February 27, 2012
Mary Rupp, Esquire
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Re: Proposed Amendments to 12 CFR Parts 742 Pertaining to the Regulatory Flexibility Program
Dear Ms. Rupp:
My comment is not in opposition to the proposed changes to the Regulatory Flexibility Program. My comment is to reinstate a deleted provision of Part 742. Previously, the Regulatory Flexibility Program permitted well capitalized credit unions to make business loans without the requirement to obtain personal guarantees. I request that this power be reinstated for well capitalized credit unions. I would not object if the rule required a further qualification to demonstrate business lending competence, such as a low loan delinquency rate. The point is that there are some excellent business lending credit unions that have to deny their members a competitive loan due to the past failure of other credit unions to make prudent lending decisions. These well run credit unions cannot match lending offers made by banking competitors.
To make the point of how anti-competitive this restriction is, NCUAâ€™s rule requires that a borrower give a personal guarantee even if the loan has collateral that is twice the value of the loan and the business has cash flow of $1 billion per year from guaranteed government contracts with no other debt service. The answer is not that the NCUA Regional Director can grant a waiver. In the real world, highly desirable borrowers immediately walk away when they hear of additional red tape in the lending process. Even if the Regional Director waiver process where used, the process places an undue burden on Regional Directors to make business lending decisions who may not be qualified underwrite business loans. The safe course for a Regional Director is to say no to all requests.
By taking a one size fits all approach, NCUA is saying that all credit unions are not competent to make a professional and informed lending decision as to whether a personal guarantee is necessary and prudent for a particular loan. If a financial institution wants to provide business loans, the desired charter is a bank not a credit union. Banking regulators give banks the ability to determine whether a personal guarantee is needed based on the credit analysis of the loan in question. If a bank is underperforming, underwriting restrictions are placed upon the bank. I am proposing a similar regulatory approach for credit unions. If a credit union demonstrates competence and has the capital to absorb losses the credit union should be free from this anti-competitive restriction.
If the personal guarantee waiver for well capitalized credit unions is reinstated, NCUA has an opportunity to send a new message. The message is that NCUA wants credit unions to serve more members, take advantage of more opportunities and become a bigger force in our nationâ€™s financial marketplace. Credit unions will begin to understand that they will no longer be regulated to the lowest common denominator and that success will be rewarded. Now there is a carrot to accompany the stick that makes the credit union charter much more attractive and creates a new type of relationship with NCUA.
I thank you for the opportunity to comment on this important proposal.
Very truly yours,
Guy A. Messick