[Federal Register Volume 69, Number 126 (Thursday, July 1, 2004)]
[Proposed Rules]
[Pages 39873-39874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14763]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 723


Member Business Loans

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule with request for comments.

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SUMMARY: NCUA proposes to revise the collateral and security 
requirements of its member business loans (MBL) rule to enable credit 
unions subject to the rule to participate more fully in Small Business 
Administration (SBA) guaranteed loan programs.

DATES: Comments must be received on or before August 30, 2004.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Proposed Rule 723, Member Business Loans'' in the e-
mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Becky Baker, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney, at 
the above address, or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

A. Background

    Last year, NCUA amended its MBL rule and other rules related to 
business lending to enhance credit unions' ability to meet their 
members' business loans needs. 68 FR 56537 (October 1, 2003).
    In addition to comments on the proposed amendments, NCUA received 
other suggestions as to how it could improve the MBL rule. Among the 
most significant of these, commenters suggested NCUA amend the MBL rule 
``so that it could be better aligned with lending programs offered by 
the Small Business Administration'' such as the SBA's Basic 7(a) Loan 
Program. Id. at 56538. While NCUA recognized the merits of this 
suggestion, NCUA could not include it in the final rulemaking because 
it addressed issues outside the scope of the proposed rule. The 
Administrative Procedure Act generally prohibits federal government 
agencies from adopting rules without affording the opportunity for 
public comment. 5 U.S.C. 553. NCUA noted in the final rule, however, 
that it would review this suggestion to determine if it would be 
appropriate to act on it in a subsequent rulemaking.

B. Regulatory Amendments

    NCUA proposes to amend the MBL rule to permit credit unions to make 
SBA guaranteed loans under SBA's less restrictive lending requirements 
instead of under the more restrictive MBL rule's lending requirements. 
NCUA has reviewed the SBA's loan programs in which credit unions can 
participate and believes they provide reasonable criteria for credit 
union participation and compliance within the bounds of safety and 
soundness. Additionally, these SBA programs are ideally suited to the 
mission of many credit unions to satisfy their members' business loans 
needs.
    NCUA recognizes that the collateral and security requirements for 
MBLs, including construction and development loans, are generally more 
restrictive than those of the SBA's guaranteed loan programs and could 
hamper a credit union's ability to participate fully in SBA loan 
programs. As a result, the MBL rule's collateral and security 
requirements could prevent a credit union from making a particular loan 
that it could otherwise make under SBA's requirements. NCUA believes 
the proposal will provide relief from these more restrictive 
requirements and will help enable credit unions to better serve their 
members' business loans needs.

C. Clarification of Existing Authority

    Recently, NCUA's Office of General Counsel in Legal Opinion 
03-0911, dated May 20, 2004, clarified that NCUA's general 
lending rule and the Federal Credit Union Act (Act) permit federal 
credit unions (FCUs) to make MBLs under the terms of the SBA's 
guaranteed loan programs to the extent the terms and conditions under 
which the guarantee is provided are consistent with the requirements 
and limitations in the MBL rule. 12 CFR 701.21(e); 12 U.S.C. 
1757(5)(A)(iii). Specifically, the opinion identified loan maturity 
limits, usury ceilings and prepayment penalties as terms of the SBA's 
guaranteed loan programs that an FCU could use in lieu of corresponding 
terms in NCUA's rules. The opinion stated, however, that a credit union 
could not rely on the exception for government guaranteed loan programs 
in NCUA's general lending rule and the Act with regard to collateral 
requirements for MBLs. 12 CFR 701.21(e); 12 U.S.C. 1757(5)(A)(iii). The 
opinion explained the MBL rule expressly sets collateral requirements 
for MBLs, in the form of maximum loan-to-value ratios. The collateral 
requirements of the SBA's guaranteed loan programs are not consistent 
with those of the current MBL rule and, therefore, cannot be used. The 
proposed amendments will remove that impediment by exempting SBA 
guaranteed loans from the MBL rule's collateral requirements.
    There could be circumstances where a business loan made under an 
SBA loan program would not be subject to the MBL rule. For example, a 
$40,000 business loan with an SBA guarantee to a member who has no 
other loans with the originating credit union would be too small to 
meet the definition of an MBL. Thus, the credit union in this example 
can rely on the authority provided by Sec.  701.21(e) of NCUA's rules 
and make a business loan as part of an SBA loan program under all of 
the terms and conditions required or permitted by the program.
    The MBL rule applies to all FCUs and to most federally-insured 
state credit unions (FISCUs). A FISCU is exempt from the MBL rule only 
if, after August 7, 1998, the enactment of the Credit Union Membership 
Access Act, Public Law 105-21, its state supervisory authority (SSA) 
has adopted its own business loan rule, with the approval of the NCUA 
Board, for use instead of NCUA's MBL rule. The proposed regulatory 
amendments regarding collateral requirements apply to all credit unions 
subject to the MBL rule, but it is important to note that legal opinion 
OGC 03-0911 applies only to FCUs, not FISCUs. NCUA does not object to a 
FISCU using the exception for government guaranteed loan programs in 
NCUA's general lending rule if its SSA has determined the FISCU has 
authority to do so under relevant state law.
    While NCUA believes many credit unions would greatly benefit from 
participating in these SBA programs, NCUA also believes that programs 
of this type can create some additional

