WASHINGTON—NAFCU is urging NCUA to eliminate a requirement that a federally-insured credit union’s internal written loan participation policies must establish a limit on the amount of aggregate loan participations that may be purchased by a single borrower, or group of associated borrowers, not to exceed 15% of the FICU’s net worth.
This “burdensome” rule “ignores meaningful differences among individual FICUs and imperils rather than supports the most modest FICUs – those FICUs the NCUA routinely recognizes face an uphill battle for survival,” wrote Vice President of Regulatory Affairs Ann Kossachev in a letter to the agency.
Citing field of membership requirements and the ongoing impact of the pandemic, Kossachev said that many FICUs have turned to loan participation agreements to smooth out transient imbalances between deposit-taking and lending activities and to reduce risks to themselves as well as risks to the National Credit Union Share Insurance Fund.
Relief Claim May be ‘Misleading’
The NCUA’s Temporary Regulatory Relief in Response to COVID-19 interim final rule, issued in April 2020, temporarily raised the maximum aggregate amount of loan participations a FICU could purchase from one originating lender from $5 million or 100% of the FICU’s net worth to $5 million or 200% of the FICU’s net worth, NAFCU noted. But the trade group also suggested that for smaller FICUs that face the greatest risks, this regulatory relief may have been misleading.
“These FICUs remain effectively prohibited from acquiring any loan participation interests because other prescriptive loan participation thresholds, including §701.22(b)(5)(iv), remain in force and loan participation agreement transaction costs are substantial,” wrote Kossachev.
Additional Argument Made
NAFCU argued that because loan participation agreements have high fixed costs and relatively low variable costs, individual loan participation interests tend to represent significant capital commitments which are out of reach for smaller credit unions under the present 15% of net worth limitation.
“Not only would other clear and meaningful investment thresholds remain in force, but the NCUA’s eliminating [the regulation] would do nothing to weaken regulatory requirements related to loan participation agreement sufficiency or FICUs’ underwriting standards,” Kossachev added.