By Keith Leggett

Sometimes I am just amazed by the audacity of the credit union trade associations.

The most recent illustration of their audaciousness was the Credit Union National Association's comment letter to the National Credit Union Administration regarding an advanced notice for proposed rulemaking dealing with business lending.

In a nutshell, CUNA advocated that any credit union that meets the NCUA's requirement for its Regulatory Flexibility program should be exempted from all regulatory business lending limitations dealing with safety and soundness. The NCUA established the RegFlex program in 2002 to exempt qualifying credit unions in whole or in part from a series of regulatory restrictions and grant them additional powers.

For a credit union to qualify for Reg-Flex status, it must have been well-capitalized for the six consecutive preceding quarters and received a composite CAMEL rating of 1 or 2 for the prior two examinations.

According to CUNA, any Reg-Flex credit union making business loans should not be subject to:

• Appraisal requirements.
  
  
• Aggregate construction and development loan limits of 15 percent of net worth.
  
  
• Minimum borrower equity requirement of 25 percent for construction and land development loans.
  
  
• Loan-to-value ratio requirement of 80 percent for business loans.
  
  
• Requirement for personal guarantee and liability.
  
  
• Maximum loan limit on unsecured business loans to one borrower or group of borrowers of the lesser of $100,000 or 2.5 percent of net worth.
  
  
• Aggregate unsecured business loan limit of 10 percent of net worth.
  
  
• Maximum loan limit to one borrower or group of borrowers of 15 percent of net worth or $100,000.

As any banker knows, many of these limits and requirements are there to ensure the safety and soundness of the depository institution and to protect the insurance fund from losses. 

I guess CUNA feels there is no place for such prudential limits in the credit union alternative universe of business lending. It only thwarts the efforts of credit unions to make more business loans.

This illustrates how reckless credit union business lending could become, if CUNA gets its wish; and why there needs to be limits imposed on credit union business lending.