Banks Score a Partial Victory with Credit Unions
Banks won a partial victory this week against the credit unions when the National Credit Union Administration issued its final rules on business lending.
The NCUA originally proposed that a credit union could exceed the federal cap on business lending by buying loans and loan participations from third parties. ICBA vigorously objected to the proposed rules as circumventing the Credit Union Membership Access Act of 1998, which caps a credit union's commercial loan portfolio at 12.25% of assets. Even the Treasury Department took the unusual step of criticizing one of its fellow agencies by saying that the proposal would undermine congressional intent and eliminate "key safeguards that effectively limited the credit risks associated with [business] loans."
Under the final rules, credit unions must ask the NCUA for approval prior to purchasing nonmember loans and loan participations that exceed the member business loan cap. Although the approval process may not ultimately plug the loophole, the final rules are better than the proposed rules, which allowed credit unions to exceed the cap without any regulatory approval. The final rules, however, do expand credit union lending opportunities in other ways by allowing well-capitalized credit unions to make business loans without personal guarantees and permitting 100% financing of loans secured by trucks, tractors and other heavy vehicles.