ALEXANDRIA, Va.—It isn’t just credit unions providing response to NCUA on its member business lending proposal.
The nation’s bankers are citing regulatory overreach and taking “member out of MBL” in numerous letters strongly opposing the agency’s proposal.
The letters from community bankers dominate the feedback as of July 10, consistently arguing that the proposed changes are far too lenient and asserting that credit unions lack the expertise to increase their business loan portfolios, which they state the proposal allows CUs to do.
The comment deadline is August 31.
Community banker Tiffany Brinkert from Michigan, via a form letter sent in by a large number of her small bank counterparts, expressed her “unequivocal objection” to the agency’s “unprecedented proposal to comprehensively rewrite the rule governing credit union member business lending.”
Like others, she alleges NCUA’s rule runs counter to language in the Federal Credit Union Act.
“The Federal Credit Union Act's statutory calculation clearly and unambiguously sets the member business lending (MBL) cap at 12.25 percent of assets. However, the NCUA MBL proposal, together with their proposal to apply risk based capital standards under Basel III to credit unions, could be used to circumvent the 12.25 percent MBL cap, raising it to 17.5 percent of assets or even higher for certain credit unions,” she wrote. “This proposal simply cannot be squared with the plain language of the Act.”
According to Brinkert, the current MBL cap reflects “the will of Congress that credit unions serve persons of modest means ‘through an emphasis on consumer rather than business loans.’ The legislative history also states that the MBL cap is intended to limit the risk of taxpayer losses as a result of ‘large commercial loans’ by credit unions.”
Brinkert also insisted that the proposed rule takes "member" out of member business loans.
“Under the current rule, the borrower – a credit union member – must personally guarantee a member business loan. This is what makes a loan a member business loan. Nevertheless, the proposal would remove the member guarantee requirement. A member business loan would become an ordinary business loan – a radical departure from the credit union lending model clearly not intended by the Federal Credit Union Act.”
Michael Zahn, CEO at First Federal Savings Bank in Huntington, Ind., asserts the proposal creates a safety and soundness risk and represents regulatory overreach by the NCUA.
He questions the agency’s ability to supervise CUs with expanded business loan portfolios, as well as CUs’ ability to make more of them.
“Since 2010, at least five credit unions have failed due to poorly run business loan programs, accounting for a quarter of all losses to the insurance fund,” he wrote. “Higher CAMEL ratings for nearly half of the credit unions were attributed to member business loans. The level of delinquent member business loans dramatically rose from 2006 to 2010. Member business loan delinquency levels in 2010 reached 4.29% compared to total loan delinquency of 1.74%. This is a clear indication credit unions and the NCUA were ill-prepared for the additional responsibilities and risks associated with commercial lending.”
Zahn also alleged the rule runs counter to the direction of Washington.
“In 1998, Congress made it very clear that credit unions should be focused on consumer lending, not commercial lending. Congress stated, ‘to ensure credit unions continue to fulfill their specified mission of meeting the credit and savings needs of consumer, especially persons of modest means, through an emphasis on consumers rather than business loans.’ By proposing this rule, the NCUA Board has blatantly disregarded Congressional intent.”
From Kerrville, Texas, Kenneth Early, CEO of Kerrville’s Bank, wrote that NCUA effort at “relaxing” MBL rules for CUs could take a toll on the NCUSIF.
“Losses could quickly multiply under this proposed rule. In addition, relaxing the regulatory standards is contrary to NCUA’s charge of protecting the industry’s insurance fund, and effectively places the taxpayer at risk,” wrote Early. “NCUA is willfully ignoring lessons from their history and encouraging credit unions to divert funds from consumer lending to commercial lending. Consider expanding on the impact of allowing an ill-prepared lender into a new market and what could occur in an economic downturn if these loans are not properly underwritten, especially given the rule’s liberal allowance of loan participations could cause bad loans to be syndicated broadly.”