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A Direct Line Blog

Permissibility of Loans to Employees

June 21, 2023 7:30 am

By Donya Parrish, MCU VP- Risk Management

On a recent call with CEOs, ideas were shared on how to attract and retain employees in this highly competitive environment. One of the benefits that a credit union reported is popular with their staff is reduced loan rates for employees. Whether you are a state or federally chartered credit union, this is permissible.

Here are a few things to consider if you are interested in starting a program:

  • State chartered credit unions were granted this authority during the modernization of the State CU Act in 2015, so refer to 32-3-608(2) M.C.A. for that authority. It was previously limited to only computers or uniforms, and if your policy is outdated, it might still refer to the previous language.
  • Federal credit union authority is noted in 701.21 and does not allow loans to officials at rates more preferential than members, but employees are not subject to that restriction.
  • The credit union can (and often does) limit the rate reduction to only the time a person is employed and may have them sign a notice that upon termination or separation, the rate will revert to a disclosed rate or no longer include a percentage reduction.
  • Encouraging use of the credit union’s products can be a good way to help member employees understand them and promote the credit union, but underwriting for employee loans should still follow your normal process and parameters.
  • It is acceptable to offer a program after a period of employment or probationary period has passed, and your policy should address when it will be offered to employees and what products are included.
  • Involve your HR department to promote the program to prospective and hired employees and so they can be involved in updating the appropriate department upon a separation that requires a rate change.

Credit unions take care of their members’ financial needs, and it’s important that your own employees are included, too. If you have found success with a program of this nature, let me know so others can hear more about it.

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