Over the past several years, confusion has grown concerning acceptable and proper methods and techniques for credit union member business loan classification and risk ratings. This dilemma surprises no one as the credit union industry has not established a uniform system for business loan classification and risk ratings.

The Federal Financial Institutions Examination Council adopted a uniform regulatory classification schematic of loss, doubtful, substandard or special mention.

The NCUA opted-out of the FFIEC uniform regulatory classification definitions and does not require credit unions to adopt a uniform regulatory classification schematic of loss, doubtful, substandard or special mention. Rather, the NCUA requires a credit union to apply an internal loan grade based on its evaluation of credit risk. The term "classify" within the credit union industry has typically meant "individually review to apply a percentage reserve" for allowance for loan and lease losses purposes.