Idaho Admin. Code r. 12.01.04.040

Current through August 31, 2023

Section 12.01.04.040 - MEMBER BUSINESS LOANS

01.Definitions. For the purposes of this rule, the following definitions apply: (3-31-22)

a. The term "member business loan" means any loan, line of credit, or letter of credit, the proceeds of which will be used for a commercial, business, or agricultural purpose, except the following are not considered member business loans for the purpose of this rule: (3-31-22)

i. A loan or loans fully secured by a lien on a one to four family dwelling that is either the member's primary residence, or the member's secondary residence. (3-31-22)

ii. A loan that is fully secured by shares in the credit union or deposits in other financial institutions. (3-31-22)

iii. A loan, the proceeds of which are used for a commercial, business, or agricultural purpose, made to a borrower or an associated member, which, when added to such other loans to the borrower, is less than fifteen thousand dollars ($15,000). (3-31-22)

iv. A loan, the repayment of which is fully insured or fully guaranteed by, or where there is an advance commitment to purchase in full by, an agency of the federal government or a state or any of its political subdivisions. (3-31-22)

b. "Reserves" means all reserves including the allowance of loan losses account and undivided earnings or surplus. (3-31-22)

c. "Associated Member" means any member with a common ownership, investment or other pecuniary interest in a business or commercial endeavor. (3-31-22)

d. "Immediate Family Member" means a spouse or other family members, related by blood or operation of law, living in the same household. (3-31-22)

02.Requirements. A credit union may make member business loans only in accordance with the following requirements: (3-31-22)

a. Written Loan Policies. Except as provided in this section, the board of directors must adopt specific business loan policies within sixty (60) days of the effective date of this rule and review them at least annually. A credit union must submit the proposed written policies, and any future amendments to the policies, to the Director for approval at least thirty (30) days prior to the proposed date of implementation of the member business loan program or amendments. Any credit union that is NCUA insured must also provide notice and a copy of the loan policies or amendments to the appropriate NCUA regional office within thirty (30) days before adoption and implementation of the policies or amendments. (3-31-22)

b. Credit Unions that do not intend to make member business loans do not have to adopt and implement these policies. However, if such a credit union decides to begin making member business loans at some time in the future, the requirements of this section will apply, except that the specific business loan policies must be adopted and implemented no less than thirty (30) days before any member business loan is made that, at a minimum, address the following: (3-31-22)

i. Types of business loans that will be made. (3-31-22)

ii. The credit union's trade area for business loans. (3-31-22)

iii. Maximum amount of the credit union's assets in relationship to reserves that will be invested in business loans, not to exceed three hundred percent (300%). (3-31-22)

iv. Maximum amount of credit union assets in relationship to reserves that will be invested in a given category or type of business loan. (3-31-22)

v. Maximum amount of credit union assets, in relation to reserves, that will be loaned to any one (1) member or group of associated members. (3-31-22)

vi. Qualifications and experience of personnel involved in making and administering business loans. (3-31-22)

vii. Analysis of ability of the borrower to repay the loan. (3-31-22)

viii. The following considerations shall be addressed unless the board of directors finds that they are not appropriate for a particular type of business loan and states the reasons for those findings in the credit union's written policies: balance sheet, trend and structure analysis; ratio analysis of cash flow, income and expenses, and tax data; leveraging; comparison with industry averages; receipt and periodic updating of financial statements and other documentation, including tax returns. (3-31-22)

ix. Collateral requirements, including loan-to-value ratios; appraisals, title search and insurance requirements; steps to be taken to secure various types of collateral; and how often the value and marketability of collateral is to be reevaluated. (3-31-22)

x. Appropriate interest rates and maturities of business loans. (3-31-22)

xi. Loan monitoring, servicing, and follow-up procedures, including collection procedures. (3-31-22)

c. Loans to One (1) Member. The following restrictions apply to credit unions loans to one (1) member. (3-31-22)

i. The aggregate amount of outstanding member business loans to any one (1) member or group of associated members shall not exceed twenty percent (20%) of the credit union's reserves. (3-31-22)

ii. If any portion of a member business loan is fully secured by a one (1) to four (4) family dwelling that is the member's primary residence or secondary residence, or by shares in the credit union or deposits in another financial institution, or insured or guaranteed by, or subject to an advance commitment to purchase by, any agency of the federal government or of a state or any of its political subdivisions, such portion shall not be calculated in determining the twenty percent (20%) limit. (3-31-22)

iii. Credit unions seeking an exception from the twenty percent (20%) limit must present to the Director the higher limit sought, an explanation of the need to raise the limit, an analysis of the credit union's prior experience making member business loans, and a copy of its business lending policy. In addition, at the same time this information is presented to the Director, any credit union that is NCUA insured must also submit a copy of the information to the appropriate NCUA regional office for its review and comment. (3-31-22)

iv. Any decision by the Director to grant any request to exceed the twenty percent (20%) loan-to-one borrower's limit will be made only after consultation and coordination with NCUA. (3-31-22)

d. Allowance for Loan Losses. The determination of whether a member business loan will be classified as substandard, doubtful, or loss will rely on factors not limited to the delinquency of the loan. Non-delinquent loans may be classified, depending on an evaluation of factors including, but not limited to, the adequacy of analysis and documentation. (3-31-22)

e. Loans classified shall be reserved as follows: (3-31-22)

i. Loss loans at one hundred percent (100%) of outstanding amount; (3-31-22)

ii. Doubtful loans at fifty percent (50%) of outstanding amount; and (3-31-22)

iii. Substandard loans at ten percent (10%) of outstanding amount, unless other factors (e.g., history of such loans at the credit union) indicate that a greater or lesser amount is appropriate. (3-31-22)

03.Prohibitions. A credit union may not make member business loans to the following nonvolunteer, senior management employees, or to any associated member or immediate family member of such employees: (3-31-22)

a. The credit union's chief executive officer; typically this individual holds the title of president, treasurer, or manager. (3-31-22)

b. Any assistant chief executive officers; often the assistant manager. (3-31-22)

c. The chief financial officer or comptroller. The credit union shall not grant a member business loan where any provision for the payment, or the amount of the payment, on the loan is conditioned on the profitability or success of the business or commercial endeavor for which the loan is made. (3-31-22)

Idaho Admin. Code r. 12.01.04.040