NCUA regulation § 723.8, Aggregate member business loan limit; exclusions and exceptions, sets out the statutory limits mandated by § 1757a of the FCU Act. Specifically, § 723.8(a) states:
The aggregate limit on a federally insured credit union’s net member business loan balances is the lesser of 1.75 times the actual net worth of the credit union, or 1.75 times the minimum net worth required under § 1790d(c)(1)(A) of the FCU Act.
Calculating Net MBL Balance
A federally insured credit union’s net member business loan balance is determined by calculating the outstanding loan balance, plus any unfunded commitments, and then subtracting any portion of the loan that is:
- Secured by:
- Shares in the credit union
- Shares or deposits in other financial institutions
- A lien on a member’s primary residence
- Insured or guaranteed by any agency of the federal government, a state, or any political subdivision of such state
- Subject to an advance commitment to purchase by any agency of the federal government, a state, or any political subdivision of such state, or
- Sold as a participation interest without recourse and that qualifies for true sales accounting under GAAP
Exemptions
NCUA regulation § 723.8, Aggregate member business loan limit; exclusions and exceptions, identifies credit unions that are statutorily exempt from the aggregate MBL limit, which includes those that have a low-income designation or that participate in the Department of the Treasury’s CDFI Fund program. Credit unions chartered for the purpose of making business loans are also exempt under the rule. An additional statutory exemption was provided for credit unions that had a history of primarily making member business loans, determined as of the date of enactment of the CUMAA in 1998.
Difference between Commercial Loans and MBLs
Examiners should be aware there are several distinctions between a commercial loan and a statutorily defined MBL. These differences apply whether a credit union directly offers a loan or purchases a loan participation.
The following types of commercial loans are not MBLs, and do not count toward the aggregate MBL limit:
- Any commercial, industrial, agricultural, or professional loan in which a federal or state agency (or its political subdivision) has committed to fully insure repayment, fully guarantee payment, or provide an advance commitment to purchase the loan in full.
- Any non-member commercial loan or non-member participation interest in a commercial loan made by another lender
- A credit union must acquire a non-member loan or non-member participation interest in compliance with applicable laws and regulations and must not be swapping or trading MBLs with other credit unions to circumvent the statutory aggregate limit. A credit union that demonstrates a pattern or practice of evading the MBL cap, as with any other regulatory violation, is subject to commensurate supervisory action.
Loans secured by a vehicle manufactured for household use, as defined in NCUA regulation § 723.2, Definitions, are not commercial loans, but are MBLs. These loans must be included in the MBL CAP calculation.
"Loan secured by a vehicle manufactured for household use" means a loan that, at origination, is secured wholly or substantially by a lien on a new and used passenger car and other vehicle such as a minivan, sport-utility vehicle, pickup truck, and similar light truck or heavy-duty truck generally manufactured for personal, family, or household use and not used as a fleet vehicle or to carry fare-paying passengers, for which the lien is central to the extension of credit.
A lien is central to the extension of credit if the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan is wholly or substantially secured by a lien on a vehicle manufactured for household use if the estimated value of the collateral at origination (after deducting any senior liens held by others) is greater than 50 percent of the principal amount of the loan.
Last updated March 12, 2019
