Sept. 19, 2012 – As long urged by NAFCU, NCUA on Tuesday announced that credit union loans to members that own businesses with fewer than five vehicles are not automatically subjected to the agency’s member business loan rules.
“A fleet is five or more vehicles that are centrally controlled and used for a business purpose, including for the purpose of transporting persons or property for commission or hire,” wrote NCUA Associate General Counsel Frank Kressman in a Sept. 13 legal opinion. “The revised definition also addresses our safety and soundness concerns about collateral devaluation.”
NAFCU, which has long sought the change in its regulatory review comment letters to NCUA, supports the change, said NAFCU General Counsel and Vice President of Regulatory Affairs Carrie Hunt.
NCUA rules subject all MBLs to certain collateral and security requirements, including an 80 percent loan-to-value limit unless the excess is covered by insurance or a similar guarantee. For years, the agency has allowed credit unions to make business vehicle loans without meeting that LTV requirement except in the case of “fleet” vehicles, which the agency says tend to depreciate more quickly than non-business, personal-use vehicles and pose more risk. Until this opinion, the agency has defined a “fleet” as involving two vehicles or more.
The legal opinion revises the definition of a “fleet” to cover five or more business vehicles that are centrally controlled and used for a business purpose. NCUA on Tuesday announced the opinion, noting it provides credit unions greater flexibility in making lending decisions and that it is consistent with the way fleet vehicles are treated by the Internal Revenue Service and auto industry standards.
NCUA Chairman Debbie Matz discussed the opinion as being part of the agency’s “regulatory modernization” initiative. The opinion, which responded to a credit union query, reflects the realities of today’s marketplace and protects safety and soundness,” the agency said.