[[Page 39874]]

safety and soundness concerns. For example, the loans being guaranteed 
are often more risky than other loans made by credit unions. In fact, 
most credit unions would not make these kinds of loans without the 
security the SBA guarantees provide. NCUA is aware that SBA guarantee 
programs generally place stringent requirements on participating 
lenders to comply with program requirements or face losing the 
guarantee. Accordingly, NCUA recommends that, before a credit union 
becomes a participating lender, it makes certain it fully understands 
the terms of the program and has procedures in place to assure its 
compliance with all program requirements. Although this rulemaking only 
pertains to SBA guaranteed loan programs, NCUA will consider other 
government programs as the need arises.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions (those under ten million 
dollars in assets). The proposed rule permits credit unions to more 
fully participate in SBA loan programs, without imposing any additional 
regulatory burden. The proposed rule would not have a significant 
economic impact on a substantial number of small credit unions, and, 
therefore, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the proposed rule would not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The proposed rule would not have substantial 
direct effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed rule is understandable and minimally intrusive.

List of Subjects in 12 CFR part 723

    Credit, Credit unions, Reporting and recordkeeping requirements.

By the National Credit Union Administration Board on June 24, 2004.
Becky Baker,
Secretary of the Board.
    For the reasons stated above, NCUA proposes to amend 12 CFR part 
723 as follows:

PART 723--MEMBER BUSINESS LOANS

    1. The authority citation for part 723 continues to read as 
follows:

    Authority: 12 U.S.C. 1756, 1757, 1757A, 1766, 1785, 1789.

    2. Revise the introductory sentence of Sec.  723.3 to read as 
follows:


Sec.  723.3  What are the requirements for construction and development 
lending?

    Except as provided in Sec.  723.4 or unless your Regional Director 
grants a waiver, loans granted for the construction or development of 
commercial or residential property are subject to the following 
additional requirements.
* * * * *
    3. Revise Sec.  723.4 to read as follows:


Sec.  723.4  What other regulations apply to member business lending?

    (a) The provisions of Sec.  701.21(a) through (g) of this chapter 
apply to member business loans granted by federal credit unions to the 
extent they are consistent with this part. Except as required by part 
741 of this chapter, federally insured state-chartered credit unions 
are not required to comply with the provisions of Sec.  701.21(a) 
through (g) of this chapter.
    (b) If a federal credit union makes a member business loan as part 
of a Small Business Administration guaranteed loan program with loan 
requirements that are less restrictive than those required by NCUA, 
then the federal credit union may follow the loan requirements of the 
relevant Small Business Administration guaranteed loan program to the 
extent they are consistent with this part. A federally insured state-
chartered credit union that is subject to this part and makes a member 
business loan as part of a Small Business Administration guaranteed 
loan program with loan requirements that are less restrictive than 
those required by NCUA may follow the loan requirements of the relevant 
Small Business Administration guaranteed loan program to the extent 
they are consistent with this part if its state supervisory authority 
has determined that the credit union has authority to do so under state 
law.
    (c) The collateral and security requirements of Sec.  723.3 and 
Sec.  723.7 do not apply to member business loans made as part of a 
Small Business Administration guaranteed loan program.
    4. Revise Sec.  723.7(a) introductory text to read as follows:


Sec.  723.7  What are the collateral and security requirements?

    (a) Except as provided in Sec.  723.4 or unless your Regional 
Director grants a waiver, all member business loans, except those made 
under paragraphs (c), (d), and (e) of this section, must be secured by 
collateral as follows:
* * * * *
[FR Doc. 04-14763 Filed 6-30-04; 8:45 am]
BILLING CODE 7535-01-P