Compliance Blog

Written by Alicia Nealon, Director of Regulatory Affairs

Welcome back to the second installment of our series of posts where NAFCU’s Compliance Blog will break down different portions of NCUA’s MBL proposal and highlight the key issues that we are looking for your feedback on.  Last week, we discussed the scope of the proposal and NCUA’s new definition of “commercial loan.”  Today, we are going to address the scope and applicability of NCUA’s proposed exemption for small credit unions from this rulemaking. 

Extending commercial loans, as detailed in last week’s blog post, would trigger the proposal’s safety and soundness risk management provisions, which would require a credit union to develop a full commercial lending, board-approved policy, and organizational infrastructure.  The proposal, however, would exempt a credit union from these risk management policy and infrastructure requirements if the credit union has BOTH:

1. Assets less than $250 million; and
2. Total commercial loans less than 15% of net worth.

To qualify for the exemption, a credit union must also not regularly originate, sell or participate out commercial loans.  

It is important to note that even if a credit union qualifies for this exemption, it would still need to have a board-approved policy covering is general lending activity, as mandated by Section 701.21.  The proposed exemption would merely allow qualifying credit unions to make sure their existing loan policy provides for the types of commercial loans granted, rather than having to develop a full commercial loan policy and commercial lending infrastructure.

In developing this exemption, the NCUA Board explains that it wants to “avoid inclu[ding] credit unions that infrequently originate minimal amounts of loans that technically meet the proposed commercial loan definition, or that infrequently reduce their risk profile by selling or participating part of their loan portfolio.” See 80 FR 37898, 37900 (July 1, 2015). 

What does everyone think?

Does this exemption capture the credit union that deserve relief from the proposed risk management policies and infrastructure requirement? Should the exemption be asset-driven? If so, do you think that the asset size of $250 million is appropriate? If not, what would be a more appropriate measure? Perhaps the exemption should only consider a credit union’s commercial lending portfolio, rather than its asset size? 

As you consider these questions, be sure to take a look at NAFCU’s Regulatory Alert 15-EA-16, our Member Business Lending Issue Page, or reach out to me directly (anealon@nafcu.org, 703-842-2266) with your thoughts.