February 8, 2008

Sharon L. Custer, President/CEO

BMI Federal Credit Union

P.O. Box 182531

Columbus, OH 43218-2531

Re: Member Business Loans (MBL) - Two Years Direct Experience
Requirement.

Dear Ms. Custer:

You have asked if a credit union must always use the services of a third
party underwriter to satisfy the MBL rule's two years of direct
experience requirement. No, while the credit union may use the services
of an outside party, it also may use the direct experience of its own
employees. You also have asked if a credit union that chooses to use the
experience of its own employees must hire an individual who has the
requisite experience at the time of hiring. No, a credit union may do
so, but it also may satisfy the direct experience requirement with an
employee who has developed the requisite experience over time, subject
to limitations discussed below.

A credit union's board of directors must adopt specific business loan
policies and review them annually to implement an MBL program. 12 C.F.R.
§723.5(a). The MBL rule further provides:

> The board must also use the services of an individual with at least
> two years direct experience with the type of lending the credit union
> will be engaging in. The experience must provide the credit union
> sufficient expertise given the complexity and risk exposure of the
> loans in which the credit union intends to engage. Credit unions do
> not have to hire staff to meet the requirements of this section but
> must ensure that the expertise is available. A credit union can meet
> the experience requirement through various approaches. For example, a
> credit union can use the services of a credit union service
> organization (CUSO), an employee of another credit union, an
> independent contractor, or other third parties. However, the actual
> decision to grant a loan must reside with the credit union.

*Id*. Additionally, a third party used in this context must be free of
conflicts of interest. 12 C.F.R. §723.5(b). See OGC Op. 04-0545 (August
9, 2004) on NCUA's website, [www.ncua.gov](http://www.ncua.gov/), for a
more detailed discussion of this subject.

As noted, §723.5(a) states a credit union is not required to hire staff
to fulfill the experience requirement and gives examples of how to
accomplish this using third parties. This enables a credit union to make
MBLs without creating a costly infrastructure. 68 Fed. Reg. 56537, 56541
(October 1, 2003). In no way does the rule prohibit a credit union from
fulfilling the experience requirement using its own qualified employees.
Qualified employees, like qualified third party consultants, will have:

> \[E\]xperience tailored to the credit union\'s needs. Individuals who
> meet the requirements of this section must have lending experience
> directly related to the type of MBLs the credit union intends to
> offer. These individuals must be familiar with the proper
> underwriting, analysis, and origination of loans of a particular type
> in order to understand their complexity and risk exposure. For
> example, an individual with experience solely in taxi cab loans does
> not have the requisite experience necessary to underwrite a loan to
> the taxi company for a gas station, because the individual will be
> unfamiliar with related issues that may impact the loan, such as
> environmental laws applicable to underground storage tanks. Likewise,
> an individual who only has experience with financing residential real
> estate for homebuilders does not have sufficient lending experience
> for the land development and construction, or purchase, of a
> commercial strip center.

*Id*. Additionally, the employee a credit union uses to satisfy the
experience requirement need not have had that expertise at the time of
hiring. Rather, that expertise could be developed post-hiring. For
example, an inexperienced credit union employee that works closely with
a qualified, experienced employee or third party consultant in making
certain kinds of MBLs can develop the requisite expertise over time. Of
course, depending on the extent of the inexperienced employee's
involvement, it may take longer than two years to develop the equivalent
level of experience required to satisfy the rule.

Please contact Staff Attorney Frank Kressman or me with any questions or
if we can be of further assistance.

Sincerely,

/S/

Sheila A. Albin

Associate General Counsel

OGC/FSK:bhs

08-0128