NCUA: Have questions about implementing the new MBL Rule? These FAQs can help
Wednesday, June 7, 2017
Posted by: NCUA
On Jan. 1, NCUA’s revised member business lending rule went into effect. Since then, we have received a number of questions from credit unions about the rule and its implementation. To help, we have put together the following frequently asked questions about the rule and our expectations.
Additional information about NCUA’s supervisory expectations can also be found in the latest update to the Examiner’s Guide released in the fourth quarter of 2016.
What Are NCUA’s Expectations Under the New MBL and Commercial Loan Rule?
NCUA expects credit unions to offer commercial loans in a safe and sound manner and structured appropriately for the member’s needs and within the member’s financial abilities. The new rule requires active oversight by senior managers and the board. But, the new rule also extends flexibility to credit unions to establish policies and program controls instead of prescriptive regulatory requirements. As a result, the rule now takes a more principles-based approach to managing a commercial loan program and allows management to tailor appropriate risk-management practices to suit their individual circumstances.
How Should My Credit Union Prepare?
The best preparation is to adhere to active risk-management principles for sound lending. A well-developed program with appropriate monitoring and controls, and appropriate audit and oversight, should best prepare credit union management for the next examination.
Where Can I Find Background Information on NCUA’s Intent and Goals for the Rule?
An excellent resource is the rule’s preamble as it is published in the Federal Register. The preamble contains important information about NCUA’s policy objectives, the disposition of the public comments received and other factors that influenced the agency’s rulemaking. The preamble is an important aid in gaining an understanding of the intent and expectations for a rule. Copies of the proposed and final preambles and rules can be found on the NCUA.gov.
What Guidance has NCUA Issued and Are Credit Unions Expected to Follow it?
We recently completed a comprehensive update to the Examiner’s Guide relating to the supervision of commercial loans. This update is available on NCUA.gov.
The commercial and MBL section of the Examiner’s Guide sets forth a clear framework for supervisory expectations for managing a commercial lending program.
Does NCUA Require Loans be Guaranteed by the Principals of the Borrower, and Who Should Guarantee the Loans?
Personal guaranties of the principals of the borrower are an important and expected part of lending transactions to small businesses. However, in those cases where there are strong mitigating factors, such as superior debt service coverage, positive earnings trends, the abundance of collateral and low leverage to name a few, a credit union can elect to not require the guarantee. When a guarantee is not required, credit unions should detail in the approval document the justification and mitigating factors that offset the additional risk associated with an unguaranteed loan.
For additional information, please see the personal guarantee section in the Examiner’s Guide at https://go.usa.gov/x5NmY.
What Is the Process if a Credit Union Disagrees with the Findings of an Examiner?
We encourage immediate dialogue with the individuals most closely associated with your credit union. First, you should approach your examiner. This is the most effective method to resolve any issue. You have a right to question the conclusions and receive supporting information. Be sure you have support for your position that is reasonable and consistent with accepted risk-management practices.
Second, if you cannot arrive at an agreement with the examiner, the next step is to contact and express your concerns to the supervisory examiner. They are required to provide an objective review of the facts. They can review your examination in context with the standards applied to other examinations.
Finally, you may appeal formally in writing to the regional director and follow through with NCUA’s appeal process.
Source: NCUA »