The 2016 NCUA final rule on Member Business Lending recently took full effect. It is the largest change to the commercial lending rules the credit union industry has seen in several years. The rule change modernizes NCUA’s member business lending regulations and will allow credit unions to expand their commercial lending efforts.
The most fundamental change is a shift from the old prescriptive approach to a more flexible principal- based approach.For example, when it comes to collateral, the regulations no longer impose specific maximum LTV ratios or require the personal guaranty of a business principal. Instead, the regulations require that a credit union must adopt policies and procedures that require collateral sufficient to ensure adequate loan balance protection together with appropriate risk-sharing with the borrower and the business principal(s), which may be in the form of a personal guaranty. Some of the other changes include: exemptions for smaller credit unions (less than $250 million in assets) with limited commercial loan exposure from some of the more labor-intensive requirements of the new regulations; changes to the aggregate lending limit rules; and the elimination of previously required waivers.
How the Rule Change Impacts Your Credit Union
So what does this mean for your credit union? The new rules allow the potential for increased commercial lending growth. Industry leaders are cautiously optimistic. Dan Sumner, president and CEO of the consulting firm DFTC sums up the mood when he says, “Be as open-minded as possible, but don’t take this lightly. NCUA will hold our feet to the fire regarding the business loans we do, and we’ll have to understand the rules very well.” He also admitted to having butterflies in his stomach when the rule change was announced.
This kind of optimistic enthusiasm is spreading throughout the industry landscape as credit unions prepare themselves for growth. Other changes will come as a result, too. Of course, as regulations change, your forms must follow suit. Are your forms in need of a compliance update? If you are unsure, Oak Tree can help. We have been serving credit unions for more than 3 decades, recognized as one of the leading forms providers in the industry. We will make sure your forms are up to date and compliant with all state and federal regulations, allowing you to focus on keeping pace with the industry at large. Contacting us is a sound investment in your credit union’s future. We look forward to serving you.