§ 36a-458a — Loans. Definitions.

(a) As used in this section: (1) “Associated member” means any member with a shared ownership, investment or other pecuniary interest in a business or commercial endeavor with the borrower. (2) “Construction loan” means a loan for developing or acquiring and developing real estate, as defined in subsection (a) of section 36a-457b , where the borrower intends to convert such real estate to income-producing property or use such real estate for income-producing purposes, including residential housing for rental or sale, or commercial, industrial or similar purposes. (3) “Member business loan” means any loan, line of credit or unfunded commitment thereof, letter of credit or any other extension of credit, where the borrower intends to use or uses the proceeds for any of the following purposes: (A) Commercial; (B) corporate; (C) investment property; (D) business venture; or (E) agricultural, but does not include the following loans: (i) A loan fully secured by a lien on a one-to-four family residence that is the primary residence of the member; (ii) A loan fully secured by shares in the credit union making the loan or by shares or deposits in other financial institutions; (iii) One or more loans to a member or an associated member where the proceeds are to be used or are used for the purposes specified in this subdivision to benefit a common endeavor and which, in the aggregate, are equal to less than fifty thousand dollars; (iv) A loan where any agency of the federal government, a state or any political subdivision of such state, fully insures or guarantees repayment, or provides an advance commitment to purchase the loan in full; or (v) A loan granted by the corporate Connecticut credit union to a Connecticut credit union, federal credit union or out-of-state credit union. (4) “Net worth” means retained earnings under generally accepted accounting principles. (5) “Net outstanding member business loan balance” means the outstanding loan balance, including any unfunded commitment, exclusive of the portion of the member business loan secured by shares in the credit union, or by shares or deposits in other financial institutions, or fully or partially insured or guaranteed by any agency of the federal government, a state or any political subdivision of such state, or subject to an advance commitment to purchase by any agency of the federal government, a state or any political subdivision of such state. (b) No Connecticut credit union shall make a member business loan unless it has adequate net worth as determined by the commissioner, develops a member business loan program and obtains the prior written approval of the commissioner for such program. The request for approval of such program shall include a member business loan policy that meets the requirements of subsection (c) of this section and shall demonstrate that sufficient resources, knowledge, systems and procedures are in place to monitor and control the risks involved. A Connecticut credit union that makes member business loans shall use the services of or employ an individual for the purpose of processing, making or servicing member business loans with at least two years direct experience with the types or categories of member business loans the credit union intends to make. (c) The governing board of a Connecticut credit union shall adopt a specific member business loan policy that shall be a part of the credit union's loan policy. Such policy shall be reviewed at least annually or more often if deemed necessary by the governing board and shall address: (1) The categories or types of member business loans that will be made; (2) The trade area; (3) The maximum amount of assets, in relation to net worth, that will be invested in member business lending subject to the limitations provided in subsection (h) of this section; (4) The maximum amount of assets, in relation to net worth, that will be invested in a given category or type of member business loan subject to the limitations provided in subdivision (2) of subsection (f) of this section and subsection (i) of this section; (5) The maximum amount of assets, in relation to net worth, that will be loaned to one member or associated members, subject to the limitations provided in subdivision (2) of subsection (f) of this section and subsection (g) of this section; (6) The qualifications and experience of the individuals responsible for processing, approving or administering member business loans; (7) The required analysis and documentation of the ability of the borrower to repay the member business loan by the individuals responsible for processing, approving or administering; (8) The receipt and periodic updating of financial statements and other documentation, including tax returns; (9) The documentation required in support of each loan application, which shall include the following: (A) Balance sheet, (B) cash flow analysis, (C) income statement, (D) tax data, (E) analysis of leveraging, and (F) comparison with industry average or similar analysis. If the member business loan is secured by a mortgage on income-producing real estate and if the Connecticut credit union relies upon such real estate or income production as primary security for the loan, the credit union shall also obtain and retain in its files such income projection statements, tenants' financial statements and other credit information as the credit union deems necessary. The governing board may amend the member business loan policy to eliminate the requirement for any documentation that the governing board determines is not generally available for a particular type of member business loan provided the reasons for such determination are stated in such amendment; (10) The collateral requirements which shall include: (A) Loan-to-value ratios, (B) determination of value, (C) determination of ownership, (D) steps to secure various types of collateral, and (E) frequency of re-evaluation of value and marketability of collateral; (11) The interest rates and maturities of member business loans; (12) General member business loan procedures which shall include: (A) Loan monitoring, (B) servicing and administering, and (C) collection; and (13) Guidelines for purchase and sale of member business loans and loan participation if the credit union intends to engage in such activity. (d) A Connecticut credit union shall not grant a member business loan if any additional income received by such credit union or a member of the senior management is tied to the profit or sale of the business or commercial endeavor for which the loan is made. (e) Member business loans made to an insider are subject to the provisions of section 