Proposed MBL rule considers 3 options for state regulators

June 18, 2015 -- Three options to address regulation of business lending by state chartered credit unions are being considered by the National Credit Union Administration (NCUA) in its proposed member business lending (MBL) rule, issued Thursday by the NCUA Board.

Issued with a 60-day comment period, the proposed rule makes sweeping changes to existing business lending regulations, particularly with its approach of being a “principles-based” rule, as opposed to the current “prescriptive rule.”

The three options being considered for MBL regulation at FISCUs under the NCUA rule are:

  • The seven state supervisory authorities (SSAs) that now administer a state MBL rule will preserve their rules in their current format. NCUA stated that allows FISCUS in those states to continue to operate in compliance with the pertinent state rule. However, under this approach, no other state regulator would be permitted to submit a rule for NCUA consideration and approval. Instead, FISCUs in those states would be subject to the new NCUA rule.
  • NCUA would require regulators in the seven states administering MBL rules to make conforming amendments to their rules and resubmit them to NCUA for an updated approval. The conforming rules for these state regulators (and any others that want to implement its own rules) would need to reflect the “same principles and incorporate the guidance contained in any final rule, but could be more restrictive the state so chose.”
  • A combination of the two above, permitting SSAs now administering a rule to preserve their rules in the current format, permitting FISCUs in those states to continue to operate in compliance with the applicable state rule. However, all of the other state regulators would be permitted to submit such rules as long as they conform with language similar to the beginning of the current NCUA rules (sec. 723.20(a)).

Seven states (CT, IL, MD, OR, TX, WA, WI) currently have state-specific rules with waivers from NCUA. 

The board is seeking specific comments on each of the options. Further, while the board stated it is seeking comments on all aspects of the rule, it specifically asked for comments on the principles-based regulatory approach.

Additionally, noting that the proposed rule will be a shift to a “principles-based” approach – and thus represents a significant change in approach requiring adjustments for both credit unions and regulators – the board plans to delay implementation of the final rule for 18 months once a final rule is approved.

NASCUS will be arranging a conference call with state regulators to discuss the proposal and development of the association’s comments.

The text of the proposal is here; a summary of major changes to the current rule is here.

In other action, the NCUA Board:

  • Approved a final flood hazard interagency rule (Part 760 for NCUA), for loans in areas having special flood hazards. Specifically, the final rule requires the escrow of flood insurance payments on residential improved real estate securing a loan, consistent with the changes set forth in HFIAA. The final rule also incorporates an exemption in HFIAA for certain detached structures from the mandatory flood insurance purchase requirement. Furthermore, the final rule implements the provisions of Biggert-Waters related to the force placement of flood insurance. (NASCUS commented on the proposal.)
  • Approved a final interagency policy statement establishing joint diversity assessment standards, which sets forth joint standards for assessing regulated entities’ diversity policies and practices. (NASCUS commented on the proposed statement.)
  • Approved a final interpretive ruling and policy statement (IRPS) on the minority depository institution (MDI) preservation program, which aims to “implement a program of proactive steps and outreach efforts to preserve minority ownership” in the credit union industry, as required under the Financial Institutions Reform, Recovery and Enforcement Act of 1998 (FIRREA) to preserve and promote MDIs. (NASCUS commented on this proposed IRPS.)
  • Issued, for a 90-day comment period, a review of its regulations to identify outdated, unnecessary, or burdensome regulatory requirements imposed on federally insured credit unions, as contemplated by section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). This is the second decennial review of regulations NCUA has requested comment on. NCUA noted that even though it is not technically covered under EGRPRA review requirements, it has elected to participate in the EGRPRA review process and has published two notices seeking comment on specific categories of rules in the Federal Register. (NASCUS will comment.)


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