WSR 98-23-062




[Filed November 16, 1998, 10:27 a.m.]

Subject of Possible Rule Making: Member business loans.

Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 31.12.426(1).

Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: Superseding NCUA's MBL Rules: All Washington state-chartered credit unions (WASCUs) are federally insured by the National Credit Union Share Insurance Fund (NCUSIF), administered by the National Credit Union Administration (NCUA). RCW 31.12.407. Among other requirements, the NCUA requires all insured credit unions to comply with its member business loan (MBL) rules. 12 C.F.R. Section 741.203; Part 723 (recently adopted at 63 Federal Register 51793, September 29, 1998).

The NCUA's MBL rules preempt the application of any less restrictive state laws to federally insured, state credit unions, including the DFI's MBL rules (chapter 208-464 WAC). As a result of this preemption, the DFI's existing MBL rule does not apply to any WASCUs, unless nonfederally insured credit unions are permitted to do business in this state in the future under RCW 31.12.408. For this reason, the DFI intends to repeal its existing MBL in a separate proceeding.

However, state MBL rules may, upon a determination by the NCUA board, supersede the NCUA's MBL rules. 12 C.F.R. Section 741.203(a). Although in the past the NCUA would not reach such a determination unless the state MBL rules were virtually identical to the NCUA's, the NCUA has recently given signals that it is willing to relax its standards.

The DFI believes that it should adopt new MBL rules that are more flexible than its existing MBL rules, for submission to the NCUA board for such a determination. More flexible rules will allow credit unions to better serve the needs of their members. Because DFI's existing MBL rules need to be extensively revised, the DFI believes that it would be more convenient to adopt new MBL rules, rather than amend its existing MBL rules. To revise its MBL rules for this purpose, the DFI is adopting new MBL rules through this rule-making proceeding.

The DFI's new MBL rules will not take effect until the NCUA board has reached a determination that they supersede the NCUA's MBL rules.

Substance of DFI's New MBL Rules: The DFI intends to use the NCUA's new MBL rules as a starting point for drafting DFI's new MBL rules. See the NCUA's interim final MBL rules at 63 Federal Register 51793, September 29, 1998. Interested parties should provide comments to the Division of Credit Unions on which provisions of the NCUA's MBL rules should be amended or deleted, and what new provisions should be added to these rules, for the purpose of drafting the DFI's new MBL rules.

Expedited Repeal of DFI's Existing MBL Rules: On the date of filing of this form CR-101, the DFI is filing a preproposal statement of inquiry, form CR-101XR, for the expedited repeal of its existing MBL and appraisal rules.

Continuing Safety and Soundness Restriction on Aggregate MBL as Multiple of Reserves: Notwithstanding the proposed repeal of WAC 208-464-030, a section in DFI's existing MBL rules, the DFI has taken the position that as a matter of safety and soundness the aggregate amount of a credit union's MBL (as defined by the Federal Credit Union Act, as recently amended by H.R. 1151) may not exceed an amount equal to three times its reserves, without the written permission of the DFI.

Other Agencies' Regulation of MBL: No other Washington state agencies regulate credit unions' MBL.

Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: See above.

Process for Developing New Rule: Consultation with interested parties.

Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication by contacting J. Parker Cann, Director of Credit Unions, Department of Financial Institutions, P.O. Box 41200, Olympia, WA 98504-1200, phone (360) 902-8778, fax (360) 704-6978, e-mail

November 13, 1998

John L. Bley