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NCUA's member business lending rule no longer strictly requires a personal guarantee, but credit unions do have an idea of what NCUA expects when a loan is made without a personal guarantee, NAFCU Regulatory Compliance Counsel Elizabeth LaBerge points out in a recent Compliance Blog post.

As of May 13, NCUA eliminated the strict personal guarantee requirement for member business loans, allowing credit unions to decide for themselves if a borrower should be exempt from a guarantee. The rest of the MBL final rule will be implemented Jan. 1, 2017, and NCUA is expected to issue guidance in September.

The MBL final rule and NCUA's supervisory focus in this area were detailed earlier this month for NAFCU Annual Conference attendees by Myra Toeppe, director of NCUA's Region III office. LaBerge, in her post, provides an overview of that talk and the expected guidance regarding personal guarantees.

"Under the transitional provision in current section 723.7(f), credit unions can write MBLs without a personal guarantee where they determine and document that mitigating factors sufficiently offset the relevant risk posed by not obtaining the personal guarantee," LaBerge wrote. "On January 1, 2017, new section 723.5(b) will require this determination and documentation of the loan file for any commercial loan where a personal guarantee is not required.

"NCUA expects federally insured credit unions that write MBLs (or certain commercial loans in 2017 and beyond) without a personal guarantee from the principal to have sufficient protections in three areas: risk management practices, underwriting and assessment of the borrower's financial condition, and ongoing monitoring," she continued.

Toeppe also noted that NCUA field staff will evaluate credit unions' portfolio management processes, with a focus on internal limits, internal monitoring and compliance.

While guidance will not be released until the fall, it is expected that NCUA Letter to Credit Unions 13-CU-02 and Supervisory Letter 13-01 will serve as the basis for NCUA's guidance in this area, LaBerge notes.