By Donya Parrish, MCU VP- Risk Management
Have you ever wondered why loans to other board members or credit union officials are reported to your board during the monthly meeting? Both federal and state-chartered credit unions have an obligation to report (and, for some, to approve or deny) loans to “officials” that exceed $20,000 to the board of directors.
- The Montana Credit Union Act covers state-chartered credit unions and notes in 32-3-608 that “a credit union may make loans to its officials if:
(i) the loan complies with the requirements of this chapter with respect to loans to other borrowers and is not on terms more favorable than those extended to other borrowers; and
(ii) the loan or aggregate of loans to any one official that exceeds $20,000 plus pledged shares is reported to the board of directors.”
- Federal credit unions look to 12 CFR Part 701.21(d) for a similar provision, which notes, “(4) The board of directors shall, in any case, review and approve or deny an application on which an official is a direct obligor, endorser, cosigner or guarantor if the following computation produces a total in excess of $20,000.”
The definition for the term “official” also varies slightly for state and federally chartered credit unions. For a state chartered credit union “official” means a member of the board of directors, supervisory committee, or credit committee. For a federal credit union, “official” means any member of the board of directors or a volunteer committee.
And if you are asking why a board should be looking at loans to other board members, this statement from NCUA about the board’s duty provides good insight — “[a] director must carry out his or her duties in good faith, in a manner reasonably believed to be in the best interests of the membership of the credit union, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.” The statement goes on to note that “good faith” means, generally, “that directors should take care not to violate the law, and also not be involved in decisions that benefit the director personally.”
Lastly, this should not be a deterrent for volunteers to use their credit union for lending. After all, the confidentiality provisions keep their personal information secure, and it shows good faith to support your credit union’s lending programs by using them when needed.