NCUA Board Rescinds MBL Personal Guarantee Exemption, Provides Insurance Fund Update

Oct. 21, 2010 — In its monthly public meeting, the National Credit Union Administration (NCUA) Board approved a final rule for its Regulatory Flexibility (RegFlex) Program impacting personal guarantees for member business lending (MBL).

The changes to RegFlex, Member Business Lending (MBL), impact federally insured, state-chartered credit unions (FISCUs). FISCUS are required to follow Part 723, unless their state has a NCUA-approved, state-specific MBL rule. In the case of state-specific rule, these changes would not apply. This final rule eliminates the blanket personal guarantee waiver for RegFlex credit unions; however, Part 723 continues to allow credit unions to apply for a specific waiver of the personal guarantee requirement. In its comment letter, NASCUS recommended clarifications and enhancements to the waiver process. State regulators, click here for regulator specific information on this issue.

NCUA recognized the need for changes to the waiver process, especially in terms of efficiency, and plans to consider changes when Part 723 is modified in the near future. The final RegFlex rule also impacts several areas for FCUs: fixed assets, stress testing of investments and discretionary control of investments. The final rule can be viewed here.

NCUA Chief Financial Officer Mary Ann Woodson reported on the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF equity ratio for September 2010 is 1.18%, same as reported for August 2010. Problem credit unions rose from 360 in August to 374 in September, representing 5.23% in total shares. Woodson highlighted a growing number of CAMEL 3 credit unions, a total of $1,069 and 18.86% of total shares. This is an increase from December 2009, where CAMEL 3 credit unions represented 13.67%. Credit union failures for 2010 (25) have cost the insurance fund $213 million to date this year. More NCUSIF statistics can be found here.

Also at the meeting, the Board approved an interim final rule amending the definition of "low risk assets" to address the treatment of credit union purchase of the "NCUA Guaranteed Notes" or NGNs from the sale of distressed corporate credit union assets. The interim final rule extends the definition of low risk assets to include the NGNs. It has a 30 day comment period.

Lastly, the NCUA Board adopted its Strategic Plan for 2011-2016. The main focus of the plan remains to protect consumer rights and member deposits by ensuring a dynamic, safe and sound credit union system. However, the plan was changed to reflect an agency focus on transparency and clearly articulated and easy to understand regulations. The plan can be downloaded here.

The next NCUA Board meeting is November 18. The agency is expected to address its 2011 Budget at the November meeting.