State Regulators Object to NCUA Loan Participation Proposal Posted by AVCU on 10:17 AM

NASCUS, the association of state credit union regulators formerly chaired by Vermont's Tom Candon, expressed objection this week regarding NCUA's proposal to regulate loan participations by federall insured state chartered credit unions. The National Association of State Credit Union Supervisors (NASCUS) expressed its objection a comment letter to the National Credit Union Administration (NCUA).

NASCUS said in its letter that concerns about loan participations can be reduced with strong underwriting, adequate program contract review and effective third party due diligence.

"We strongly recommend NCUA work with state regulators to address supervisory concerns regarding loan participations in a manner that does less harm to the dual chartering system, more effectively mitigates material risk, and improves oversight while not unnecessarily burdening credit unions," NASCUS wrote.

NASCUS agrees that loan participations present some material risk, but feels that NCUA's proposed rule fails to make a convincing case that is the best way to mitigate that risk, especially considering its impact on dual chartering and state law. Historically, state-chartered federally insured credit unions have looked to state law and regulation to govern their loan participation activities. NCUA’s proposal effectively wipes out the distinction between state and federal charters, according to NASCUS.

Vermont law permits loan participations by state chartered credit unions.