Biggest Problem With MBLs? NCUA
Thanks so much for the issue on member business loans and credit unions. Mr. Uffman's "Views & Opinions" were great (CU Journal, March 25). The only problem with MBLs is NCUA. While I feel that credit unions need to serve small businesses, NCUA makes it a painful and restrictive process, usually clearing the way for a bank to close the transaction.
I am the treasurer of a small, unique credit union in Maryland and we have been making MBL's for 27 years, never losing a dollar on one of these loans. I say we are unique because we began as an association-sponsored credit union and have remained closely allied with our sponsor. This sponsor is a trade association representing small automotive aftermarket companies in Maryland, Delaware and DC. We know cars, the credit union knows its members through two different associational groups, and our members use delivery vans.
Since 1975, we have been lending money for vehicles to our small businesses and their owners. It has not been easy and increasing regulation and interpretation by NCUA has made it harder still. The NCUA has recently (Feb. 2002) issued an interpretation on what qualifies as a business loan and it is nothing short of anti-competitive. As you know, small credit unions may lend 12.25% of their assets in MBL's. For a credit union with $3 million in assets, that's not a lot of money. According to NCUA, once a loan is classified as an MBL it remains an MBL for the life of the loan, even when it is under the $50,000 threshold. At first glance, this may seem reasonable, but think about this: if you make a loan for a $40,000 tow truck and the owner pays it down to $3,000, then wants to make another loan for a panel van for $15,000, the new loan becomes a MBL.
Why? Because the NCUA has interpreted the regs to mean that you must aggregate the ORIGINAL balance of the 1st loan with the amount that you will be lending on the second loan. Thus, the two totals are over $50,000 and the new loan would be an MBL, even though: a)the second loan is substantially less than the first, which was not an MBL, and b) the outstanding balance of the first loan plus the new loan is less risk than the original amount of the first loan. So...the $15,000 new loan must be included in our 12.25% aggregate, reducing the number of loans we can make until we reach our limit.
Many of our members have borrowed the funds for their delivery and tow vehicles for years from this credit union but will be forced to look elsewhere when we hit out ceiling. I do not feel that this makes us competitive with the banking industry or a great help and financial partner to our small business members.
Thanks for the audience! I do feel that MBLs offer credit unions a very stable method to increase their loan portfolios...if only NCUA would allow us to serve our members.
Honey Eckardt, Treasurer
CAWA Federal Credit Union,
Saverna Park, Md.