It is finally official! After a lengthy but worthwhile process for all, the NCUA Board approved IDFPR’s new Member Business Lending “MBL” rule during their April 20, 2017 meeting. The board’s action was necessary to provide unity and parity with NCUA’s MBL rule which has been in effect since January 1st, 2017. The revised Illinois MBL rule was approved by the Illinois Joint Committee on Administrative Rules “JCAR” on February 15th, 2017. The final version of the state MBL rule, which was effective on May 1st, 2017, will be published in the Illinois Register on Friday, May 5th, 2017. Some key changes in the new Illinois MBL Rule include:
- Utilizing a principles-based approach to regulation rather than relying on prescriptive standards and limitations
- Requirement for personal guarantees changed from an explicit requirement to an implicit expectation
- Aggregate MBL cap expressed as multiple of net worth, not percentage of assets. The final rule modifies the regulation to better conform to the statutory language for the MBL cap.
- Deletion of Section 190.165(e), which prohibited credit unions with an asset size of $30 million or less from making business loans.
- Provides greater flexibility to credit unions to meet the needs of their members through prudent risk-management practices.
- Emphasis on management to be prepared to provide documentation to support their ability to monitor and manage its commercial loan portfolio
At this point in time, the IDFPR Credit Union Section is in the process of developing critical guidance with respect to the new rule. The issuance of guidance is essential given the deletion of existing prescriptive standards and limitations. Stay tuned for more developments as the guidance component will be a constantly evolving animal as the NCUA, DFI and credit unions all go through an acclimation period with respect to the new MBL rule. As always, ICUL stands ready to assist our member credit unions to provide you with a smooth and informed transition to the new principals-based approached rule. The new Illinois MBL rule is here.
By: Patrick Smith, Senior Vice President, Regulatory Affairs