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CUNA Suggests Enhancements To Loan Participation Rule
WASHINGTON (7/15/13)--The Credit Union National Association in a letter Friday commended "the substantial improvements" that were made to the National Credit Union Administration's loan participation rule, but urged the agency to give credit unions latitude as they comply with the rule changes. The rule goes into effect Sept. 23.
CUNA President/CEO Bill Cheney also urged the agency to make the waiver process for the rule's single-originator limit and limits to one borrower meaningful. Cheney, writing to NCUA Chairman Debbie Matz and board member Michael Fryzel, said, "A slow or ineffective process for credit unions seeking to exceed the 100% of net worth limit on loan participations from one originator, or the 15% of net worth ceiling for loan participations involving one borrower, will produce inappropriate results in particular credit union cases and will undermine the current consensus that the overall rule emerged with reasonable terms."
The final rule's limit on loans from one originator of 100% of a credit union's net worth was increased from a proposed 25% of net worth cap, an improvement urged by CUNA.
Cheney also noted, "As you know, we did not support the rule as originally proposed and were active in encouraging credit unions to provide comments. We appreciate the major revisions that were included in the final rule and the opportunity to provide input as part of the process."
He said the delayed effective date of Sept. 23, pushed back from July 25, will facilitate compliance, but added that "credit unions should be given reasonable latitude during their first examination after the rule takes effect if they are making good faith efforts to meet the rule's requirements." The CUNA letter also encouraged the NCUA to post examiner directives regarding this rule on its website and to ensure examiners are well-trained before the changes take effect.
The CUNA letter urged the NCUA to work closely with state regulators in shaping waiver procedures. Any waiver process changes must minimize procedural burdens and maximize positive outcomes, Cheney wrote.
The loan participation rule imposes federal restrictions on state institutions, and CUNA advised the agency that such a situation should not be a standard practice. The NCUA must be mindful of the rights and obligations of state regulators to establish standards for the credit unions they oversee under state law, Cheney said.
CUNA plans to work with credit unions and credit union service organizations (CUSOs) if they have issues with the final rule to discuss how their concerns can be addressed by the NCUA.
Some credit unions have told CUNA the changes made to the final rule "will allow their loan participation programs, in most cases, to remain an important element of their overall lending operations." They were concerned that would not have been the case under the proposal, he noted.
CUSO representatives also said the loan participation rule "will preserve, in most cases, their ability to work with their members to support credit unions' use of loan participations, both as loan originators and participation purchasers," Cheney told the regulators.


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