NEWS: Gov. Evers has approved long-awaited changes to Wisconsin’s member business loan (MBL) rules for state-chartered credit unions.
The new rules, which are scheduled to take effect on June 1, provide a new definition of what is, and what is not, an MBL. Most importantly for credit unions, two kinds of loans will not be considered MBLs under the new rules:
- Non-member participation loans, and
- Loans secured by a one- to four-family residential property (whether owner-occupied or not). Previously, loans on one- to four-family residential property were treated as MBLs unless secured by the member’s primary residence.
Because of the changes to the MBL definition, those two types of loans will no longer count toward the aggregate cap on a Wisconsin credit union’s business loan portfolio, helping credit unions better serve the borrowing needs of businesses across the state.
This change was already approved once in Wisconsin (in 2020) but due to a three-year procedural delay in getting the NCUA to OK the change, the Wisconsin Office of Credit Unions (OCU) had to re-start the rulemaking process at the state level.
Background
Part 723 of the NCUA’s regulations covers “member business loans and commercial lending.” These MBL regulations apply to all federal credit unions and federally insured state-chartered credit unions; however, the NCUA allows states to adopt their own MBL regulations – with NCUA approval. State MBL rules must be “no less restrictive than” the NCUA rules. Wisconsin is one of seven states that have adopted such rules, meaning that state-chartered credit unions in Wisconsin and the other six states are exempt from the NCUA’s MBL rules.
The OCU adopted its current MBL rules for Wisconsin’s state-chartered credit unions more than 20 years ago. Approved by the NCUA on Feb. 7, 2002, the Wisconsin regulations were patterned after the NCUA’s MBL rules as they existed then. The NCUA has amended its MBL rules several times since then, though it has not required Wisconsin to update its rules to keep pace.
Effective on Jan. 1, 2017, the NCUA finalized a major overhaul to its MBL regulations. It adopted a “principles-based” approach to MBLs and eliminated many prescriptive limits on business lending, along with provisions that allowed exceptions to those limits in certain cases.
The OCU was not required to amend its MBL rules to match the 2017 NCUA changes, but it has chosen to follow the NCUA’s MBL definition.
The new MBL definition
The state’s new language is taken from NCUA Regulations §723.8(b) (defining a member business loan as a “commercial loan,” and listing exceptions) and §723.2 (defining a commercial loan and listing exceptions).
The OCU is now repealing and re-creating the state’s definition of an MBL, which is found in DFI CU 72.02, so that it closely mirrors the definition in the NCUA’s MBL rules. The Wisconsin definition will now read as follows:
DFI-CU 72.02. Member business loan. (1) “Member business loan” means a loan, line of credit, letter of credit including unfunded commitments, and any interest a credit union obtains in such loans made by another lender to individuals, sole proprietorships, partnerships, corporations or other business enterprises for commercial, industrial, agricultural or professional purposes.
(2) “Member business loan” does not include any of the following:
(a) Loans for personal expenditure purposes.
(b) Loans made by a corporate credit union.
(c) Loans made by a federally insured credit union to another federally insured credit union.
(d) Loans made by a credit union to a credit union service organization.
(e) Loans secured by a one- to four-family residential property.
(f) Loans fully secured by shares in the credit union making the extension of credit or deposits in other financial institutions.
(g) Loans secured by a vehicle manufactured for household use, except that such loans will be considered member business loans if they will be used for a purpose set forth in sub. (1) and the outstanding aggregate net member business loan balance is $50,000 or greater.
(h) Business purpose loans that are equal to or less than $50,000 after calculating the aggregate outstanding balances plus unfunded commitments less any portion secured by shares in the credit union held by the borrower or an associated borrower.
(i) Loans for which a federal or state agency fully insures repayment, fully guarantees repayment, or provides an advance commitment to purchase the loan in full.
(j) Any non-member business purpose loan or non-member participation interest in a business purpose loan made by another lender, provided the credit union acquired the loan or interest in compliance with all relevant laws and regulations and the credit union is not, in conjunction with another credit union, trading member business loans to circumvent the aggregate limit.
The state is also updating various rules to correct out-of-date cross-references, repeal obsolete provisions, and make other minor modifications.
The League is updating its ii Release No. B027 – “Business Loans” – to reflect the changes in state law.