December 27, 2022

NAFCU Reg Alert outlines NCUA proposal on loan participation, eligible obligation regs

Reg AlertNAFCU sent members a Regulatory Alert last week outlining the NCUA’s proposed rule amending the agency’s loan participation and eligible obligation regulations. The proposal offers flexibility for federally-insured credit unions (FICUs) to engage in indirect lending arrangements with fintechs and other third parties, including credit union service organizations, and then participate loans to other institutions as the “originating lender.”

Through the Regulatory Alert, NAFCU highlights:

  • the NCUA proposes to codify NCUA Legal Opinion 15-0813 to clarify that a FICU engaged in indirect lending can, in certain circumstances, be an “eligible organization”;
  • the proposed rule would remove the CAMELS ratings and well-capitalized requirements in section 701.23 of the NCUA’s eligible obligation regulation;
  • the NCUA proposes to codify safety and soundness expectations relevant to the purchase and sale of eligible obligations and notes of liquidating credit unions;
  • under the proposed rule, only notes purchased from liquidating credit unions would be subject to section 701.23’s 5 percent limit; and
  • the proposed rule would redefine an eligible obligation to further clarify the distinction between eligible obligations and loan participations.

In addition, the Regulatory Alert notes that the proposed rule “does not codify all parts of related temporary regulatory relief set to expire at year’s end, but the NCUA’s continued shift to principles-based regulation should, overall, enable more credit unions to manage their operations more closely in line with their individual risk-tolerance levels.”

Credit unions are encouraged to submit feedback on the proposal to NAFCU; comments to the NCUA are due 60 days after publication in the Federal Register.

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