NAFCU Offers Tweaks to NCUA MBL Proposal for Streamlined SBA Requirements

ARLINGTON, Va. – NAFCU agrees with most of the provisions set forth within NCUA’s member business loan proposal but has offered some changes. At issue is NCUA’s proposed rule that would amend collateral and security requirements so that credit unions could make construction and development loans under “the safety and soundness standards” established by SBA. The proposed amendments would permit federally insured credit unions to follow the “less restrictive” loan requirements of the relevant SBA-guaranteed loan program, with the proviso that state-chartered credit unions have the necessary authority under state law. Based on recommendations made during last year’s MBL rule revision, NCUA reviewed applicable SBA loan programs and determined they indeed provide “reasonable criteria for credit union participation and compliance within the bounds of safety and soundness,” NCUA said. Section 723.6 of NCUA’s MBL rule requires that a credit union’s member business loan policy address the qualifications and experience of personnel involved in making and administering business loans and specifically requires a minimum of two years experience. SBA regulations require that a participating lender have “a continuing ability to evaluate, process, close, disburse, service and liquidate small business loans,” NAFCU President/CEO Fred Becker pointed out in a recent comment letter to NCUA. SBA regulations do not specify any minimum period of time with which a participating lender must have experience in making and administering SBA guaranteed loans. NAFCU agrees with NCUA’s assessment of SBA’s criteria and believes there may be circumstances in which SBA would determine a lender has the ability to evaluate, process, close, disburse, service and liquidate small business loans even though it has not met NCUA’s two-year experience requirement, Becker wrote. As a result, NAFCU encourages NCUA to provide an exception from the two-year experience requirement for loans made pursuant to an SBA guaranteed loan program provided the credit union has met SBA’s criteria for a participating lender. Becker asked NCUA to also consider expanding the rule to permit FCUs to follow the loan requirements of Farm Service Agency (FSA) guaranteed loans “to the extent they are less restrictive than NCUA rule requirements.” Regarding changes to NCUA’s prompt corrective action (PCA) rules, Becker requested those provisions be taken into consideration. He said section 723.4 of the MBL rule includes a discussion of other applicable regulations and includes references to Parts 701 and 741. NAFCU is suggesting that NCUA revise this section to also reference Part 702, NCUA’s rule on prompt corrective action. “A credit union’s MBL activity is directly relevant to the requirements of Part 702, particularly the risk-based net worth (RBNW) requirements,” Becker wrote. “Therefore, NAFCU believes it will be beneficial for section 723.4 to include a reference to Part 702.” NCUA recently clarified that a loan originally classified as a MBL remains a MBL for purposes of calculating the RBNW requirement of Part 702 until the loan is paid off. However, an MBL is no longer included in a credit union’s net member business loan balance once the member pays the loan balance below the $50,000 threshold, Becker wrote. “NAFCU believes that reporting and tracking these loans, given the different classification requirements, is difficult and burdensome for credit unions,” Becker wrote. NCUA should consider utilizing the net member business loan balance for purposes of calculating the RBNW requirement and permit credit unions to exclude MBLs from the calculation of the RBNW requirement once the loan balance has been paid below the $50,000 threshold because it “is consistent with NCUA’s definition of an MBL, as a loan made for a business purpose is not a `member business loan’ under Part 723 if the balance of the loan is equal to or less than $50,000,” Becker wrote. [email protected]