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NAFCU Vice President of Regulatory Affairs Ann Kossachev Tuesday wrote to the NCUA regarding key aspects of the agency's loan participation regulations. Kossachev urged the NCUA to immediately initiate a rulemaking to eliminate:

• all aggregate limits on loan participations a federally-insured credit union (FICU) may purchase from any one originating lender;
• the general prohibition against credit unions purchasing loan participations they are not “empowered to grant,"; and
• the general requirement that a loan participation purchasing credit union must directly contract with the originating lender.

The NCUA published an interim final rule in April of 2020 that temporarily raised the maximum aggregate amount of loan participations a credit union may purchase from any one originating lender to the greater of $5 million or 200 percent of the credit union’s net worth. The NCUA extended the expiration of this temporary flexibility to December 31, 2022, at which time the limit will revert to the greater of $5 million or 100 percent of the credit union’s net worth.

"The temporary regulatory relief provided by §701.22(e) has not only operated as intended to allow FICUs to better weather the pandemic’s economic challenges, but it also set the stage for a natural experiment," wrote Kossachev. "Without attracting unmanageable risk to themselves or the [National Credit Union Share Insurance Fund], FICUs around the country leaned into their cooperative nature.

"Communities on both sides of expanded loan participation purchases have benefitted – be it from knowing their FICU can continue to offer attractive dividend rates even in a prolonged low-rate environment or from knowing their FICU can meet their individual and business borrowing needs when for-profit banks are pulling out of many communities," added Kossachev.

Kossachev called on the NCUA to prioritize modernizing its loan participation regulations, to streamline existing processes, provide greater flexibility, and more fully support the natural efficiencies of our credit union system by "eliminating §701.22’s aggregate loan participation limits and otherwise building on the credit union system’s successes attributable to cooperative lending."

In September, NAFCU President and CEO Dan Berger wrote a letter to the NCUA regarding the temporary flexibility and called on the NCUA to remove the aggregate cap altogether or to make the temporary threshold.
According to the NCUA’s fall rulemaking agenda, the agency plans to issue a rulemaking to update the participation and eligible obligation rules sometime during 2022. 

Read Kossachev's full letter. NAFCU continues to engage with the NCUA to ensure credit union feedback is heard as the agency evaluates loan participations and continues its rulemaking efforts to provide clarity on this topic.