Some credit unions didn’t get the news they wanted regarding recent changes by the National Credit Union Association (NCUA) to the Member Business Lending (MBL) regulations. The announcement included the removal of the requirement for personal guarantees from business loan borrowers. What the announcement didn’t include, to the chagrin of some credit unions, was the removal of the so-called “MBL cap.” If you aren’t familiar with this part of the regulation, Section 723.16(a) states “The aggregate limit on a credit union's net member business loan balances is the lesser of 1.75 times the credit union's net worth or 12.25% of the credit union's total assets.”
The MBL cap has long been a regulatory sore spot with some credit unions and some government officials. As far back as 2010, there were U.S. Congressmen sponsoring legislation to increase the MBL cap. Even as recent as May 2016, there were Congressional leaders expressing their desire to see the cap increased to encourage credit unions to expand lending to small business owners. (1) But the reality is that raising the cap would only positively impact a small number of credit unions. Credit Union Journal pointed out that of the 5,954 federally insured credit unions, only 106 credit unions were relatively close to the cap. (2)
Why then is the MBL cap such a “hot button” for some credit unions, especially when there are several ways, other than new legislation, to work around the cap?