Posted on Leave a comment

NACUSO Regulatory Alert

To:  NACUSO Members
From: Guy Messick
Date: March 23, 2010

At their March meeting, the NCUA Board passed a proposed regulation eliminating four of the ten regulatory relief items provided to well capitalized and well run credit unions as defined under NCUA Regulations Part 742 – best known as the “RegFlex” regulation.  This initial regulation was promulgated in 2001 and was the brainchild of Dennis Dollar when he was the Chairman of NCUA, who did what he could to eliminate unnecessary regulation for well performing credit unions.  These are different economic times then when the regulation was passed but we need to examine if the proposed actions have been justified.

If the four items of regulatory relief are eliminated as proposed, the Reg Flex qualified credit unions will have to follow the fixed asset rule, the requirement to stress test their securities, remove the discretionary control of investments and obtain personal guarantees for business loans unless a waiver is granted.  I invite you to read the proposal at:

https://www.ncua.gov/Resources/RegulationsOpinionsLaws/proposed_regs/742ProFeb2010.pdf

I will limit my comments here to the elimination of the exemption for personal guarantees.  This proposed action is only supported by evidence that business loans have caused significant losses in some credit unions.  While I am sure that is the case, there is no evidence as to whether the losses sustained would have been mitigated or eliminated by personal guarantees. If a small business goes bad, the owner usually has exhausted his own funds as well.  While in a perfect world personal guarantees are desirable, how much of an actual difference do they make in the collectability of the loan?  The problem is that the requirements of the personal guarantee have put credit unions in a competitive disadvantage.  Many extraordinarily good loans to strong companies could not be made as banks have the flexibility to offer loans without personal guarantees.  Yes, waivers can be obtained but the time to obtain waivers can kill a deal.  I question how many Regional Directors will be inclined to grant any wavier requests in this economy no matter how strong the deal.   It is my personal opinion that NCUA has not fully established the evidence to support the action on personal guarantees.
Comments are due within 60 days of the publication of the proposed regulation in the Federal Register.  Please consider whether you desire to comment.  Please forward a copy of you comment to me as I find them helpful in making the best case to NCUA.

Comments may be filed by email, fax or by mail.  Please use only one method.

  • E-mail: Address to regcomments@ncua.gov. Include “[Your name] Comments on Proposed Rule 742, Regulatory Flexibility Program” in the e-mail subject line.
  • Fax: (703) 518-6319. Use the subject line described above for e-mail.
  • Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union
    Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.