CUs Can Participate in Loans to Nonmembers, NCUA Legal Opinion Explains

ALEXANDRIA, Va. – NCUA legal opinion letter 04-0713, in response to a request for clarification from the Nebraska Credit Union League, explained that the phrase “empowered to grant” with regard to loans in particular applies to the type of loan, not whether the borrower is a member. “Empowered to grant,” as used in the RegFlex, eligible obligations, and loan participation regulations, does not preclude credit unions from purchasing or participating in loans to nonmembers. The phrase simply refers to the types of loans credit unions are authorized to make under the Federal Credit Union Act, NCUA regulations, FCU Bylaws, and the institution’s own internal policies. This is supported by regulatory history and language, according to NCUA Associate General Counsel Sheila Albin. For example, the loan participation rule states, “A participant Federal credit union that is not an originating lender shall: (1) participate only in loans it is empowered to grant .[and] (2) participate in participation loans only if made to its own members or members of another participating credit union.” In fact-under RegFlex, which allows qualifying credit unions to purchase certain loans from federally insured credit unions as long as they are “empowered to grant” them-a membership limitation “would all but eliminate the benefit and flexibility the section is intended to provide.” Albin did point out in the letter that “an FCU’s lack of written policies or limitations in its written policies regarding certain activities can be a source of self-imposed limitations on the kind of loans it is empowered to grant.”