You Need To Read This

December 2, 2016 at 9:25 am Leave a comment

required-readingYesterday NCUA released an updated examiner’s guide on including, among other things, new guidance on member business loans and commercial lending regulations scheduled to take effect in January unless they are blocked by the courts.

I hate when people tell me what to read on my free time, but today I am going to be one of those people. If you do MBL/Commercial Loans or are considering them in the future, you should put some time aside to go over this material. Besides, the Giants game doesn’t start till 4:30 p.m., the Jets aren’t worth watching, and the Patriots don’t have a chance of winning anything beyond the AFC East now that their beloved “Gronk “ is out for the season.

Let’s take a trip down memory lane to March of this year: NCUA signed off on a radical redesign of MBL/commercial lending regulations. Specifically, it shifted from a regulatory framework heavy on specific requirements and potential waivers, and replaced it with a more general principles based approach to regulations. For example, whereas regulations currently require credit union MBL programs to be overseen by a person with at least two years of commercial lending experience, the new regulations require them to hire qualified lending personnel.

But this new approach should not be misconstrued as the equivalent of mom and dad leaving the keys to the car, telling the kids not to get into any trouble, and going away for the weekend. Regulations are replaced with requirements for detailed policies and procedures. In the preamble to the final rule, NCUA explains that it remains committed to “vigorous and prudential supervision of credit union commercial lending activities” and that “responsible risk management and due diligence remain crucial to safe and sound commercial lending. “

While I am very supportive of this new approach in concept, in practice, just as less specific regulations give credit unions greater flexibility, they also give examiners greater flexibility to manage aspects of programs with which they disagree or are uncomfortable. That is why the examination guide is so important; it provides the first glimpse of what the new examination parameters are going to be.

The guide also provides a helpful primer between the distinction of member business loans- which are counted against the aggregate MBL cap-and commercial loans, which are not.

Finally, remember that the final regulation also contains important mandate relief. Credit unions with less than $250 million in assets that fall below certain thresholds are not subject to more extensive board management and oversight responsibilities, or the requirement to develop extensive commercial lending policies.


Entry filed under: Compliance, Regulatory. Tags: .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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