Proposed changes in loan participation rule, report on share insurance fund slated Sept. 21

Action on proposed updates to the agency’s rules on loan participation and a report on the credit union share insurance fund are slated next Thursday by the federal regulator of credit unions.

The proposed rule, titled Financial Innovation – Loan Participation, Eligible Obligations, and Notes of Liquidating Credit Unions, would revise Parts 701 and 714 of the National Credit Union Administration (NCUA) rules and regulations.

Issued for comment last December, the proposal would, among other things, codify a 2015 opinion that broadened the application of the loan participation rule to define a credit union meeting certain requirements as an “originating lender” when it engages in indirect lending with third parties.

“The Board notes that it intends the codification of the aforementioned legal opinion to clarify that a FICU can meet the definition of ‘originating lender’ in certain transactions where the FICU is engaging in indirect lending arrangements with fintech companies and other third-party loan acquisition channels, such as Credit Union Service Organizations (CUSOs) and other loan-originating retailers,” the NCUA said in its Federal Register notice of proposed rulemaking.

Besides codifying the 2015 opinion, the proposal would, among other things:

  • revise the definition of an eligible obligation under section 701.23(a)(1) to clarify the distinction between transactions treated as loan participations and those treated as eligible obligations;
  • revise the applicability of the 5% (of a credit union’s unimpaired capital and surplus) limit from covering the purchase of most eligible obligations to only “notes” purchased by a federal credit union (FCU) from a liquidating credit union;
  • revise the “grandfathered purchases” section of the current rule to include eligible obligation purchases that were executed before the effective date of this proposed rule (if adopted) and complied with section 701.23 of the rule at the time the transaction was executed, subject to safety and soundness and compliance considerations.

Also slated Thursday is a quarterly report on the National Credit Union Share Insurance Fund (NCUSIF). This report is expected to include financial results for the fund as of June 30.

During the board’s open meeting in May, agency staff reported the NCUSIF equity ratio was 1.30% at the end of 2022, based on first-quarter 2023 data. Staff said the ratio was expected to drop to 1.25% by June 30.

The National Credit Union Administration (NCUA) Board is scheduled to hold Thursday’s open meeting at 10 a.m. Eastern, with participation allowed in person and online via the agency’s YouTube channel.

Agenda for Sept. 21 open NCUA Board meeting

Reg lookup: Financial Innovation: Loan Participations, Eligible Obligations, and Notes of Liquidating Credit Unions