PRIA, Government Policy, Made Personal

Summary

Starting August 7, 1998, insured credit unions may not have member business loans outstanding that exceed 1.75 times their net worth or 1.75 times the minimum net worth needed to be "well capitalized" — whichever is lower. There are exceptions for credit unions that were chartered to make mostly business loans, credit unions that mainly serve low-income members, and credit unions that are community development financial institutions. If a credit union had more than the allowed amount on August 7, 1998, it must cut those loans down to the allowed level within 3 years after that date. Key terms: "member business loan" = a loan, line, or letter of credit used for business or farm purposes (but not certain home loans, loans secured by shares or deposits, loans under $50,000 to a borrower or an associated member, loans fully guaranteed by a government agency, or loans from a corporate credit union to another credit union); "net worth" = retained earnings (and for low-income credit unions may include certain secondary capital accounts that are uninsured and subordinate); "associated member" = someone who shares ownership or a financial interest in the borrower's business. The Board must work with State credit union regulators when carrying out these rules.

Title 12, §1757a

Banks and Banking, Source: USLM XML via OLRC

(a)In general

On and after August 7, 1998, no insured credit union may make any member business loan that would result in a total amount of such loans outstanding at that credit union at any one time equal to more than the lesser of— (1)

(2)1.75 times the minimum net worth required under section 1790d(c)(1)(A) of this title for a credit union to be well capitalized.

(b)Exceptions

Subsection (a) does not apply in the case of— (1)

(2)an insured credit union that—

(A)serves predominantly low-income members, as defined by the Board; or

(B)is a community development financial institution, as defined in section 4702 of this title.

(c)Definitions

As used in this section

(1)

(2)the term “net worth”—

(A)with respect to any insured credit union, means the credit union’s retained earnings balance, as determined under generally accepted accounting principles; and

(B)with respect to a credit union that serves predominantly low-income members, as defined by the Board, includes secondary capital accounts that are—

(i)uninsured; and

(ii)subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the Fund; and

(3)the term “associated member” means any member having a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower.

(d)Effect on existing loans

An insured credit union that has, on August 7, 1998, a total amount of outstanding member business loans that exceeds the amount permitted under subsection (a) shall, not later than 3 years after August 7, 1998, reduce the total amount of outstanding member business loans to an amount that is not greater than the amount permitted under subsection (a).

(e)Consultation and cooperation with State credit union supervisors

In implementing this section, the Board shall consult and seek to work cooperatively with State officials having jurisdiction over State-chartered insured credit unions.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2018—Subsec. (c)(1)(B)(i). Pub. L. 115–174 struck out “that is the primary residence of a member” after “dwelling”.

Statutory Notes and Related Subsidiaries

Rule of

Construction

Pub. L. 115–174, title I, § 105(b), May 24, 2018, 132 Stat. 1301, provided that: “Nothing in this section [amending this section] or the amendment made by this section shall preclude the National Credit Union Administration from treating an extension of credit that is fully secured by a lien on a 1- to 4-family dwelling that is not the primary residence of a member as a member business loan for purposes other than the member business loan limitation requirements under section 107A of the Federal Credit Union Act (12 U.S.C. 1757a).” Study and Report Pub. L. 105–219, title II, § 203(b), Aug. 7, 1998, 112 Stat. 922, required the Secretary to conduct a study of member business lending by insured credit unions, with a final report to be sent to Congress not later than 12 months after Aug. 7, 1998.

§1757a Limitation on Member Business Loans