May 22, 1996
Kari Greathouse
Missouri Credit Union System
55 Craigshire Drive
St. Louis, MO 63146
You have asked whether a credit union can make
and retain business loans if the credit union does not have any
staff experienced in business lending but instead contracts with
an experienced third party to assist the credit union in reviewing
and making business loans. This type of business lending practice
is permissible.
Section 701.21(h)(2)(i)(F) of NCUA's Regulations
requires that a credit union's written member business loan policies
address the "[q]ualifications and experience of personnel
involved in making and administering business loans with a minimum
of 2 years direct experience with this type of lending."
The preamble to this regulation, 56 Fed.Reg. 48421, 48423 (Sept.
25, 1991), also addresses this requirement and states in part
that the regulation:
. . . . requires that the board of directors establish qualification requirements for personnel. This section has been revised to require at least 2 years direct experience of personnel involved in making and administering business loans. Although 14 commenters objected to this requirement, the Board remains convinced that minimum experience requirements are necessary. The responsibility of determining the criteria to be used to establish the minimum qualifications rests with the board of directors.
The intent of this section is to ensure that
each type of credit offered is properly underwritten and administered.
For example, the lending process involved with commercial real
estate differs significantly from that of lending for business
inventory or equipment. In this example, a credit union involved
in both types of business lending would be required to establish
qualified personnel for each type [of] credit. In some cases,
this may require that more than one individual be used. Credit
unions are not required to hire staff but must ensure that the
expertise is available, as necessary, to meet the requirements
of this section. This could be met, for example, by hiring contract
assistance on a case-by-case basis.
Kari Greathouse
May 22, 1996
Page 2
Neither the member business loan regulation
nor its preamble specify what type of controls the credit union
must maintain over this third party. You may wish to contact
the regional office to discuss what type of internal controls
would be appropriate for a credit union engaging in business lending
in this fashion.
Sincerely,
Richard S. Schulman
Associate General Counsel
GC/MJMcK:bhs
SSIC 3501
96-0440