Removing Barriers Blog

Community Bankers Sue NCUA over New MBL Rule
Posted September 09, 2016 by CUNA Advocacy

The Independent Community Bankers of America (ICBA) filed a lawsuit on Wednesday against the NCUA over its revised member business lending (MBL) rule that was finalized in February.  The lawsuit, ICBA v. NCUA, was filed in the U.S. District Court of the Eastern District of Virginia. 

ICBA’s main contention is that NCUA violated the MBL restriction in the Federal Credit Union Act (FCUA) by allowing all credit unions to exceed the statutory 1.75 times actual net worth limitations on MBLs.  ICBA contends that NCUA did this by allowing credit unions to exclude nonmember loan participations from aggregate MBL calculations.   

The FCUA actually does not require NCUA to categorize loan participations as MBLs, and NCUA’s MBL rule has not required this since the final 2003 MBL rule. The 2003 rule did require credit unions to obtain a waiver from NCUA if the sum of MBLs and loan participations exceeded the MBL cap. Therefore, the 2016 rule reduces regulatory burden by eliminating this and all other waiver requirements, meaning that loan participations no longer need to be aggregated with MBLs to obtain a waiver.   

Ultimately, ICBA believes that the elimination of the waiver requirement makes it easier for credit unions to do loan participations and MBLs—which of course is the whole point of this rulemaking.  

To put it another way: under the old rule, credit unions were required to aggregate loan participations with MBLs for MBL cap calculation purposes, but could exceed the cap if they obtained a waiver.  It was legal for NCUA to allow credit unions to exceed the cap with this calculation because it was not a true MBL cap calculation because it contained loan participations, which are not statutorily required to be include in a cap calculation.   

The new MBL rule eliminates waiver requirements, so credit unions do not need to ask for permission to exceed the regulatory limit ( the pre-2016 MBL cap).  As has been the case since Congress placed limits on credit union MBLs, credit unions will not be allowed to exceed the MBL cap as comprised of statutory MBLs.  

Ultimately, this lawsuit lacks merit, and is merely a self-serving publicity stunt to distract community bankers from the real issues that should be concerning them, namely the encroachment by large banks into the business of small banks and their resulting loss of market share.

We are confident that the 2016 MBL rule is consistent with the law, which still includes significant constraints on credit union member business lending.  We also believe that NCUA acted appropriately and followed all procedures when issuing the MBL rule, and that the rule falls well within NCUA's statutory authority to interpret the application of the MBL cap.  

We are exploring legal options to support the new MBL regulation and will continue to advocate for credit union regulatory relief.