WASHINGTON—NCUA is being urged to amend the definition of commercial loan and raise the current threshold for net aggregate business loans excluded from the definition of a commercial loan to $250,000 from its current threshold of $50,000.
In a letter to the agency, NAFCU Vice President of Regulatory Affairs Ann Petros said NCUA has the statutory authority to make these changes since the definition of a commercial loan is not in the Federal Credit Union (FCU) Act, but rather a product of the 2016 Member Business Loan (MBL) rule.
“Although the FCU Act defines MBLs, it does not define commercial loans, nor does it mandate prescriptive safety and soundness standards for FCU business loans,” wrote Petros.
NAFCU argued rising inflation has hiked up the cost of most goods and a $50,000 threshold is extremely low and disproportionate to require stringent underwriting. On top of these concerns, the negative impact of the pandemic on commercial credit access remains, with business loan approval percentage “still roughly half of what they were before COVID,” NAFCU said.
‘Burdensome’ Regs
The letter further told the agency underwriting requirements for commercial loans are “burdensome” and often pose difficulties for smaller credit unions who must employ “specialized staff to originate even relatively small, low-risk business loans.”
Petros suggested such underwriting standards create an “unfair competitive disadvantage” between credit unions and underregulated fintechs.
“Although NAFCU is pleased to see more small businesses have access to credit, there is cause for serious concern when underregulated, fraud-prone fintechs are more easily able to originate business loans than highly regulated and supervised community financial institutions such as FCUs,” wrote Petros.
‘Tangible Positive Outcomes’
Changes to the definition of commercial loan and current threshold would have “have tangible positive outcomes for both FCUs and small business borrowers…[and] would increase loan availability, reduce burdens on borrowers, and make it easier for FCUs to make these loans,” concluded Petros.
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