36a-454b . (f) A Connecticut credit union may make unsecured member business loans provided: (1) The aggregate of unsecured net outstanding member business loan balances to any one member or associated members shall not exceed the lesser of one hundred thousand dollars or two and one-half per cent of the credit union's net worth; (2) The aggregate of all unsecured net outstanding member business loan balances shall not exceed ten per cent of the credit union's net worth; (3) The credit union has a net worth of at least seven per cent; and (4) The credit union submits quarterly reports to the commissioner providing numbers and such other detail as may be required by the commissioner to demonstrate compliance with this section. (g) The aggregate amount of secured and unsecured net outstanding member business loan balances to any one member or associated members shall not exceed the greater of one hundred thousand dollars or fifteen per cent of the credit union's net worth. The commissioner may waive this limit subject to the provisions of subsection (l) of this section. (h) (1) The aggregate amount of secured and unsecured net outstanding member business loan balances shall be limited to the lesser of twelve and one-quarter per cent of the Connecticut credit union's total assets or one and three-quarters times the Connecticut credit union's net worth. The commissioner may grant an exception to the aggregate limit upon written request from a Connecticut credit union and submission of documentation evidencing that one of the following three criteria have been met: (A) The credit union serves predominantly low-income members, as defined in subsection (f) of section 36a-456a ; (B) The credit union participates in the Community Development Financial Institutions Program, 12 CFR Part 1805, as from time to time amended; or (C) The credit union is established for the purpose of making member business loans, as supported by its bylaws, business plan, field of membership, minutes of the governing board and loan portfolio. (2) The commissioner shall notify the Connecticut credit union and the National Credit Union Administration of the commissioner's decision on the request for an exception not later than forty-five days from such request. An exception, if granted, shall be revoked by the commissioner if the Connecticut credit union ceases to qualify under subparagraph (A), (B) or (C) of subdivision (1) of this subsection, or for reasons of safety and soundness. (i) Unless waived by the commissioner under subsection (l) of this section, a member business loan that is a construction loan is subject to the following additional requirements: (1) The aggregate of all construction loans shall not exceed fifteen per cent of the net worth of the Connecticut credit union; (2) The borrower shall have at least a thirty-five per cent equity interest in the real estate being developed or acquired and developed; and (3) The loan proceeds shall be released only after on-site, written inspections by qualified personnel and in accordance with a pre-approved draw schedule and any other conditions as set forth in the loan documentation. (j) Unless waived by the commissioner under subsection (l) of this section, the loan-to-value ratio for a member business loan secured by a first lien shall not exceed eighty per cent unless the value in excess of eighty per cent is covered through private mortgage or equivalent insurance, or is insured or guaranteed or subject to advance commitment to purchase by an agency of the federal government, or of a state or any of the political subdivisions of such state, but in no case shall the loan-to-value ratio exceed ninety-five per cent. (k) The loan-to-value ratio for any member business loan secured by a second or lesser priority lien shall not exceed eighty per cent unless the credit union holds the first lien and the value in excess of eighty per cent is covered through private mortgage or equivalent insurance, or is insured or guaranteed or subject to advance commitment to purchase by an agency of the federal government, or of a state or any of the political subdivisions of such state, in which case the loan-to-value ratio of such member business loan shall not exceed ninety-five per cent. (l) A Connecticut credit union may request a waiver of the limitations set forth in subsections (g), (i) and (j) of this section by submitting the following documentation to the commissioner: (1) A copy of the member business loan policy; (2) a statement of the higher limit sought, if applicable; (3) an explanation of the need to raise the limit or change the appraisal requirement, as applicable; (4) documentation to support the credit union's ability to manage the activity; (5) an analysis of the credit union's prior experience in making member business loans, including: (A) The history of loan losses and loan delinquency, (B) volume and cyclical or seasonal patterns, (C) diversification, (D) concentrations of credit to one member or associated members in excess of fifteen per cent of the credit union's net worth, (E) underwriting standards and practices, (F) types or categories of loans grouped by purpose and collateral, and (G) the qualifications of individuals responsible for processing, approving and administering member business loans. The commissioner will provide a copy of the waiver request to Region 1 of the National Credit Union Administration and will consult and seek to work cooperatively with Region 1 in making a decision on the request. The commissioner may grant or deny the waiver within sixty days of receipt of the request. (m) Member business loans shall be subject to the appraisal requirements of 12 CFR Part 722.3, as from time to time amended, provided the credit union may request a waiver of such appraisal requirements in accordance with the applicable provisions of subsection (l) of this section. Such waiver request shall not become effective until written approval has been granted by both the commissioner and the National Credit Union Administration. (n) The commissioner may lower any limit provided in this section, revoke any waiver granted under this section or revoke the credit union's approval to make member business loans if the credit union's policies or practices violate safe and sound lending principles. (o) Member business loans shall be identified in the aggregate on a Connecticut credit union's financial statements provided each type or category of member business loan shall be separately identified in the credit union's records.

Legislative History

(P.A. 02-73, S. 59; P.A. 03-84, S. 61.) History: P.A. 03-84 changed “Commissioner of Banking” to “commissioner”, effective June 3, 2003.