WASHINGTON—Recommendations for improving NCUA proposed financial innovation rule have been included a letter to the agency by NAFCU, while CUNA is calling on the agency to do more to clarify its proposed rule on loan participations.
The financial innovation proposal seeks to amend the agency’s loan participation and eligible obligation regulations by offering flexibility for federally-insured credit unions to engage in indirect lending arrangements with fintechs and other third parties.
In the letter, Regulatory Affairs Counsel Dale Baker said NAFCU is requesting the agency not “undermine the flexibility and autonomy it intends to provide credit unions by prescriptively defining or otherwise limiting key aspects of loan participation and eligible obligation activities.”
Additional Recommendations
Other recommendations made in the letter include:
- Not creating a separate indirect lending rule and follow a principles-based approach
- Maintaining intended flexibility by not defining some broad terms within the proposal’s language
- Not requiring that credit unions engaged in indirect lending be actively involved or consulted at the time a facilitating partner extends credit to borrowers on the credit union’s behalf or limit the number of permissible facilitating partners.
Baker’s letter also requests the agency permanently adopt section 701.22(e)’s higher loan participation purchasing threshold, which expired after being issued and extended twice in response to COVID-19.
Clarify Loan Participation Rule, Says CUNA
Separately, CUNA has told NCUA it can do more to clarify its proposed rule on loan participations the rules, even as the trade group said it generally supports the plan..
The NCUA proposal would amend rules regarding the purchase of loan participations and the purchase, sale, and pledge of eligible obligations and other loans.
“We agree that by removing certain prescriptive limits and other qualifying conditions, and replacing them with risk-focused, principles-based requirements, this proposal will strike an appropriate balance between mitigating risk to the National Credit Union Share Insurance Fund, protecting credit union members, and fostering growth and stability in the credit union system,” the letter reads. “Further, the proposed changes should increase credit unions’ ability to engage in lending arrangements with other financial institutions and third parties, including fintech companies providing lending services, expanding their access to diverse loan origination channels, new markets and potential new services to their members.”
‘Extremely Valuable’
CUNA said NCUA’s shift away from prescriptive limitations is consistent with its previous requests, with the trade group adding that the changes would better help credit unions understand which rule applies to certain types of transactions.
"The ability to conduct transactions under these rules is extremely valuable to credit unions,” the letter reads. “Specifically, the ability to buy and sell loan participations is a very valuable tool for managing the balance sheet and addressing liquidity needs.”
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