𝗪𝗵𝗲𝗻 𝘁𝗵𝗲 𝗚𝘂𝗮𝗿𝗱𝗿𝗮𝗶𝗹𝘀 𝗖𝗼𝗺𝗲 𝗢𝗳𝗳: 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝗡𝗖𝗨𝗔'𝘀 𝗣𝗿𝗼𝗽𝗼𝘀𝗲𝗱 𝗥𝘂𝗹𝗲 𝗼𝗻 𝗜𝗻𝗱𝗶𝗿𝗲𝗰𝘁 𝗩𝗲𝗵𝗶𝗰𝗹𝗲 𝗟𝗼𝗮𝗻 𝗦𝗲𝗿𝘃𝗶𝗰𝗶𝗻𝗴

For 20 years, NCUA capped how much indirect vehicle lending a credit union could run through any single servicer. That cap is about to disappear.

The proposal, published in the Federal Register on March 25th, would eliminate Section 701.21(h) for federal credit unions and Section 741.203(c) for federally insured state charters. The waiver process goes with it. What replaces the concentration cap is board policy — limits set by each institution's leadership, calibrated to its own size, complexity, and the specifics of each servicer relationship.

Two structural details in the current rule are worth understanding before assessing the change. First, the limits are measured per servicer, not across a credit union's total indirect lending activity. A credit union could have multiple third-party servicer relationships, each with its own 50%/100% ceiling. Second, the rule covers both direct indirect vehicle loans and participations in indirect vehicle loans — both count toward the concentration limit for a given servicer.

The case for removing the rule is stronger than it might initially appear. NCUA's concentration risk guidance letter to credit unions has been the more substantive supervisory standard all along. That letter requires board-approved concentration limits tied to net worth — set by policy, not regulatory default. It requires documented frameworks for assessing individual and aggregate exposure, stress testing under adverse conditions, and regular board reporting on concentration positions. Institutions with concentrations exceeding 100% of net worth in any product category are expected to document the board's rationale. None of that changes when the per-servicer cap is removed.

Examiners also retain full safety-and-soundness authority — a more flexible and effective tool than any fixed percentage. They can require reduced concentration limits, demand more robust risk frameworks, or direct a credit union to pause new indirect lending until adequate governance is in place.

NCUA also maintains internal escalation thresholds requiring sign-off from regional or national leadership for programs above certain concentration levels, creating an additional checkpoint independent of the published regulatory ceiling.

The concern worth taking seriously is the sophistication gap. The 2006 rule was designed primarily as a trip wire for smaller institutions — those entering indirect programs without deep management experience, established concentration risk frameworks, or the infrastructure to track and evaluate servicer performance over time. Those institutions now bear the responsibility for filling that void on their own.

At the same time, NCUA has lost a significant portion of its experienced examiner staff, which means leaner coverage and less institutional depth at the examination level.

The guardrails are coming off at the same time the people watching the road have less experience behind them.

Consistent application of principles-based supervision across three regions, with a workforce that has less collective experience than it had two or three years ago, is a genuine operational challenge.

For credit unions with active indirect vehicle lending programs, four steps make sense right now:

→ Review any board policy that references the old 50% or 100% per-servicer limits as a ceiling — that language will need to be updated when the rule is finalized.

→ Run a checklist against NCUA's concentration risk guidance letter and assess whether your current documentation and governance practices fully meet that standard.

→ Document the rationale behind your concentration limits for each servicer relationship. Under principles-based supervision, examiners will be evaluating the quality of that reasoning, not just a number.

→ If you have a view on this proposal, consider submitting a comment letter. The deadline is May 26th.

This isn't deregulation for its own sake. But whether it works depends on execution — at the credit union level and at the agency. We'll be tracking both.

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