The Immediate, Welcomed Relief from S. 2155

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Several credit unions in California and Nevada are feeling immediate regulatory relief from S. 2155 as their capacity to make more business loans in the local community and help grow the economy has been broadened.

This major legislative package for all financial institutions took effect June 1 and included a reprieve in many areas. But its most positive and prompt impact on credit unions today is a reversal on how one-to-four unit non-owner occupied residential loans are treated, which will provide great flexibility in serving members. These loans have traditionally been classified as “member business loans” (MBLs)—but not anymore.

“The National Credit Union Administration acted quickly to implement the member business lending (MBL) cap change,” said Sharon Lindeman, vice president of regulatory advocacy for the California and Nevada Credit Union Leagues.

Relief on these residential loans is a victory that’s been several years in the making for many leaders in the industry who traveled to Washington, D.C. annually to meet with congressional lawmakers and locally in-district to provide meaningful context on why such a provision is justified. For years, NCUA’s MBL “cap” on a credit union has been 12.25 percent of its total assets, with some credit unions hitting their statutory limit since they were traditionally mandated to classify one-to-four unit non-owner occupied residential loans as MBLs.

That changed overnight last week. “Credit unions now have no restrictions on these loans, which has freed up business lending capacity for many, opened up business lending as a new product for others, and allowed more non-owner occupied residential lending so they can meet their members’ needs,” said Jeremy Empol, vice president of federal government affairs for the Leagues.

Many credit unions aren’t holding business loans on their books but instead have these one-to-four unit residential loans. It’s forced them to hit their member business lending cap since these loans were classified as such.

As of today, these credit unions are nowhere near hitting their MBL cap. Redwood CU is a good example—a credit union steeped for years in business lending due to its community’s needs. “We had to stop doing non-owner occupied loans in 2008 in order to manage our cap,” said CEO Brett Martinez.

He said the ability to make more non-owner occupied loans will be a huge benefit going forward, especially in a community recouping from major wildfires losses last year and in dire need of home-rebuilding efforts.

“By far the biggest benefit to Redwood Credit Union from this legislation is the one-to-four non-owner occupied provision,” Martinez added. “We are excited to see the credit union movement secure a ‘win’ for its members. Our appreciation goes out to the Leagues and the Credit Union National Association for their tireless work and strategic efforts to get this bill passed.”

Smaller credit unions are positively impacted as well. Santa Ana FCU doesn’t make MBLs. Nonetheless, it couldn’t make one-to-four unit non-owner occupied residential loans either simply because they were classified as “business” loans.

“We had to turn members away when they came to us,” said CEO Jill Mahany. “Now that we are permitted to do these types of loans, we will be able to better serve our membership. With S. 2155, it now opens the doors for more loan opportunities for our credit union and its members.”

Empol said the one-to-four unit provision within the regulatory relief bill also provides stability in planning for the future.

“It frees up lending capacity in both spaces for credit unions—member business loans and non-owner occupied lending,” he said. “It makes for better long-term strategic planning and vision going forward. It’s going to allow credit unions to find efficiencies to make the institution that much stronger, all for members.”

The entire bill, which modifies key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, was passed by Congress and signed into law by President Donald Trump in May. Click here for a chart from CUNA on implementation dates.