Compliance Center: NCUA Issues Opinion Letter on Loan Participations in Indirect Loans

The National Credit Union Administration (NCUA) recently issued Legal Opinion Letter 15-0813 regarding loan participations and indirect lending. The Opinion Letter looks into the issue of whether a federally insured credit union (FICU) can be considered an originating lender when the credit union is the seller of a loan that is generated by an indirect lending arrangement with a retailer.

The Opinion Letter first looks at the process through a narrow reading of the rule. The NCUA’s loan participation rule allows a FICU to purchase a loan participation interest only from the lender that initially originated the loan.

But, the Opinion Letter then moves on to the broader interpretation of the definition of originating lender. When a retailer is acting as an agent of a FICU or other eligible organization and is simply performing as an administrative functionary, its activities would really just be an extension of the FICU’s lending operations. In this context the retailer is not acting as a separate lender generating loans for its self and then selling those to the FICU.

The conclusion of the Opinion Letter is that if certain conditions are met, under the indirect loan arrangement, the FICU could be considered the originating lender. Under these circumstances the indirect loan would be permitted to be sold under a loan participation agreement.

Compliance Question of the Week

What is a Social Security Representative Payee Account and how do I set one up?    

The Social Security Administration (SSA) appoints a “representative payee” for a recipient of social security funds that is not qualified to handle the funds on their own. For example, a minor, the aged who are not mentally competent, or some institutionalized persons. More information about the rules that govern representative payees can be found on the Social Security Administration website,

There are two different, but similar programs offered by the SSA. The first program is called the Social Security Representative Payee Program. The second program is called the Supplemental Security Income (SSI) Representative Payee Program. In either program there are three common rules that apply when creating an account. First, the beneficiary must own the account. Second, the beneficiary cannot have access to the account. Third, the beneficiary’s TIN must be used on the account.

In order to set up one of these accounts, the account should be titled: “Beneficiary’s Name by Payee Name, Representative Payee.” A credit union could either provide for this type of account in its account agreement, or use a trust account format or agency account format. The signature card should be signed: “Payee Name, Representative Payee for Beneficiary’s Name.” Since it is the beneficiary’s account, the beneficiary could qualify for membership or if the payee was qualified for membership, the payee could open the account for the beneficiary.

Related Link

SSA Rep Payee FAQs

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA issued a statement informing credit unions and consumers that October is Cybersecurity Awareness Month. The NCUA’s statement includes links to the various tools and resources that are available through the NCUA and other agencies.

The NCUA announced that it will hold a webinar titled “Data Mining: Golden Nuggets for Your Marketing Campaign”, aimed at helping credit unions understand the importance of data in their marketing campaigns.

Consumer Financial Protection Bureau (CFPB)

The CFPB sent a letter to the mortgage industry stating that its examiners will look for entities to make a good faith effort to comply with the TILA/RESPA Integrated Disclosure Rules.

The CFPB issued a Joint Statement on Student Loan Servicing aimed at helping minimize borrower defaults.

Federal Reserve Board (FRB) 

The FRB has published the October issue of FedFocus.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of October 2, 2015. The last update prior to this was October 1, 2015.

Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in NCUA.