MBL Updates Now Effective, So How are CUs Using Them? Johnson and Matz Say the Best is Yet to Come

ALEXANDRIA, Va.-Though NCUA does not have data on how credit unions are making use of their new capabilities under the updated member business lending rule, its sponsors feel it’s been well received. The rule just became effective about four months ago, but NCUA Vice Chair JoAnn Johnson described the response as “fabulous.” “I think it’s been one of the most positive pieces of regulation that we have worked on in the last year and we’re beginning to see the impact now,” she added. In 2003, NCUA Board Member Debbie Matz pointed out, the number of credit unions involved in member business lending increased by 32. Keep in mind that the regulation was only in effect the last two months of the year. What’s been more impressive, Matz said, is the volume of business lending. “There’s about a 40% increase in the total member business loans outstanding. So that’s very significant that each credit union is making more business loans even though there aren’t that many new credit unions that have started doing this,” she said. Johnson said the average size credit union business loan is about $119,000, which is well below the banks’ norm. She complimented the banks on their handling of large commercial loans, “But this is really providing a service to those entrepreneurs and those members that are really trying to start or expand their small business.” And NCUA does not keep track of much of the micro-lending that may be going on in the smaller credit unions, Matz stressed. When she visited Lower East Side People’s Federal Credit Union she was surprised to find that they made quite a lot of business loans and were working on expanding their program. Loans under $50,000 are not counted against credit unions’ member business lending cap. “So I think that there’s probably more going on than we know about. It was surprising to me that such a large proportion of the loans goes to low- and moderate-income people,” she said. About half of member business loans actually go to people of modest means, according to Matz. Some just want to open a daycare out of their home or an ethnic market, she explained. Johnson emphasized that even with the increase in member business loans, delinquency rates remain low at about 1.6% industry-wide. She referred to them as “caring loans” for the most part because entrepreneurs really care about getting the businesses off the ground. But, as NCUA officials have emphasized on many occasions, member business lending is not for every credit union. Matz said that after the Partnering and Leadership Successes workshop on member business lending in October, she flew out with someone who had attended the conference and asked them if they got a lot out of it. Her fellow flyer said yes, she decided it was not for her credit union, and that response is good too, Matz said. “We’re not encouraging every credit union to get into member business lending,” Johnson reinforced. “We’re encouraging credit unions to take a look and see if it fits their members’ needs and if it’s something they can do and do well. It’s certainly not for every credit union.” Matz added that there was a waiting list at the October PALS conference in Washington, D.C. and it was so popular another workshop has been booked on the West Coast for March. She added that Small Business Administration General Counsel David Javdan has agreed to be the luncheon speaker for the San Francisco conference. The agency has only begun to advertise it and already 100 have signed up, Matz said. The CD from the first workshop is available to credit unions free of charge from Matz’ office and is available at www.ncua.gov. “It’s very exciting to see credit unions working together on it because clearly there are some credit unions that would like to do it but don’t have the wherewithal. So credit unions working together and working through CUSOs, corporates are getting involved in this, and so I think that partnering is a good way to approach it,” Matz said. The reg simplifies and expands several powers for credit unions, which of course upset the bankers but neither board member had heard any rumblings of legal or other action. In reality, Matz pointed out, for the most part, they really are not competing for the same market. “I think one of the biggest advantages of the credit unions serving the business needs of their members is that they have served their members through their entire lives, potentially, with their personal financial needs and with their savings,” Johnson said. “Then when they get to the place of either staring their own business or if its someone retiring from the military at age 40 and they have a whole lifetime ahead of them, and their entire goal is to start their own business, I just believe it’s a shame to have to send a member down to another institution when the credit union has been meeting their needs for years.” One of the most crucial provisions, the sponsors said, was the loan participation expansion. Also, the 100% loan-to-value ratio on business vehicles and definition of the net member business loan balance have been significant. Johnson added, “I heard, I think, some of the most positive comments from those that said. not having to have a cookie-cutter plan for every credit union meant a great deal for them because now it is really responsive to their needs, what types of loans they’re making and for what amount. It eased the paperwork a great deal.” For credit unions’ part, it is crucial for credit unions to get someone with the proper experience in place to handle the business lending program, she said emphatically. Johnson said the agency will continue to work on the regulation in the future and that a lot of good ideas came out during the comment period, but there either was not time or they were outside the scope of the review at the time. Matz, NCUA’s liaison to the SBA, said that SBA’s legislative proposal to expand 7(a) loans by reducing the guarantee was something that would be worked on and altered through the legislative process. “I think expanding the funds available is always a good thing.but I think it’s only a proposal and it needs to work its way through Congress,” she said. “I would hate to see all of the loans cut back to 50% guarantee, but I’m sure there are still going to be a lot of compromises made along the way before it becomes law.” She added that SBA is very anxious to get credit unions into their lending programs. “I think that they were under the impression that as soon as they changed their regs, there’d be an immediate surge of credit unions participating with them,” Matz said. She has explained to SBA that it will take time for credit unions to decide that business lending is for them and then more time to apply with SBA. [email protected]