NCUA is expected to propose several amendments later this month to its member business loan (MBL) rules aimed at encouraging more business lending by credit unions.
NCUA board member JoAnn Johnson, who has been heading an agency task force studying the issue, told attendees to CUNA's GAC last week the NCUA board is expected to issue for a 60-day comment several proposals aimed at easing restrictions on business lending. Those proposals would ease the restrictions posed by the 12.25% (of assets) ceiling on member business loans set by Congress as part of HR 1151, the CU Membership Access Act.
NCUA Chairman Dennis Dollar said the MBL cap is still a major concern for credit unions, despite the fact that some that heavily participate in business lending have been able to obtain waivers from the ceiling. That's because many credit unions contemplating either creating new MBL programs or expanding existing ones see the cap as a potential roadblock, especially when they are considering investing significant funds in the program.
The proposals will include excluding acquired business loan participation interests from the MBL cap and clarifying that loans sold without recourse will not count as a member business loan.
The measures would also exempt MBL vehicle loans from the 80% loan-to-value ratio requirement, thereby allowing 100% financing; as is allowed on all other vehicle loans.
Johnson would also extend the prompt corrective action (PCA) risk-based net worth component on MBLs.
Johnson's announcement comes on the heels of last week's ruling making all credit unions eligible to participate in the U.S. Small Business Administration's guaranteed loan program, and as credit unions are gearing up to expand their business lending.
Member business lending, though still a miniscule 2% of total credit union lending, soared by 26% last year to $6.6 billion as more credit unions sought entry into the market. The average MBL remains around $90,000, according to CUNA.
Updating NCUA's MBL rules, said Johnson, will allow credit unions to expand their opportunities to support small businesses, a goal of the Bush administration. "President Bush is committed to creating an environment where small businesses can flourish," she said. "Credit unions are a perfect ally to assist small businesses with their financing and deposit service needs. With a focus on a members' small business lending, credit unions can play a pivotal role in helping to reinvigorate the U.S. economy."
The proposals are scheduled to be considered at the NCUA board's meeting on March 27.