ALEXANDRIA, Va. – Credit unions are calling on NCUA to allow them to charge prepayment penalties on member business loans, a practice that currently is prohibited by NCUA.
Among those asking NCUA to allow prepayment penalties is CU Business Group, a Portland, Ore., CUSO that performs MBL services for almost 300 credit unions. “If a business member takes out a commercial real estate loan with no prepayment penalty, then refinances or pays off that loan a few months later, the credit union has not had sufficient time to earn interest and recoup the high costs of making the loan,” said Larry Middleman, president of CU Business, in a comment letter to NCUA. “The result is an economic hardship for the credit union strictly due to regulations.”
Jacob Cook, vice president for CASE CU, Lansing, Mich., noted that underwriting of business loans usually involves considerable time and expense. “However, if the borrower decides to refinance or prepay the loan within the first few years, the credit union typically will not have earned enough interest to generate a return on the costs they put into the underwriting,” he told NCUA.
“Charging a prepayment fee is typical for business loans,” said Cook. “We ask that you consider allowing credit unions to charge prepayment fees on member business loans as part of your review of Part 723 (the business loan rule).”
