ALEXNDRIA, Va. – Despite offering proof of repayment, NCUA recently concluded that loans made to a county's sheriff's office did not meet any of the exceptions under the definition of a member business loan. In a May 10 opinion letter, an unnamed credit union said it thought the loans met MBL requirements because they fell under the exception that the transactions involving a federal or state agency or its political subdivision will fully insure or fully guarantee repayment. The credit union referenced an opinion from the director of finance for the clerk of the court assuring that any debt of the sheriff's office will be honored by the county commissioners in the appropriations for that office. NCUA's view would preclude any loan to a government entity, with a term greater than one year, from ever qualifying for the MBL exception for a government guaranteed loan because loan payments would always be part of a government entity's year-to-year budget process, the credit union offered. “We do not question that a debt properly incurred by the Sheriff's Office will be part of the County Commissioners budget for that office,” wrote NCUA Associate General Counsel Sheila Albin. “Nevertheless, the fact that the loan payments are part of the County's budget is not the separate insurance or guarantee agreement by a government entity the exception requires.” Albin said the exception in the MBL definition for loans fully insured or guaranteed by a federal or state agency means there is a separate promise – apart from the loan with the borrower – by a government agency in the form of a guarantee or insurance agreement to repay the loan if the borrower defaults. The loan between the credit union and the sheriff's office does not have a separate promise to pay the obligation in full by a political subdivision with the authority to guarantee repayment, Albin wrote. “Accepting your premise would mean that any loan to a government entity is automatically excepted from the rule,” Albin said. “A department within an agency or political subdivision may be authorized by law to enter into contracts and expend money. When it receives a loan from a credit union, it is the principal borrower. Although the Finance Director confirmed the budgetary process for the Sheriff's Office, his letter is not an enforceable guarantee or insurance agreement.” Albin also said a loan to a government entity with a term longer than one year and subject to annual budgets can meet the government guarantee exception. In the credit union's case however, NCUA found that there is no separate government guarantee or insurance that provides for repayment but only a loan to the sheriff's office. The credit union's loans would qualify as an MBL's government guaranteed loan exception if the county provides a separate guarantee promising to pay the loan in full if the Sheriff's Office defaults on the loan, Albin said. “A county government is a political subdivision of a state that may fully guarantee or fully insure a loan as contemplated in the rule's government guarantee exception,” she said. “The conditions to the exception would be met if the appropriate body authorized to bind the County contracts to fully guarantee or fully insure the loan to the Sheriff's Office. In that event, your credit union would not be required to have an MBL program that complied with Part 723 of NCUA's rules.” [email protected]