Pursuant to the Federal Credit Union Act, the National Credit Union Administration issued a temporary final rule on April 21, easing regulatory requirements to assist federal credit unions (“FCUs”) and federally insured credit unions (“FICUs”) during the coronavirus (“COVID-19”) pandemic. The rule makes the following key changes that will be effective through December 31, 2020:
- Raises the maximum aggregate amount of loan participations that a FICU may purchase from a single originating lender to the greater of $5 million or 200% of the FICU’s net worth;
- Suspends limitations on the eligible obligations that a FCU may purchase and hold; and
- Tolls the required timeframes for the occupancy or disposition of properties that are not being used for FCU business or that have been abandoned.
FICUs are generally authorized to engage in participation lending with other credit unions, credit union organizations, or financial organizations, but the aggregate amounts of those loan participations are normally limited to the greater of $5 million or 100% of a FICU’s net worth in order to mitigate concentration risks and protect against insolvency. In this rulemaking, the NCUA raises the aggregate amount threshold to the greater of $5 million or 200% of net worth to assist FICUs in maintaining adequate liquidity during the COVID-19 pandemic.
Limitations on Eligible Obligations
FCUs are authorized to purchase, sell, or pledge all or part of eligible obligations to their own members, but the NCUA normally imposes a couple of key requirements: (1) a FCU may purchase an eligible obligation only if it can grant the loan or the loan is refinanced within 60 days to allow the FCU to grant it; and (2) a FCU cannot purchase a loan unless the person liable on the loan is a credit union member, subject to some exceptions. Due to the COVID-19 pandemic, the NCUA is suspending the refinancing requirement. Additionally, the NCUA is expanding its exceptions to the second requirement described above by authorizing FCUs with capital adequacy, asset quality, management, earnings, liquidity, and sensitivity (“CAMELS”) ratings of 1, 2, or 3 to purchase eligible obligations regardless of whether the obligations belong to their members. The NCUA believes that these temporary changes will promote the extension of credit and facilitate downstream loan purchases to increase the flow of liquidity in the credit union system.
Occupancy or Disposition of Properties
FCUs are authorized to purchase, hold, and dispose of properties that are necessary or incidental to their operations. For those properties that FCUs are authorized to purchase, FCUs normally must partially occupy them within six years of acquisition and make efforts to dispose of abandoned properties. Considering how the COVID-19 pandemic has forced many states to implement physical distancing measures, the NCUA realizes that these temporal requirements may not be feasible. Thus, the NCUA temporarily is tolling the mandated timeframes so that any days between April 21 and December 31, 2020 do not count for the purpose of determining FCUs’ regulatory compliance.