Tuesday, August 21, 2012

CUNA's Outlandish Business Loan Recommendations

The Credit Union National Association (CUNA) made some outlandish member business loan (MBL) recommendations in an August 3 letter to the National Credit Union Administration (NCUA).

First, CUNA requested:
"All the regulatory requirements for MBLs that are not specifically stated in the FCU Act, such as the requirement for the personal guarantee of the borrower(s), loan-to-value ratios, construction and development loan limits, appraisal requirements, and others should be eliminated for well-managed, well-capitalized credit unions that operate successful MBL programs."
CUNA proposed that NCUA should "let well-run, well-capitalized credit unions determine what those limits and ratios should be, consistent with agency guidance and reasonable industry standards."

In other words, CUNA wants NCUA to re-establish its regulatory flexibility program, which the agency recently abolished.

Moreover, credit unions were probably well-served by these limits. For example, loan limits on construction and development loans probably insulated the National Credit Union Share Insurance Fund from severe losses by keeping credit unions from becoming over-exposed to construction and land development loans, which had high default rates after the collapse of the real estate bubble.

In addition, CUNA urged NCUA to revisit the history of primarily making business loan exemption. In 1998, Congress exempted credit unions that had a history of primarily making member business loans from the aggregate member business loan cap.

CUNA claims that NCUA should use a more contemporaneous time period for determining whether a credit union has a history of primarily making business loans. If MBLs are currently among the highest of a credit union's loan categories, then CUNA reasons that the credit union has a history of making business loans.

However, this provision was meant to grandfather those credit unions that had a history of primarily making member business loans from the aggregate business loan cap, when the Credit Union Membership Access Act became law in 1998. Once the aggregate MBL cap became effective, a non-exempt credit union should never make enough MBLs so as be engaged in primarily making member business loans.


  1. Please look at the Federal Credit Union Act. There is no form of the verb "to be" before the word "chartered" in the exemption from MBLs. In fact, the NCUA in 1999 made it easier for FCUs to be "chartered" for the purpose of making MBLs when it changed the bylaws. Good thing that NCUA is revisiting a good decision made by Norm D'Amours (a paid banking consultant) when he was NCUA Chair.

  2. Anonymous. If its so obvious that credit unions should get access to capital and more small biz lending, then how come Cuna has been so ineffective?
    Maybe politicians are telling us, sure you can have all that.
    Just pay taxes!!!
    10 years of trying and no change.
    Either Cuna is the worst lobbyist in dc or we got no more love coming without paying taxes.
    Get it?

    1. Your response looks very much like the one to my comment a couple of weeks ago regarding NCUA supervisory actions(the "get it" and "der" were dead giveaways.) Whenever you want to have a rational debate on any subject, I'm guessing you know where to find me.

  3. My thoughts are full taxes, full banking powers. Full ability to get out of federal corporate taxes with Sub S ability. Then play the game on a totally equal playing field and let the best win.

    1. Unfortunately, there will never be an equal playing field because NCUA's regulations are significantly more restricted as to running the business than the other banking regulators. I also don't know how Sub S can be utilized with a credit union's organizational structure. I guess that's why we pay lawyers.

    2. Mr. Green: Then a mutually-owned bank or similar structure would then be created. Credit unions would be under the OCC/FDIC regulatory scheme just like all banks are today. NCUA would be gone and the NCUSIF would be refunded to the credit unions.



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