February 3, 2006
Cary C. Boyden, Esquire
Boyden, Cooluris, Livingston, & Saxe, P.C.
400 Capitol Mall, Ste 1625
Sacramento, CA 95814
Application of Member Business Loan (MBL) Rule to Commercial
Dear Mr. Boyden:
You have asked if the MBL rule applies to a credit union loan to finance a
commercial vehicle lease. The MBL rule, subject to certain exceptions, applies
to any loan, line of credit, or letter of credit where the borrower uses the proceeds
for a commercial, corporate, or business purpose. 12 C.F.R. §723.1(a)-(b). If
the MBL rule applies, you contend a loan to finance a commercial vehicle lease
cannot meet the loan-to-value ratio (LTV) requirements of the rule. 12 C.F.R.
§723.7(a). In these circumstances, we suggest a credit union can request a
waiver for a loan or group of loans that cannot or does not meet the LTV
requirements of the MBL rule. 12 C.F.R. §723.10(d).
The information you provided indicates your credit union client wants to finance
leases for fleets of vehicles used for commercial purposes. You have considered
the application of the requirements of both NCUA’s leasing and MBL regulations
and contend that, given the nature of loans to finance leases, borrowers cannot
meet the LTV requirements of the MBL rule. 12 C.F.R. Part 714 and §723.7(a).
You note that the “full payout requirement” in the leasing rule serves a function
similar to the LTV requirement in the MBL rule. 12 C.F.R. §714.4(b). Your
inquiry does not state if your client is a federal credit union (FCU) or a federally
insured state-chartered credit union (FISCU), so we note that, while Part 723, the
MBL rule, applies to both FCUs and FISCUs, Part 714 applies to FCUs but not
FISCUs. 12 C.F.R. Parts 714, 723.
The NCUA has long recognized the authority of FCUs to finance leasing as long
as the leasing arrangement is the functional equivalent of a secured loan.
65 Fed. Reg. 34581, 34582-83 (May 31, 2000). NCUA’s leasing rule, 12 C.F.R.