Tuesday, January 31, 2017

Anti-MBL Cap Evasion

The National Credit Union Administration (NCUA) does not count non-member business loans and non-member business participation interest against the aggregate member business loan (MBL) cap of 12.25 percent of assets.

According to an NCUA spokesperson, 946 federally-insured credit unions, or about 16 percent of the industry, reported holding non-member business loans or participation interest on their books as of September 30, 2016. These credit unions hold an aggregate outstanding amount of these loans of slightly below $7.5 billion at the end of the third quarter of 2016.

In addition, there are 381 low-income designated federally-insured credit unions with non-member business loans or participation interest on their books as of the third quarter of 2016 – this represents almost 16 percent of all low-income designated credit unions. In total, these credit unions held $2.26 billion in non-member business loans or participation interest.

Low-income designated credit unions are exempt from the MBL cap.

However, the agency has stated that credit unions cannot trade or swap non-member business loans to evade the MBL cap.

In its response to the Independent Community Bankers of America complaint, NCUA stated that under its 2003 MBL Regulation the approval of the Regional Director was required for any transaction that would cause the total of purchased non-member business loans and non-member participation interests, when added to the credit union’s member business loans, to exceed the statutory cap. As part of the waiver application, the credit union would have to “attest that the purchase is not being used, in conjunction with one or more other credit unions, in a manner that has the effect of trading [member business loans] that would otherwise exceed the aggregate limit.”

In other words, the credit union had to give its word that it was not engaged in swapping business loans for the purpose to circumvent the MBL cap.

In its 2016 revision to its MBL rule, NCUA abolished the requirement of getting the pre-approval of the Regional Director, where the total of purchased non-member business loans and non-member participation interests, when added to the credit union’s member business loans, exceeds the statutory cap.

This leaves some unanswered questions.

How many credit unions have been granted a waiver to exceed the MBL cap?

How does NCUA examine credit unions to determine if credit unions are trading or swapping business loans to evade the aggregate MBL cap?

Has NCUA cited any credit unions for demonstrating a pattern or practice of evading the MBL cap?




No comments:

Post a Comment

 

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.