Final Rule Summary: Amendments to Part 723, Commercial Lending, to Remove Non-Owner Occupied 1-4 Family Dwellings from the Definition of a Member Business Loan

Prepared by NASCUS Legislative & Regulatory Affairs Department
June 2018

NCUA has amended the definition of member business loan (MBL) in its commercial lending rule with respect to 1- to 4- family dwellings. The change conforms to changes made to the Federal Credit Act (FCUA) by the S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Economic Growth Act).

The changes to Part 723 and Part 702 became effective on June 5, 2018. The Federal Register notice is available here.

Prior the passage of the Economic Growth Act, the FCUA defined an MBL as any loan, line of credit, or letter of credit, the proceeds of which will be used for a commercial, corporate or other business investment property or venture, or agricultural purpose. The definition excluded any extension of credit that is fully secured by a lien on a 1-4 family dwelling that is the primary residence of a member. The Economic Growth Act removed the “primary residence of the member” qualifier. As a result, the definition of an MBL now excludes all extensions of credit that are fully secured by a lien on a 1-4 family dwelling regardless of whether it’s the primary residence of the borrower or not. Because these kinds of loans are no longer considered MBLs, they do not count towards the aggregate MBL cap imposed on each federally insured credit union by the FCUA.

The following changes were made to § 723:

  • § 723.8(b) is revised by adding subsection (3) to include any loan that is fully secured by a lien on a 1-4 family dwelling as an exception to the MBL definitions.
  • § 723.8(c) is revised to remove the reference to a 1-4 family dwelling as an MBL

The final rule also makes corresponding changes to Part 702, NCUA’s Prompt Corrective Action rule, by amending outdated citations to the MBL rule. Specifically, § 702.104 (a), (b), and (g) are amended to replace references to Part 723.1 with a reference to § 723.8(b) wherever they appear. The rules also replaces references to § 723.20 are replaced with reference to § 723.10 in those same sections.