When I was in junior high and high school, I had a curfew to meet. I also had to report where I was at and where I was going. My parents were concerned about me and wanted to know how to keep me safe, just as all good parents.
After high school, I ended up attending a college in my hometown. After one year of living on campus, I quickly learned the benefit of living at home and commuting to college. I could save money on room and board. Going home also helped get away from the campus. If I wanted to get away from home, I could always crash at the fraternity house on campus. It was the best of both worlds.
When I was in college, my parents did not impose a curfew or require me to report where I was at. If I stayed up till the wee hours of the morning, they did not care as long as I was mindful and respectful of them when I came home. But this freedom also came with more responsibility. If I stayed out too long and was dog tired the next day it would impact my grades. My actions would impact my grades and future opportunities in life.
This year, as credit unions, we are on the edge of a major change in business lending regulations from the National Credit Union Administration. The main spirt of the change is to move from a proscriptive regulation that defines inside the regs what is permitted and what is not, to a regulation that has more freedom and where the CU is reliant upon sound credit lending policies and practices. The former is much like my life in high school at home. I had to let my parents know where I was and ask permission for what I wanted to do. The latter is like my college years at home.
While the new regs will be a welcome relief for many commercial and agricultural lenders, it also requires greater responsibility and restraint. Items that CUs for years have wanted such as the ability to decide when to get a guarantee and when to not, will be present in the new regs. However, this “gift” also increases the responsibility of the credit department in making sure that sound lending judgement and credit structure is put in place.
The new regs will increase the credit expertise that the CU will have to exhibit. Credit administration folks will have to justify their decisions and will not be able to go back to the proscriptive regulation of the past. Commercial lenders will have to answer to the NCUA for their decisions. What may be worse is the commercial lender answering to their board for a loss sustained from a poorly structured business credit.
In many ways, the changes in business regs from the NCUA will be like my growing from a high school student to a college student. There will be more freedom, but with more freedom, comes more responsibility. If anything, the changes will create more demand for sound internal credit departments and experienced business CUSOs to properly manage these loan assets.