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NCUA Board Passes Final MBL Rule.

Byline: J. Daniel Young

A concern over states' rights and a question about the NCUA's legal authority over the member business lending proposal during an NCUA board meeting Thursday prompted a Hail Mary pass by one board member.

The monthly board meeting ended with a contentious board member discussion, as proposed changes to wording in the MBL proposal from Board Member J. Mark McWatters prompted a tense exchange at the end of the meeting.

McWatters asked for changes to the states' rights portion in section 723.10 of the MBL proposal, which exempts federally insured, state chartered credit unions from complying if a state supervisory authority provides a state commercial and MBL rule for use by federally insured credit unions chartered in that state. The provision said this exemption can occur "provided the state rule at least covers all the provisions in this part and is no less restrictive, upon determination by (the) NCUA."

McWatters said he raised concerns over the wording of the provision "over a week ago" to the Office of General Counsel and others. Chairman Debbie Matz criticized McWatters for requesting that the changes be made on Wednesday night at 6 p.m. and not bringing them to the board's attention earlier.

She said that once the proposal has gone to the printers and the schedule is on the docket, "That ship has sailed."

Further, Vice Chairman Rick Metsger said he never received a copy of the possible rewording of the provision.

"Your office never shared it with me. I never had a chance to look at it," he said, as the all members of the board talked over one another.

Matz further criticized McWatters, stating that if he were in the office "more than three days a month," the staff could have discussions on the matters McWatters brought up.

The proposed changes McWatters offered to the board would reword the provision to: " provided that all the core risk management principles in this part, in all material, respects and complies with the Federal Credit Union Act."

NASCUS President/CEO Lucy Ito said in a statement, "As adopted, the spirit of the rule permits state innovation in adopting their own business lending rules. But the proof is in the pudding -- our concern is that the ultimate interpretation of the rule stays consistent with the intention expressed at the table today during the NCUA board's discussion."

Additionally, McWatters asked if bankers' concerns over the legal authority of the NCUA to make changes to the MBL rule had been addressed.

Pamela Yu, NCUA Staff Attorney, told McWatters that the OGC had advised the board that the final MBL rule complies with the FCUA.

According to NCUA advisors, a legal analysis is forthcoming but will not be part of the public record as it was not available for the board meeting.

McWatters said in his final concurrence that it is not his intent to criticize the OGC.

"It is, however, challenging for the board to act on the final MBL rule at this time without first considering the legal analysis supporting the final rule," he said.

During her opening remarks, Matz said the new rule begins a new era for the agency.

"This new era will be defined by principles-based regulation, not by prescriptive limits on credit unions," she said.

The MBL rule passed by a majority vote, despite concerns raised by McWatters. He added that the regulator's "rigid language creates yet more uncertainty and may raise the regulatory burden of state chartered credit unions. In reality, a rule touted by the NCUA as regulatory relief, may work to the contrary in the day-to-day operations of state chartered credit unions that engage in member business lending."

The overall MBL rule will go into effect Jan. 1, 2017, yet the personal guarantee requirement will be eliminated 60 days after the rule's publication in the Federal Register.

Industry organizations applauded the passage of the MBL rule.

CUNA President/CEO Jim Nussle welcomed the new rule, stating, "Expanding credit union member business lending to empower credit unions with greater flexibility and autonomy in offering commercial loans is a major victory for America's small businesses and job creators."

Ito added, "Now, the emphasis turns to engaging the credit union system about this new, Cyprinciples-based' approach to commercial lending. NASCUS will be working with the state system to ensure that state regulators and federally insured, state chartered credit unions are well-prepared to embrace this new approach."

NAFCU President/CEO Dan Berger applauded removing the waiver process in the MBL proposal. In a statement, he said, "Removing the waiver process not only eases regulatory red tape, but it also provides credit unions the independence to safely and soundly address the needs of their small business members. Today's action ensures that credit unions can better meet the capital and liquidity needs of our nation's small businesses, which are struggling to find such access from other lenders."
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Publication:Credit Union Times
Date:Feb 18, 2016
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