Dear Mr. Pearson:
You have asked if a federally insured credit union (FICU) is required to continue to report a single closed-end member business loan 1 (MBL) as an MBL after the loan is paid down below the $50,000 threshold. 2 The answer is no. When a single closed-end MBL is paid down below $50,000, the loan no longer needs to be classified as an MBL, and the FICU does not need to count it toward its statutory MBL limit.
In 2002, the Office of General Counsel considered whether a FICU could use the outstanding loan balance for an MBL, rather than the original amount, to determine if subsequent business purpose loans to the same member should be classified as MBLs. The resulting opinion concluded:
[A FICU] may add the outstanding balance of a member’s aggregate MBLs to the original loan amount of any new, subsequent loan to determine if, when added together, they exceed the rule’s $50,000 threshold for qualifying as an MBL. . . . If the combination of all of these loans does not exceed $50,000, the subsequent loan is not an MBL and is not subject to our MBL rule. 3
The preamble to a 2003 MBL final rule provided additional guidance:
When the member pays down the amount of the total business purpose loans owed to the credit union so that the aggregate amount falls below the $50,000 threshold, the credit union is no longer required to report the [loan that caused the aggregate amount of business purpose loans to the member to exceed the $50,000 threshold] as an MBL. 4
The 2002 opinion and the 2003 preamble generally clarified a FICU’s MBL reporting requirements once the aggregate of the total business purpose loans to a member fell below $50,000. A similar analysis applies when a member has a single closed-end MBL and the outstanding balance of that loan falls below $50,000. Under this scenario, when a member has a single closed-end MBL, which he or she has paid down below the $50,000 threshold, then the loan is no longer classified as an MBL, and the FICU need not count it toward its statutory MBL limit.
Michael J. McKenna
1By "single closed-end member business loan,” we mean that the subject member business loan is the only one the member and/or an associated member have with the relevant FICU. We also mean that as a closed-end loan, there is no outstanding unused portion of a line of credit that would have to be taken into account.
2 12 C.F.R. §723.1.
3 OGC Op. 02-0384 (May 30, 2002).
4 68 FR 56537, 56545 (Oct. 1, 2003).