As a follow up to correspondence sent out a couple of weeks ago regarding the elimination of the personal guarantee requirement under the new MBL rule, we received feedback that this is not the case for federally insured state-chartered credit unions in Illinois. Illinois state-chartered credit unions must still obtain personal guarantees on all MBLs.
State regulators, under the current MBL rule, had the option to adopt their own MBL rules and regulations if they were approved by NCUA. If approved, federally insured state-chartered credit unions in those states were exempt from the NCUA’s regulation. Seven states took advantage of this option – Maryland, Connecticut, Texas, Washington, Oregon, Wisconsin and Illinois.
Under the new MBL Rule, these previously approved state MBL rules remain in effect. This serves as a reminder that the new NCUA MBL regulation grandfathers in the rules of these seven states. Further, the new rule allows a state to pass its own MBL rule so long as it is at least as stringent as the NCUA MBL regulation and complies with the requirements of the Federal Credit Union Act. Therefore, on the effective date of the new NCUA MBL regulation on January 1, 2017, federally insured state-chartered credit unions in the states mentioned above will continue to be subject to their respective state MBL rules (i.e. limits on C&D loans; explicit loan-to-value limits; waiver procedures; etc.).
Back to Illinois. Six of the seven state rules mentioned above already eliminate the need for the personal guarantee without a waiver. Therefore, on the issue of personal guarantee waivers, nothing in those states changes. However, Illinois adopted the current NCUA rule as its own and NCUA approved it. Therefore, the new MBL rule does not apply to Illinois state-chartered credit unions and all must still obtain personal guarantees on member business loans. The same would be true in January regarding LTV requirements and the like.
If you have any questions about any of the information above, or any other questions concerning the new MBL regulation, please contact Mike Heller at 610-891-9000 or firstname.lastname@example.org.