Prepared by the NASCUS Regulatory Affairs Department
NCUA has issued a final rule making changes to Part 705, the Community Development Revolving Loan Fund (CDRLF) Access for Credit Unions. NCUA intends the changes to lessen regulatory burdens, eliminate outdated procedures, and advance transparency with respect to loans and technical assistance from the CDRLF. The CDRLF program applies for federally insured state-chartered credit unions by incorporation by reference in §741.207.
The CDRLF was created by Congress in 1979 and has been administered exclusively by NCUA since 1986. As of June 30, 2011, the CDRLF had over $17.6 million in assets. The CDRLF serves as a source of financial support, in the form of both loans and technical assistance grants, for low income designated credit unions. It also serves as a source of funding to help low-income credit unions respond to emergencies arising in their communities. The CDRLF is administered by NCUA’s Office of Small Credit Union Initiatives (OSCUI).
Changes to § 705 include:
- Elimination of the “community needs” plan requirement;
- Maximum single loan may exceed $300,000 in certain circumstances;
- No mandatory matching requirement;
- Potential for lower interest rate;
- New section detailing how NCUA evaluates applications;
- New section explaining reporting requirements and NCUA monitoring;
- New option to fund credit unions’ urgent needs; and
- Flexible repayment of loan principal.
The final rule also eliminates the requirement that NCUA charge an interest rate between 1 and 3 percent APR, providing NCUA the flexibility to charge below-market APR no matter how low or how high the prevailing rates. All of the changes to the rule represent the first substantive changes to §705 since 1993.
The final rule, which may be found here, will become effective on December 2, 2011.
New final §705 makes the following changes to the CDRLF rule:
NCUA has changed the title of Part 705 from “Community Development Revolving Loan Fund for Credit Unions” to “Community Development Revolving Loan Fund Access for Credit Unions.”
§705.8 Qualifying State-Chartered Credit Unions – This section details the requirements for state-chartered credit union participation in the CDRLF. The requirements include obtaining written concurrence from the credit union’s state regulatory authority, making state examination reports available to NCUA, and agreeing to examination by NCUA.
§705.1 Authority, Purpose and Scope – NCUA has combined the first three section of existing Part705 into a more streamlined single section. The revised section also rephrases NCUA’s purpose for the program to a more general “credit unions will be able to provide basic financial services to low-income members of these communities, resulting in more opportunities for these members to improve their financial circumstances.”
§705.2 Definitions -The final rule adopts a new definition of a “qualifying credit union” which is a credit union that may be, or has agreed to be, examined by NCUA and holds a current low-income designation. The low-income designations must be made pursuant to §701.34 (FCUs) or §741.204 (FISCUs).
[NASCUS note: Non-federally insured credit union may participate the CDRLF program, if it first agrees to an examination by NCUA.]
§705.4 Permissible Uses of Loan Funds – The final rule expands the non exhaustive list of permissible uses CDRLF loan funds, including operational programs, such as security or disaster recovery.
§705.5. Terms and Conditions – The old rule included numerous very specific program provisions related to terms and conditions. The final rule eliminates much of that information, providing guidelines and allowing specific loan terms and conditions to be enumerated in the loan documents. Changes include:
- While the maximum loan amount is generally $300,000, loans may exceed this amount in certain circumstances
- The final rule eliminates specific reference to the range of interest rates that may be charged on a loan (1% to 3% under the previous rule). NCUA will now have increased flexibility to adjust interest rates.
- Under the final rule the matching requirement is no longer mandatory. NCUA may require matching funds at its discretion, on a case-by-case basis, depending on the financial condition of the particular credit union. However, the final rule retains the non-government element of matching when it is required.
- The final rule provides that NCUA may allow flexible repayment of loan principal in some instances.
§705.6 Application and Award Processes – The final rule combines and clarifies several provisions regarding the application process for funds and NCUA’s decision making on applications. Changes include:
- NCUA will no longer publish an annual notice of program, but rather will inform credit unions and the public of funding opportunities through a variety of means.
- The requirement that a credit union develop a “Community Needs Plan” is eliminated. Credit unions applying for funds must now provide a written narrative describing how the institution intends to use a financial award from the Fund.
- In determining awarding of funds, NCUA will consider whether proposed uses of funds are compatible with program goals, and whether the credit union is likely to be successful in accomplishing its stated objectives. NCUA will also consult with the credit union’s examiners and seek the concurrence of the Regional Director.
- A credit union classified as “nonqualified” (application denied) can appeal to the NCUA the Board the issue of qualification, but not whether a particular loan or technical assistance grant is awarded among qualified credit unions. Awards from the Fund are discretionary and that determination is not subject to administrative appeal to the Board.
- The final rule contains a new provision requiring the participating credit union to sign all applicable loan documents and the promissory note prior to NCUA’s disbursement. The section also provides that NCUA may, in its discretion, choose not to disburse the entire loan at once.
§705.7 Urgency – Under the final rule NCUA may consider a funding request from a qualifying credit union experiencing an unplanned expense upon the credit union’s demonstration of a compelling need for immediate assistance without which its continued operations would be threatened or severely disrupted. Credit unions requesting urgent funding must still demonstrate a purpose consistent with the goals of the Fund.
§705.9 Reporting and Monitoring -The final rule requires participating credit unions to submit reports to NCUA describing how funds have been used. The reports must be submitted at such times and in such format as prescribed by NCUA.
§705.10 Technical Assistance GrantsSection – The final rule incorporates the NCUA Interpretative Ruling and Policy Statement (IRPS) 11-1, published January 20, 2011. Technical assistance grants (TAGs) are paid as reimbursements to participating credit unions. If a participating credit union’s submission for reimbursement is denied, the credit union may appeal NCUA’s Supervisory Review Committee.