Credit union will no longer have to get personal guarantees on certain types of member business loans, now that the National Credit Union Administration (NCUA) has implemented the first part of its new MBL rule.
At its February 2016 meeting, the NCUA board had unanimously approved a "modernized" MBL rule to give credit unions "greater flexibility and autonomy" to offer such loans in a "safe and sound" manner. As part of that rule, the personal guarantee waiver requirement was removed effective on May 13.
"As part of NCUA's effort to move from prescriptive to principle-based regulation, we wanted a rule that put business decisions like this one in the hands of credit unions," NCUA's recently appointed board chairman Rick Metsger said in a statement. "This way, credit unions can develop member business loan programs to better meet their members' needs and their own strategic goals. Credit unions still need to have the people, procedures and policies in place to ensure continued safety and soundness, but they now have greater latitude to make decisions about how best to do that."
However, the regulator cautioned that it still considers a personal guarantee from those with a controlling interest in the borrower an "appropriate" risk-management practice. As such, under the final rule, a credit union that elects not to require a personal guarantee for a MBL still must include documentation of mitigating factors that sufficiently offset the relevant risk in the loan file.
NCUA added that waiving the personal guarantee requirement may be "appropriate" for financially strong credit unions that have "appropriate" risk assessment and management processes in place.
NCUA added that most of the other provisions of the MBL will take effect Jan. 1, 2017.
