Despite the National Credit Union Administration Board's unanimous approval of its revised member business lending rule, members still found plenty to disagree about at the regulator's monthly meeting Thursday.
As expected, the Board approved the sweeping overhaul of the MBL rule, but there were still several sticking points that led to some acrimonious exchanges — and could presage battles ahead.
NCUA Board Member J. Mark McWatters bemoaned the fact the board approved the new member business lending rule without first obtaining a legal opinion from NCUA's Office of General Counsel. McWatters labeled the oversight "poor governance."
Though both his colleagues, Chairman Debbie Matz and Vice-Chairman Rick Metsger, noted attorneys in the Office of General Counsel drafted the revised rule, and from that fact could be inferred to support it, McWatters, who is himself an attorney, insisted the board was entitled to the legal reasoning behind their conclusions.
"The role of the NCUA Board is not to accept blindly the opinion of the Office of General Counsel, but to read and thoughtfully consider their legal analysis in sufficient time to fully consider legal issues," McWatters said during the board's monthly public meeting. "I can neither read nor consider a legal opinion that doesn't exist."
The question is whether bankers will see McWatters' concern about the lack of a legal opinion as an invitation to legal action — something the Independent Community Bankers of America has already been threatening to do over NCUA's proposed changes to field of membership rules.
NCUA officials said about three-fourths of the nearly 3,100 comment letters they received on the member business rule came from bankers who objected to any change to the regulation, and bankers were quick to blast the agency's decision to move ahead with it.
"Since NCUA is in the business of promoting the explosive growth of the credit union industry, rather than regulating it, we will be urging lawmakers to take a close look at what this tax-advantaged industry has become," American Bankers Association President and CEO Rob Nichols said Thursday in a prepared statement.
ICBA President and CEO Camden R. Fine said the revised member business lending rule "represents a blatant disregard for Congress and the thousands of concerned citizens who sent in comment letters to the agency."
"Member business lending is a controversial issue that has been debated in Congress for more than a decade. The NCUA has chosen to ignore this policy debate and sidestep Congress in a bid to satisfy the demands of large, growth-oriented credit unions that are subsidized by the American taxpayer," said Fine.
But the lack of a legal opinion wasn't the only concern McWatters raised. The subject of state regulation of business lending also produced some fireworks.
Currently, seven states have member business lending regulations of their own, and NCUA's revised regulation doesn't impact them, although it stipulates they must obtain the board's approval for any future amendments. The 43 states without any specific member business lending guidelines are also free to adopt their own set of rules, provided they are no less rigorous than NCUA's blueprint.
McWatters complained that NCUA's wording — insisting that state regulations be "at least as stringent" as the federal rule — would create what he termed a "chilling effect" on the states.
"Regrettably, the final MBL rule operates as a regulatory floor that essentially preempts states from crafting their own safe and sound MBL rule," McWatters said.
For her part, Matz pointed out the National Association of State Credit Union Supervisors, a trade group that represents state credit union regulators, supports the revised rule as it is written. Indeed, NASCUS President and CEO Lucy Ito said in a statement Thursday that "the spirit of the rule permits state innovation in adopting their own business lending rules."
The bickering over legal opinions and state regulations overshadowed completion of the first significant overhaul of member business lending rules since 2003 — something CUNA, NAFCU and countless credit unions strongly supported.
Although NCUA lacks the authority to adjust the congressionally mandated cap on credit union's business lending authority, which cannot exceed 1.75 times an institution's net worth, the new rule included several provisions that should make it easier for credit unions to engage in small business lending.
Among other things, it eliminates a provision limiting construction and development portfolios to 15% of an institution's net worth, as well as a restriction that had required personal guarantees for all business loans.
