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Banks Flood NCUA with Letters Protesting Proposed Changes to MBL
Monday, August 3, 2015 6:45 AM

A Friday article in the Credit Union Journal notes a furious letter-writing campaign by bankers against NCUA's proposed changes to its member business lending (MBL) rules unveiled at the agency's June board meeting. Through Friday, the agency had posted more than 250 letters on its website.

NCUA is "willingly ignoring lessons from its history and encouraging credit unions to divert funds from consumer to commercial lending," Thomas B. Bass, president of $156.5 million-asset Wyoming Bank and Trust in Cheyenne, wrote in a July 21 letter. "Consider… the impact of allowing an ill-prepared lender into a new market and what could occur in an economic downturn if these loans are not properly underwritten."

Ted H. Williams, president and chief executive at $233.3 million-asset Tristar Bank in Dickson, Tennessee, warned the regulator was putting the credit union industry on the same path savings and loans followed two decades earlier. "Credit Unions were designed to serve the needs of a small group of individuals with a common bond," Williams wrote July 27. "The savings and loan industry is now extinct because of their reach into commercial lending without proper preparation."

Despite maintaining a majority of business loan market share, bankers—especially community banks—are very sensitive about credit unions' growing interest in business loans. For decades, commercial lending stood as a virtually unchallenged preserve for the banking industry. Over the past few years, however, banks have seen a sharp increase in the level of competition from online alternative lenders, as well as credit unions.

Indeed, member business lending by credit unions has increased 28 percent since the end of 2012, totaling $22.9 billion as of March 31, 2015.

NCUA's proposed rewrite of the member business lending rule would be the regulation's first major revision since 2003. Business lending by most credit unions limited to 12.25 percent of total assets by the Credit Union Membership Access Act of 1998. The new rule doesn't alter the congressionally mandated threshold, but it does eliminate a number of significant restrictions. Among other things, the draft under consideration eliminates a requirement that borrowers personally guarantee loans, as well as a provision that imposes an 80 percent loan-to-value requirement.

It would also abolish conditions limiting both construction and development lending and loans to one borrower to 15 percent of a credit union's net worth.

Given that strained history between credit unions and banks, and the negative tone of most of the letters, it is unclear whether they will have any persuasive effect on the three NCUA board members, Debbie Matz, Rick Metsger, and Mark McWatters, all of whom have made statements supporting increased member business lending.

Bankers' letters may be aimed at a broader audience than credit union regulators, said Keith Leggett, a retired American Bankers Association economist who writes a blog about credit union issues. "Clearly this is an issue bankers feel passionate about," Leggett said in an interview Friday. "I think they're trying to attract the attention of policy makers and key influence shapers."

NCUA will continue accepting letters for three more weeks, so the total, including the number from bankers, is likely to increase. At the current pace, it is doubtful to set a record, though. The agency received more than 2,000 letters in response to both drafts of its proposed risk-based capital regulation.

Visit CU Journal to view the article in its entirety.