In a recent comment letter to NCUA, New York Credit Union Association President/CEO William J. Mellin commended the agency on its efforts to make regulations easier to understand, but he urged the agency to reconsider the collateral requirements that have been imposed on credit unions making specific types of loans.
At its March 2016 meeting, the NCUA board of directors approved several amendments to its Member Business Loan regulations intended to give credit unions greater flexibility in administering their business loan programs. Among its changes was one eliminating the prohibition of credit unions making aggregate business loans to any one member or group of members in excess of 15 percent of a credit union’s net worth. As a result, credit unions are now authorized to make loans with concentrations as high as 25 percent, but amounts above the 15 percent threshold must be backed by “readily marketable collateral,” whereas the previous regulations did not categorize the necessary collateral.
“NCUA should reconsider the ‘readily marketable’ collateral mandate,” wrote Mellin. “There is a small but successful group of credit unions which specialize in making niche loans, such as hearses for funeral homes, which were routinely given concentration waivers without requiring that their borrowers have ‘readily marketable collateral.’ Now these same credit unions find themselves struggling to make these loans.”
He said the problem is further exacerbated by NCUA’s refusal to define acceptable title in a way that takes into account the differences between credit union members seeking small business loans and large commercial enterprises that can easily access specialized collateral.
“NCUA should be true to its goal of greater regulatory flexibility and give credit unions with a history of making successful business loans with a 25 percent concentration limit the authority to do so,” said Mellin. “NCUA should also provide further guidance on what is readily marketable title for credit union purposes.”
He concluded: “The proposal we are making is yet another area, where, consistent with its obligation to ensure that credit unions be engaged in safe and sound practices, NCUA can give credit unions with proven track records of making successful member business loans the flexibility to do so without unnecessary impediments.”