June 3, 2013
The Honorable Debbie Matz, Chairman
The Honorable Michael Fryzel, Board Member
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314
RE: Member Business Lending
Dear Chairman Matz and Board Member Fryzel:
On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I am writing to you regarding the National Credit Union Association’s (NCUA) member business lending requirement for a personal guarantee. An increasing number of our members continue to be concerned with the personal guarantee requirements for MBLs and the 5 year relationship requirement to obtain a waiver.
2010 RegFlex Changes
Before addressing our specific concerns regarding the burdensome waiver requirements, I would like to again discuss NAFCU’s opposition to the agency’s decision in 2010 to alter the RegFlex program to require a personal guarantee for all MBLs.This change has proven problematic for many credit unions.
NCUA requiring a personal guarantee assumes that credit unions do not already have sound underwriting policies in place. Given that the federal government is still attempting to increase access to credit for small businesses, we continue to disagree with the current position taken by the NCUA. Eliminating this requirement would undoubtedly spur small business lending, a goal that has been embraced by Congress and the President. If NCUA is serious about eliminating and streamlining unnecessary burdens, it should reconsider its severely limiting requirement for a personal guarantee on MBLs.
Waivers
Recently, NCUA issued supervisory letter 13-CU-02 to credit unions attempting to shed light on the criteria for MBL waivers. NAFCU understands that NCUA expects credit unions to practice appropriate risk assessment and monitoring, but the waiver requirement that credit unions have a 5 year relationship with the borrower and current principals eliminates a great number of creditworthy small businesses.This also puts credit union at a competitive disadvantage against other financial institutions. For example, a member that has a credit union relationship that is sufficiently strong to warrant non-personally guaranteed terms at year 1, is not likely to continue doing business with that credit union for another 4 years. The 5 year relationship requirement also seems to be arbitrary and unnecessary to ensure good underwriting or risk assessment. While waivers should not be used so frequently that they are the norm, the process to obtain one should not be so excessively difficult as to prevent credit unions for serving their membership effectively. We urge the NCUA to reconsider the 5 year relationship requirement for obtaining a waiver of the personal guarantee requirement.
Thank you for your attention to this matter. I look forward to hearing from you regarding this important issue. Should you have any questions or would like to discuss these issues further, please feel free to contact me at pjhoffman@nafcu.org or (703) 842-2212.
Sincerely,
PJ Hoffman
Regulatory Affairs Counsel
National Association of Federal Credit Unions