FREDERICK, Md.-Small and mid-size CUs are being urged to pay attention to new rules related to loan participations.
Jane Pannier, SVP and in-house counsel at NeighborBench LLC, noted that "larger CUs are more frequently the sellers of participation interest, but lots of times it's mid-size to smaller credit unions purchasing participations, because they need to diversify or because they only do consumer loans, and there's been fairly flat demand there," said Pannier. "The loan participation rule is something they're going to have to pay attention to, because it now incorporates specific concentration risk. In the past they may have purchased participation loans from one party, but because of these limits they may have to seek out other parties."
Pannier reminded, too, that regulatory agencies of all stripes have also put an enhanced focus on fair lending.
"My sense is that agencies are getting increased pressure from above to do more in this area," she said, adding that much of that may be related to increased mortgage fraud in recent years. "We're seeing the CFPB looking closely at indirect lending and auto dealers, so there's a much greater focus now on making sure consumers are getting equal opportunities and protections. I think we're going to see a continued increase on fair lending requirements at credit unions, and that could involve a credit union of any size."
Importance Of Policies
Pannier stressed the importance of clear internal policies on lending. "Sometimes, specifically with smaller credit unions, I'll see a tendency to borrow policies from larger credit unions," she said. "They need to make sure they're specific to their field of membership and their internal operations. Make sure they have good procedures in place to make sure every member gets the same level of review, the same level of assistance. To the degree that they can, have someone with an objective perspective come in and look at their marketing and advertising materials, pricing decisions, underwriting policies. That's ideal if they can have that."
Pannier added that consistency is key when it comes to staying in compliance with fair lending regulations, and reminded CUs that all records should contain well-documented files as to why loans are approved or denied, and what factors those decisions were based on.
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