otherwise belong to the FCU also bars the FCU’s participation.Our opinion is that, while an SCCU may charge a penalty for prepayment of a loan, the SCCU may only collect its pro rata share of the penalty if an FCU participates in the loan.” She added that federal credit unions participating in such loans should ensure that borrowers receive appropriate disclosures about prepayment penalty calculations if a federal credit union buys the loan. NASCUS Director of Legal and Policy Analysis Brian Knight said that he does not think NCUA has overstepped its authoritative bounds in determining that state chartered credit unions cannot continue to accept prepayment penalty fees after it has sold a loan to a federal credit union. Essentially, he said, NCUA is just saying, “If a state chartered credit union is going to sell loans to a federal credit union, these are the rules you’re going to have to comply with.” He added, “I don’t think this is an attempt by NCUA to preempt state authority.” [email protected]