Vystar CU on MBL Personal Guarantees

Under NCUA's regulations, a credit union making a business loan is required to obtain the personal liability and guarantee of the borrower’s principals as part of the rule’s collateral and security requirements. However, a federal credit union that qualified for NCUA's Regulatory Flexibility (RegFlex) program was exempted from this requirement.

However, during the October 21 NCUA Board meeting, the NCUA Board by a 2 to 1 vote rescinded this exemption for qualified federal credit unions along with other exemptions associated with the agency's RegFlex program.

While most credit unions argued for the continuation of the exemption for RegFlex credit unions citing competitive disadvantages, Vystar Credit Union argued that all credit unions that engage in business lending should be required to obtain these personal liability and guarantees.

Esther Schultz, Chairman of the Board of Vystar Credit Union, wrote:

"Our comment is on the changes related to Member Business Lending and requiring a credit union to obtain a personal liability and guarantee of the borrower's principals as part of the rule's collateral and security requirements. As a state chartered credit union we make Member Business Loans and have consistently adhered to the requirement to obtain these personal liability and guarantees. During this challenging economic time, we have found tremendous value in exercising such guarantees and strongly believe that they are critical to making a prudent Member Business Loan decision. Such guarantees have also enhanced our collection abilities in multiple situations, thereby helping to prevent losses to the credit union. Also, when borrowers have balked at agreeing to such requirements, we consider that to be a red flag indicating that additional due diligence is necessary before a loan decision is made."

Esther Schultz goes on to write saying that NCUA needs strength its rules associated with member business loans because of the risk business loans pose to the credit union insurance fund and credit unions.

"We have been making Member Business Loans for a number of years and we believe making them is important for the credit union industry. We also believe that it is important that credit unions engaged in Member Business Lending obtain the expertise to make such loans and service them properly. Each loan decision is unique in its own way and must be carefully evaluated, monitored and serviced after origination. The longer we make Member Business Loans the more we learn about how to improve our related risk management. Otherwise, it is a risk to the National Credit Union Share Insurance Fund and to all credit unions. We encourage NCUA to continue its efforts to strengthen its governance of Member Business Lending to ensure those credit unions doing so are not placing all credit unions at risk. We remain concerned that some credit unions are engaging in Member Business Lending without obtaining proper expertise to underwrite and service such portfolios."

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