Question of the Week

Question: Is there a limit on what an FCU can lend to an official without approval from the board?

Answer: Yes. 12 CFR 701.21(d) limits an FCU to $20,000 without approval:

d) Loans and lines of credit to officials: 

(1) Purpose. Sections 107(5)(A) (iv) and (v) of the Act require the approval of the board of directors of the Federal credit union in any case where the aggregate of loans to an official and loans on which the official serves as endorser or guarantor exceeds $20,000 plus pledged shares. This paragraph implements the requirement by establishing procedures for determining whether the board of directors' approval is required. The section also prohibits preferential treatment of officials.

(2) Official. An “official” is any member of the board of directors, credit committee, or supervisory committee.

In addition, 12 CFR 701.21 also requires that loan terms be no more favorable to an official (or related person) than any other member:

5) Nonpreferential treatment.The rates, terms, and conditions on any loan or line of credit either made to or endorsed or guaranteed by: 

(i) An official,

(ii) An immediate family member of an official, or

(iii) Any individual having a common ownership, investment or other pecuniary interest in a business enterprise with an official or with an immediate family member of an official shall not be more favorable than the rates, terms, and conditions for comparable loans or lines of credit to other credit union members. “Immediate family member” means a spouse or other family member living in the same household.