NCUA Vice Chairman Kyle S. Hauptman Statement on Financial Innovation: Loan Participations, Eligible Obligations and Notes of Liquidating Credit Unions

As Prepared for Delivery on September 21, 2023

Thank you, Naghi, Simon, and John for your presentation and to the entire team for your work on this final rule. Thank you to the many stakeholders who took the time to comment.

Today’s rule covers a lot of territory with revisions, updates, and clarifications to the following regulations:

• 701.23: Purchase, Sale, and Pledge of Eligible Obligations
• 701.22: Loan Participations
• 701.21: Loans and Lines of Credit to Member

A rule of this scope required coordination throughout the agency. Thank you to Board Member Hood for his tireless commitment to ensure this rule was a priority. And to Chairman Harper for his stewardship of the process and for fostering productive dialog among the Board offices.

The significant clarifications to regulations particularly in the areas of participation loans, eligible obligations, and indirect lending are a response to repeated requests from credit unions and vendors for clarity. The lack of clarity made it very difficult for all but the most sophisticated institutions to utilize these tools.

These changes give credit unions, that want to use new technologies for participation lending and eligible obligations, the ability to do so. The final rule provides federally insured credit unions with the flexibility to participate in loans acquired through indirect lending arrangement and use of advanced technologies offered by fintechs.

Moving to a more principled based approach acknowledges that not all credit unions are the same. Credit unions that may not have had the resources to manage the challenges around the old proscriptive rules will be able to tailor their programs to reflect their policies and goals.

Credit unions have been innovating, individually and cooperatively through CUSOs, for decades. But as the ‘left-handers’ of the financial service world, credit unions are not top of mind for most fintechs. It should go without saying that we do not want fintechs – or any service provider — to choose not to work with credit unions because their regulator makes it unnecessarily difficult.

Regulatory clarity gives credit unions and potential service providers a path forward to continued innovation. In a recent report published by the Government Accountability Office, the NCUA was praised for providing regulatory guidance in the areas of distributed ledger technology and digital assets. Today’s rule represents an ongoing commitment to regulatory clarity, especially given recent news that Citigroup and others are tokenizing deposits, loans, and other instruments.

This rule was a big undertaking. To the team that worked on it, I again, want to thank you for your diligence in getting it over the finish line.