ALEXANDRIA, Va. — On Feb. 8, NCUA clarified the member business loan two-year rule in a recent legal opinion letter (08-0128).

Stating that credit unions may use an outside underwriter or one of their own employees, NCUA was succinct in its guidance that if a credit union were to use its own employee, the credit union's employee must have two years of direct experience in member business lending.

According to NCUA, “the experience must provide the credit union sufficient expertise given the complexity and risk exposure of the loans in which the credit union intends to engage. Credit unions do not have to hire staff to meet the requirements of this section but must ensure that the expertise is available. A credit union can meet the experience requirement through various approaches. For example, a credit union can use the services of a credit union service organization.”

For example, NCUA pointed out, “an individual with experience solely in taxi cab loans does not have the requisite experience necessary to underwrite a loan to the taxi company for a gas station, because the individual will be unfamiliar with related issues that may impact the loan, such as environmental laws applicable to underground storage tanks.”

The same analogy applies to member business lending, NCUA said.

These individuals must be familiar with the proper underwriting, analysis, and origination of loans of a particular type in order to understand their complexity and risk exposure.

NCUA further explained that employees need not have had member business lending experience at the time of hiring, but could gain it during the tenure of their career. The ultimate decision to make a loan will always reside with the credit union, NCUA reiterated.

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