January 18, 2023

NAFCU urges NCUA to amend commercial loan definition

NCUANAFCU Vice President of Regulatory Affairs Ann Petros Tuesday wrote to the NCUA urging the agency to amend the definition of commercial loan and raise the current threshold for net aggregate business loans excluded from the definition of a commercial loan from its current threshold of $50,000 to $250,000.

Petros noted that the NCUA has the statutory authority to make these changes since the definition of a commercial loan is not in the Federal Credit Union (FCU) Act, but rather a product of the 2016 Member Business Loan (MBL) rule.

“Although the FCU Act defines MBLs, it does not define commercial loans, nor does it mandate prescriptive safety and soundness standards for FCU business loans,” wrote Petros

NAFCU pointed out that rising inflation has hiked up the cost of most goods and a $50,000 threshold is extremely low and disproportionate to require stringent underwriting. On top of these concerns, the negative impact of the pandemic on commercial credit access remains, with business loan approval percentages “still roughly half of what they were before COVID.”

The letter also reiterated that underwriting requirements for commercial loans are burdensome and often pose difficulties for smaller credit unions who must employ “specialized staff to originate even relatively small, low-risk business loans.”

Petros underscored how these underwriting standards create an unfair competitive disadvantage between credit unions and underregulated fintechs.

“Although NAFCU is pleased to see more small businesses have access to credit, there is cause for serious concern when underregulated, fraud-prone fintechs are more easily able to originate business loans than highly regulated and supervised community financial institutions such as FCUs,” wrote Petros.

Changes to the definition of commercial loan and current threshold would have “have tangible positive outcomes for both FCUs and small business borrowers…[and] would increase loan availability, reduce burdens on borrowers, and make it easier for FCUs to make these loans,” concluded Petros.

Read the letter. Of note, NAFCU President and CEO Dan Berger recently met with incoming House Small Business Committee Chairman Roger Williams, R-Texas, to discuss ways credit unions can strengthen their ability to support Main Street small businesses.