Business Loan Legal Opinion Redefines Number and Use of “Fleet” Vehicles

A recent National Credit Union Administration (NCUA) legal opinion revises the definition of a “fleet” for purposes of member business lending (MBL). The previous definition applied to two or more vehicles used to deliver a product or service integral to business. The updated definition allows for five or more vehicles that are centrally controlled and used for a business purpose.

The opinion explains that the member business lending rule requires all member business loans meet certain collateral and security requirements. The maximum loan-to-value ratio, for example, cannot exceed 80 percent unless the excess above that percentage is covered by insurance or a similar guarantee. The rule allows credit unions to make business vehicle loans without complying with that loan-to-value requirement except in the case of “fleet” vehicles. This is because fleet vehicles tend to depreciate more quickly than non-business, personal-use vehicles and therefore pose a higher risk to the lending credit union.

By updating the “fleet” definition, NCUA is giving credit unions greater flexibility in making lending decisions. A credit union making a loan to a member who owns a business with fewer than five vehicles would qualify for the loan-to-value exception. The opinion is consistent with the way fleet vehicles are treated by the Internal Revenue Service and auto industry standards.

The NCUA legal opinion is available here.


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Posted in NCUA.