Arrowhead Central CU Stops Making Member Business loans

An article in the Press Enterprise stated that Arrowhead Central Credit Union, which was placed into conservatorship on June 25, has stopped making business loans, according to the National Credit Union Administration.

NCUA spokesperson John McKechnie stated that "[w]hile Arrowhead is in conservatorship, NCUA has determined this line of business is not in the best interest of members and does not make sense for the credit union."

But this decision to suspend originating business loans should not come as a surprise. According to Federal Credit Union Act, an insured credit union that is undercapitalized may not increase the total amount of member business loans outstanding until such time as the credit union becomes adequately capitalized. As of March, Arrowhead was undercapitalized.

Furthermore, the decision to stop making business loans is necessary to bring the credit union back into compliance with the aggregate member business loan limit of 1.75 times the credit union's net worth. Arrowhead had $29.4 million in net worth. This means that the maximum amount of outstanding member business loans at Arrowhead would be approximately $51.5 million. However, the credit union reported $83.3 million in outstanding member business loans.