Why Hasn't NCUA Toughened Its Regs for Low-Income CUs Exceeding the MBL Cap?

Slightly more than two years ago, the National Credit Union Administration (NCUA) through regulatory fiat streamlined the process for federally insured credit unions to receive a low-income designation. As a result, the number of low-income credit union have approximately doubled to 2100 and are no longer subject to the member business loan (MBL) cap of 12.25 percent of assets.

However, NCUA has not put in place regulations to ensure that these low-income designated credit unions with their authority to do unlimited business lending do so in a safe and sound manner.

But only a year earlier in 2011, NCUA sang a different tune when it testified before the Senate Banking Committee regarding a bill to allow qualified credit unions to exceed the MBL cap up to 27.5 percent of their assets.

In her oral statement, NCUA Chairman Debbie Matz stated that if legislation was enacted that would raise the MBL cap, "NCUA would promptly revise our regulations to ensure that additional capacity in the credit union system would not result in unintended safety and soundness concerns."

In response to a question from Senator Shelby (R - AL) about whether a credit union should have a high CAMEL rating before the credit union can exceed the business loan cap, Chairman Matz stated:

"I think that they should have -- particularly on the management, the "M" in CAMEL, I think that they should have a high CAMEL rating in order to go beyond the bottom tier."

Moreover, responding to a question for Senate Banking Committee Chairman Johnson (D - SD) about tiered approval process for credit unions to exceed the MBL, Chairman Matz stated that the agency would implement "regulations to ensure ... that the credit unions that go above the cap do so in a moderate way, that they crawl before they walk."

Unfortunately, talk is cheap. Actions speak louder than words.

You would think that if NCUA was contemplating these regulatory changes with regard to a bill raising the MBL cap to 27.5 percent of assets, the agency would do the same when it has exempted almost one-third of the credit union industry from the MBL cap through its low-income designation.