NCUA: Personal Guarantee Waivers No Longer Required for Member Business Loans
May 16, 2016
May 16, 2016
According to an announcement from the National Credit Union Administration on Friday, credit unions now have the ability, under certain circumstances, to make member business loans without requiring a personal guarantee.
“As part of NCUA’s effort to move from prescriptive to principle-based regulation, we wanted a rule that put business decisions like this one in the hands of credit unions,” NCUA Board Chairman Rick Metsger said. “This way, credit unions can develop member business loan programs to better meet their members’ needs and their own strategic goals. Credit unions still need to have the people, procedures and policies in place to ensure continued safety and soundness, but they now have greater latitude to make decisions about how best to do that.”
The NCUA Board, at its February 2016 meeting, unanimously approved a modernized member business lending rule to give credit unions greater flexibility and autonomy to offer those loans in a safe and sound manner. The personal guarantee waiver requirement was removed as part of that rule and became effective last week.
The NCUA still considers a personal guarantee from those with a controlling interest in the borrower an appropriate risk-management practice. Under the final rule, a credit union that elects not to require a personal guarantee for a member business loan still must include documentation of mitigating factors that sufficiently offset the relevant risk in the loan file. Waiving the personal guarantee requirement may be appropriate for financially strong credit unions that have appropriate risk assessment and management processes in place.
Most of the provisions of the member business lending rule will take effect Jan. 1, 2017. The rule itself, along with a summary of key changes, is available online here.
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