NCUA Proposes Changes to Rules on Loans Between Credit Unions

NCUA Proposes Changes to Rules on Loans Between Credit Unions

NCUA Proposes Changes to Rules on Loans Between Credit Unions

The National Credit Union Administration has issued a proposed rule that would remove certain regulatory requirements related to loans made by one credit union to another. The proposal is part of NCUA’s broader effort to reduce regulatory burden while maintaining statutory safeguards and supervisory oversight.

This proposal focuses on eliminating a specific approval and policy requirement — not on changing lending limits or weakening safety and soundness standards.

What the Proposed Rule Does

NCUA is proposing to remove paragraph (b) of section 701.25 of its regulations.

That paragraph currently requires a credit union’s board of directors to formally approve all loans to other credit unions and to adopt written policies governing those loans, including policies addressing aggregate lending limits and borrower concentration limits.

Under the proposal, this specific regulatory requirement would be eliminated. As a result, the rule would no longer mandate board-approved written policies for loans to other credit unions under this section.

Why NCUA Is Making the Change

NCUA’s stated rationale is that the regulation is unnecessary and overly prescriptive.

Federal law already requires a federal credit union’s board of directors to approve loans to other credit unions. Because that statutory requirement exists, NCUA views the regulatory requirement as largely redundant.

The agency also notes that credit union boards are in the best position to determine whether formal written policies are appropriate, based on the size, volume, and risk profile of their lending activities. Removing the regulation is intended to provide greater flexibility without reducing accountability.

What It Means for Credit Unions

If finalized, the proposal would reduce prescriptive regulatory requirements, but it would not eliminate oversight or lending constraints.

Federal credit unions would still be subject to statutory requirements related to loans to other credit unions. Aggregate lending limits and borrower limits set elsewhere in the regulation would remain in effect.

Federally insured state-chartered credit unions would continue to follow applicable state law and any other relevant NCUA requirements. The proposal does not prevent examiners from reviewing these activities as part of the examination process.

In short, this is a reduction in required process and documentation, not a change to the underlying risk framework.

Practical Steps to Consider

While the rule is still in proposed form, credit unions may want to consider a few practical steps.

Review existing policies and board practices related to loans to other credit unions to understand what is currently driven by regulation versus internal governance preferences.

Consider whether existing risk management and approval practices remain appropriate if the regulatory requirement is removed.

Monitor the rulemaking process and examiner expectations if the proposal is finalized.

Final Thoughts

This proposal reflects a targeted deregulatory approach by NCUA — removing a requirement the agency views as duplicative while leaving statutory safeguards and supervisory authority intact.

If finalized, the change would give credit unions more flexibility in how they govern and document loans to other credit unions, without altering lending limits or eliminating examiner scrutiny