CUNA Regulatory Comment Call


July 1, 2004

Proposed Member Business Loan Rule Revision to Enable CUs to Participate More Fully in SBA Loans

EXECUTIVE SUMMARY

  • The NCUA Board has issued a new member business loan (MBL) proposal. Last September, NCUA approved a number of changes to its MBL rule. During the comment period, CUNA and others encouraged NCUA to remove inconsistencies between NCUA's MBL rule and the Small Business Administration's (SBA's) requirements for its 7(a) loan program. At that time, NCUA felt such changes were outside the scope of its proposal. However, NCUA has now determined that it is appropriate to consider such changes as part of a new rulemaking procedure to amend the MBL regulation in order to facilitate participation in the SBA 7(a) program.

  • Under the new proposal, federally insured credit unions would be able to make SBA guaranteed loans under SBA's less restrictive lending requirements, rather than under NCUA's more restrictive MBL lending requirements.

  • The proposed rule complements NCUA's recent legal opinion on MBLs that states that loan maturity limits, usury ceiling and prepayment penalties are terms of SBA's lending programs for which federal credit unions may rely on SBA's rules, instead of on NCUA's MBL requirements. The opinion letter allows federal credit unions to provide more small businesses with working capital, furniture, machinery, land and buildings, and leasehold improvements. NCUA’s legal opinion letter can be found at the following Internet address:
    http://www.ncua.gov/Resources/RegulationsOpinionsLaws/OpinionLetters/2003_letters/03-0911withEnclosures.pdf

  • The supplementary language accompanying the proposal states, however, that while NCUA's proposed rule change would apply to federally insured credit unions that are covered by NCUA's MBL regulation, the legal opinion only applies to federal credit unions. "NCUA does not object to a FISCU [federally insured state chartered credit union] using the exception for governmental guaranteed loan programs in NCUA's general lending rule if its …(state regulator) has determined the FISCU has authority to do so under relevant state law," NCUA stated.

  • Under the proposal, the MBL rule’s collateral and security requirements would not apply to MBLs made as part of a SBA guaranteed loan program. (The MBL rule’s provisions on construction and development lending includes the requirements that the borrower must have a minimum of 25% equity interest in the project being financed and that the net member MBL balances for all construction and development loans must not exceed 15% of net worth; generally, the maximum loan-to-value ratio for all liens must not exceed 80%.) This exemption would allow federally insured credit unions to make construction and development loans under the safety and soundness standards established by SBA. The SBA’s general collateral policy requires guaranteed loans to be fully secured; with SBAExpress lenders are not required to take collateral for loans up to $25,000 and may use their existing collateral policy for loans over $25,000 up to $150,000. More information on the SBA 7(a) program is available on the CUNA website at at the following Internet address:
    http://www.cuna.org/compliance/member/eguide/eguide_sbaloans_resc.html

  • NCUA is aware that SBA guarantee programs generally place strict requirements on participating lenders to comply with program requirements or face losing the guarantee. Therefore, NCUA recommends that a credit union should ensure that it fully understands the terms of the SBA program and has procedures in place to assure its compliance with all program requirements prior to becoming an SBA participating lender.

  • Comments are due to NCUA by August 30, 2004. Please send your comments to CUNA by August 13, 2004. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004-2601. You may also contact us if you would like a copy of the proposal, or you may access it here

QUESTIONS REGARDING THE PROPOSAL

  1. Are there any other modifications that should be made to the MBL rule so that it is better aligned with the lending programs offered by the SBA?

    Yes ______ No ______

    If yes, what modifications should be made?











  2. Are there any other modifications (such as changing the loan-to-value definition) to the MBL rule that you think are particularly important to advocate NCUA to make?

    Yes ______ No ______

    If yes, which provisions of the MBL rule should be modified and how?











  3. The proposal states that although this rulemaking pertains only to SBA guaranteed loan programs, NCUA will consider other government programs as the need arises. Are there other government programs of which NCUA should be aware with regard to the MBL rule?

    Yes ______ No ______

    If yes, which government program(s)?











  4. Other comments?











      5. Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
      Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
      Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
      Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com
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