NCUA: FICUs May Buy Participation in Loan Generated through Indirect Lending Channels

The National Credit Union Administration (NCUA) in a legal opinion letter to the Georgia Credit Union Affiliates stated that a federally insured credit union (FICU) is permitted to purchase a participation in a loan generated by an indirect lending arrangement under limited circumstances.

According to NCUA, an expansive reading of its rule would treat a retailer as performing an administrative function, which is an extension of the FICU's or eligible organization's lending operations, and not as a separate lender generating the loan.

NCUA cautioned that in an indirect lending arrangement the final underwriting decision must reside with the FICU or eligible organization and the retailer must assign the loan or sales contract to a FICU or eligible organization very soon after it is signed by the borrower.

It is NCUA's view that the longer the time period between the formation of the contract and its assignment, the greater the likelihood that the arrangement will be treated as a purchase of a third party loan instead of making a loan through an indirect channel.

Read the legal opinion letter.