NCUA Board addresses indirect lending, MBL regs
WASHINGTON (12/16/05)—The National Credit Union Administration (NCUA) Thursday issued proposed limits on the purchase by federal credit unions of indirect vehicle loans serviced by a third party. The proposal would allow for a waiver of the limits under certain conditions.
At its open board meeting presided by Chairman JoAnn Johnson via teleconference, the agency also approved clarifications of its member business lending policies, a final rule on the purchase and assumption of liabilities, and the National Credit Union Share Insurance Fund (NCUSIF) operating level for 2006.
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 NCUA Board Member Gigi Hyland asks NCUA staff attorney Paul Peterson about the number of credit unions involved in indirect lending and the total amount of those loans. (Photo provided by CUNA) |
Under the proposal, NCUA would attempt to limit risk that can be associated with such plans by setting the following ceilings on aggregate loans levels:
- For the first 30 months of a new relationship, a credit union's interest in indirect vehicle loans serviced by any single third party lender could not surpass 50% of its net worth.
- After 30 months experience with the servicer's program, the credit union could increase its interests to 100% of its net worth.
A credit union's due diligence program must identify and assess all material risks, and the nature and extent of the due diligence required for a waiver would depend on the nature and the extent of the identified risks, according to an agency document.
The agency will accept comments on the proposed limits until 60 days after the proposal is published in the Federal Register .
In another action, the NCUA Board adopted final revisions to member business loan (MBL) rules that, in part, clarify the minimum capital requirements a federally insured corporate credit union must meet to make unsecured MBLs to members that are not credit unions or corporate credit union service organizations (CUSOs).
The revised MBL rule also clarifies that the definition of net worth in the MBL regulation is now the same as in prompt corrective action (PCA) rules.
The new rule also adjusts the definition of construction and development loans in an attempt to capture only "true" C&D loans to borrowers who have already acquired the subject property or rights to it.
During a comment period on the MBL rule, the Credit Union National Association (CUNA) suggested the agency's proposed definition of C&D loans was too broad and would capture instruments not intended to be covered.
During the NCUA meeting, agency staff acknowledged that it made changes in the definition in response to comments received.
The rule becomes effective 30 days after publication in the Federal Register. It allows rescission of state member business loans rules.
The Board also adopted a final rule that clarifies the approval requirements for purchase and assumption transactions, adding a specific exemption for these transactions from the approval requirement when they occur between federally insured credit unions.
For its National Credit Union Share Insurance Fund (NCUSIF), the agency board approved a normal operating level of 1.3% for 2006. Staff discussions signaled that there would be no insurance premium for 2006, but also indicated that a dividend is highly unlikely.
Using total insured shares as of June 30, the NCUSIF's equity ratio for November was 1.29%. It is expected that after falling to 1.27%, the ratio will return to 1.29% by March 2006, following credit unions' adjustment of their 1% deposits based on credit union growth through the end of this year, reported NCUA Chief Financial Officer Dennis Winans.
