NASCUS Comment Letter Commends NCUA's Initiative in Proposed MBL Revisions, Makes Recommendations

ARLINGTON, Va. – One day after the Treasury, in its comment letter to the NCUA, expressed concern with key provisions of the credit union regulatory agency’s proposed member business lending regulation revisions, NASCUS sent NCUA its own comment letter voicing its overall support for the proposed revisions and offering suggestions it said should be made to the final regulation. In his letter to NCUA Secretary of the Board Becky Baker, NASCUS President/CEO Doug Duerr organized the association’s suggestions into two categories – the proposed revisions to Part 723 and Part 702; and the statutory interpretation of the Credit Union Membership Access Act, specifically redefining `low income’ and “giving effect to the exceptions for `primarily chartered for’ and `history of primarily making.’ ” Regarding Part 723 revisions, Duerr wrote that the proposed language in Part 723.1(c) “ wrongly allows federally insured state-chartered credit unions MBL to CUSOs and other credit unions to be excluded from the MBL definition if there is `independent’ authority for such loans under state law.’ Duerr further stated that the language “is overly restrictive” because a state’s authority is made several ways – it can be statutorily specific, statutorily implied, by regulation or by agency interpretation. NASCUS is recommending the word `independent’ be stricken from the wording and the following revision to Part 723.1(C) Loans to Credit Unions and CUSOs be made: “This part does not apply to loans made by a federally insured, state-chartered credit union to credit unions and credit union service organizations if the credit union’s supervisory authority determines that state law grants authority to these entities. Regarding the use of the word `participation’ in the proposed revisions in Part 723.1(d) Loan Participations, NASCUS questioned whether it’s incorrect to assume that the provision only applies to the purchase of a partial interest in a loan, and if so, why? “Unlike federal charters, state credit unions in some states may sell, and other state or federal charters may buy, 100% of a loan. The provision should apply to the purchase of whole loans as well,” wrote Duerr. “Clearly, the purchasing credit union does not report the participation as an MBL on its 5300. Accordingly, we assume that the credit union would account for the loan as a loan on its books, and not as an investment. The proposal, however, does not clearly state that the selling institution can exclude the sold participation from its MBL as well, if it is sold without recourse,” he added. Duerr also addressed in his suggestions concerning proposed Part 723 revisions: * construction and development lending: NCUA should provide separate definitions for each; and the definition of `single-family residence’ should be consistent in 723.3(a) and 723.1(b)(1); * direct experience requirement: the second added sentence in Part 732.5 is too broadly worded with regard to “may not benefit.” The phrase “may not benefit from the making of the loan or the sale of a participation interest’ should be deleted and substituted with `is prohibited from having a participating in the loan or an interest in the collateral securing the loan.’ * collateral and security requirements: credit union loan to value (LTV) requirements in Part 723.7 should be eliminated and left as CU business decisions. In addition, NASCUS recommends NCUA use the Interagency Guidelines concerning LTV limits for real estate loans or consider using their approach; the exemption contained in Part 723.7(d) could be made more clear about what types of vehicles are included. Lastly, regarding Part 723.7(a)(2), the NCUA should exempt SBA loans from LTV requirements. * definitions: the phrase `or sold as a participation interest without recourse’ should be deleted from the proposed new definition of Part 723.21 concerning outstanding member business loan balance; * expanded authority: NCUA should make the process credit unions follow for submitting multiple waiver requests, less cumbersome. Under proposed Part 702 revisions, Duerr wrote that NASCUS recommends NCUA “consider revisions that would allow further credit for MBLs that provide `balloon’ and/or `call’ provisions for loans that mature within five years.” Lastly in his letter, Duerr addressed the Statutory Interpretation of CUMAA. Concerning `predominantly low-income,’ Duerr stated that. “by creating a broader exception for `low-income’ designation for member business lending, NCUA would be providing member business lending relief to those very credit unions working to offer financial services to historically underserved groups.” Regarding `history of primarily making,’ Duerr stated that “a more appropriate approach to this exception would allow credit unions, operating within the parameters of Part 723 to establish a history of primarily making member business loans in the future. No safety and soundness implications arise if, after several years of making loans in accordance with CUMAA, a credit union should be allowed to request an exception based on a `history’ of primarily engaging in that activity.” NASCUS also recommended that NCUA rule-making should address Part 723.2 Prohibited Activities with the same deference to state law as the agency showed in the current Part 723. “Clearly, NCUA is concerned with improper insider dealings within credit unions. While fraud is always a risk, in this instance, such blanket prohibitions should be the function of the chartering agency and Part 723.2 should be eliminated,” Duerr wrote NASCUS further recommended NCUA, in the Supplementary Information to revised Part 723, “should reaffirm its commitment to considering state specific rules that differ from NCUA’s.” -