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Update on NCUA's Loan Participation Proposal

A proposal was issued for comments at the National Credit Union Administration's (NCUA's) board meeting in December that would impose concentration limits on credit unions purchasing loan participations. This week, CUNA held a conference call with members of the CUNA Lending Council, league groups, individual credit unions and a joint call of its Examination and Supervision Subcommittee and Federal Credit Union Subcommittee. CUNA will use the comments from these calls and other input from credit unions and leagues in formulating its letter, which we will be circulating this week. Also, CUNA’s Operation Comment on the proposal is now live to help credit unions as they develop letters to NCUA. Some of the major concerns with the proposal include:

  • It is not clear this proposal is necessary and NCUA has not provided sufficient justification for the proposal; NCUA has developed a one-size-fits all proposal;
  • The proposal undermines dual chartering by eliminating flexibility for state regulators to address loan participation issues with state chartered credit unions;
  • The concentration limits, particularly as they apply to loan participations purchased from one originator (25% of the net worth of the purchasing credit union), are arbitrary;
  • The proposal would not help to minimize systemic risk but would increase it by limiting the ability of credit unions to use loan participations and requiring them to purchase from more originators, some of which they may not have a prior business arrangement.

You can access CUNA’s Regulatory Comment Call and other information about the proposal here.