The two largest credit union trade organizations said Thursday they see no threat to eased borrowing rules for Member Business Loans in the coming Trump administration.
The NCUA adopted the rule in March freeing credit unions from seeking NCUA approval when buying commercial loans. The Independent Community Bankers of America said in a Sept. 7 lawsuit that the change gave credit unions an unfair advantage and violated legislative limits intended to rein in credit unions’ involvement in business lending.
The rule, which goes into effect in January, makes it simpler for businesses when they come to a credit union seeking a loan, said Brad Thaler, NAFCU’s vice president of legislative affairs.
“It’s not just about credit unions; it’s about small businesses — reducing red tape — and that’s something President-elect Trump has said he supports,” Thaler said. “His people will be looking for ways to reduce regulatory burden.”
Ryan Donovan, CUNA’s Chief Advocacy Officer, said the rule has the support of the NCUA board and is likely to survive the ICBA’s legal challenge. “They have a strong case.”
The NCUA has asked a federal court to dismiss a suit filed by bankers trying to block new federal rules that allow credit unions more freedom to offer MBLs.
Credit unions hold $65 billion in Member Business Loans, representing about 6% of their total assets. Among those who participate in business lending, those loans represent 7% of assets, about twice the proportion as it was in 1996. A 1998 law prevents credit unions from holding Member Business Loans in excess of 1.75 times the actual net worth of the credit union or 12.25% of the credit union’s total assets – whichever is less.
In March, the NCUA adopted a rule change freeing credit unions from seeking NCUA approval when buying business loans when the value of those non-member loans together with the value of its Member Business Loans would cause it to exceed an MBL cap tied to net worth. The agency ruled in 2003 that purchased business loans are not Member Business Loans, and thus do not count toward the cap.
The ICBA’s suit in U.S. District Court of Eastern Virginia claims community banks will suffer “significant competitive harm” because of the combination of the new rule with credit unions’ existing tax exemptions. “The MBL Rule is an improper, policy-oriented attempt to boost the business potential of credit unions.”
In a Nov. 2 motion to dismiss the suit, the NCUA argued it acted well within its authority when adopting the new rules.
A hearing on the motion has been set for Dec. 15 in U.S. District Court in Alexandria, Va. before District Judge James C. Cacheris.
