Compliance Blog

Posted by Anthony Demangone

Since NCUA issued its final rule to whittle down amend its RegFlex regulation, we've received quite a few questions concerning the soon-to-be-gone "principal guarantee" exception.  One of the more common questions is this: Assuming a business is owned by three principals, could we have each principal guarantee just one-third of the loan amount each?  

No, as explained in this legal opinion letter.   Each principal, as outlined in the regulation, would each guarantee the full amount of the loan. Here's a snippet of the opinion letter.

Who is a principal with respect to a limited liability partnership or a limited liability corporation, where the managing partner usually has a minority ownership position but has the authority to borrow and pledge assets?  You further ask whether the managing partner must guarantee the entire amount of the loan or just the managing partner’s pro rata share? 

Natural person partners having a majority ownership interest in a partnership must each guarantee the full amount of a loan to a partnership

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We now think it is more likely that NCUA's final rule on fiduciary duties will be addressed during the NCUA December board meeting.