Last year, as discussed by this blog, the NCUA proposed a new set of regulations designed to ease restrictions on business lending by credit unions. These regulations would remove all prescriptive limits on member business loans (“MBLs”) and replace them with the fundamental principle that commercial loans must be appropriately collateralized.

The NCUA recently approved a final version of these regulations substantially identical to the proposed version. Most notable among the relatively minor changes from the proposed version:

  • The proposed rules loosened the limit on the aggregate dollar amount of commercial loans to a single borrower from 15% of the credit union’s net worth or $100,000 to 25% of the credit union’s net worth, provided that the additional 10% of the credit union’s net worth was fully secured at all times with a perfected security interest by readily marketable collateral. The final rules relax the limit even further by excluding from the limit any insured or guaranteed portion of a commercial loan made through a program in which a governmental agency insures or guarantees repayment.
  • Unlike the proposed rules, the final rules permit existing state rules to supersede Part 723 of the new rules if the state rules cover the same provisions as Part 723 and are no less restrictive. Any state rules previously approved by NCUA are grandfathered.

The new rules are set to take effect on January 1, 2017, except one. The existing rules require the principal of an MBL to provide a personal guarantee, or the credit union to seek a waiver from this guarantee obligation from the NCUA. This requirement will be abrogated 60 days after the new rules are published in the federal register.