NCUA Clears Way for More Credit Union Fintech Lending Partnerships | Credit Union Journal

The National Credit Union Administration board voted unanimously to advance a proposed rule that would loosen existing regulations and allow credit unions to participate in or purchase more member loans from fintech companies.

Current regulations only permit a federal credit union to purchase loans made to its members from any source if those loans represent less than 5% of the purchasing credit union’s unimpaired capital and surplus.

Board member Rodney Hood said there are several exceptions to the rate, “but they are cumbersome to understand and impose a high regulatory burden.”

Hood said the proposed changes would instead allow credit unions to establish their own policies to govern their due diligence and risk management practices regarding the purchases, including establishing their own risk limits.

“I believe in a principles-based approach to regulation,” Hood said. “Focusing on the credit decision and who makes it is a critical factor under the proposed rule. I like the idea of ​​putting the burden on the credit decision and tying it to the origination process.”

NCUA Board Chairman Todd Harper said since the 2013 loan participation final rule went into effect, NCUA has received several inquiries from federal credit unions, fintech companies and other parties expressing confusion about how the rule should be interpreted. He said this confusion has led to inconsistent reporting of loan rates by federal credit unions and uncertainty about which regulations apply to which transactions.

“Credit unions should recognize and take advantage of the potential opportunities fintech can offer them. However, we must also recognize the potential risks they pose to credit unions, their members and the system and develop appropriate safeguards. This proposed rule strikes that balance,” Harper said.

The proposal comes at a time when credit unions are losing market share to fintech companies. Hood said that according to TransUnion, fintech loans make up 41% of all unsecured personal loan balances, up from 5% of outstanding balances in 2013. During the same period, credit union market share for unsecured personal loans fell from 31% in 2013 to 21% in 2021.

“Our current regulations have prescriptive limits on credit unions being able to compete in this market, and unless regulatory changes are made, credit unions may never be able to regain their presence in the new normal for lending,” Hood said.

The proposed rule would also remove the requirement that certain credit unions obtain NCUA approval to purchase nonmember loans from other federally insured credit unions. Currently, only credit unions rated Camels 1 or 2 and classified as well capitalized can purchase these loans without prior approval from the NCUA.

Under the new rules, any credit union will be able to purchase qualified obligations after establishing sound underwriting policies, but without having to submit a written request for approval.

Vice Chairman Kyle Hauptman said businesses need to innovate to stay relevant, and credit unions typically aren’t top of mind for most fintechs.

“So anything their regulator can do to improve the process of working with them is critical. At the very least, we don’t want fintechs – or any service providers – choosing not to work with credit unions because their regulator makes it unnecessarily difficult.” he said.

The proposed rule will be open for a 60-day comment period after it is published in the Federal Register.