Permissibility Of State-Chartered Credit Unions To Engage In Indirect Automobile Lending Activities Under The Pending Parity Regulations - Q2 1999

By the Division of Banks

The pending Parity with Federal Credit Union Regulations ("Parity Regulations"), to be codified at 209 CMR 50.00 et seq., are expected to become effective in late August 1999, barring any adverse legislative comment. It should be noted that the inclusion of a reference to indirect consumer lending activities as a federal credit union power or activity that was rejected for inclusion in the Parity Regulations in Appendix C to the Division's filing (as printed in House 4295 of the 1999-2000 session of the Massachusetts General Court) does not bar contractual indirect automobile lending programs because Appendix C does not have any independent legal effect.

At issue is whether an indirect automobile lending program that entails the purchase of automobile loans made by a participating automobile dealer under loan terms that meet the requirements of either Mass. Gen. Laws chapter 171, section 59(3) or 209 CMR 50.06(3)(f), with or without funds advanced by the credit union, to eligible or active credit union members that meet the credit union's loan underwriting standards is a consumer loan purchase under 209 CMR 50.06(3)(1). The Parity Regulations loan purchase provision incorporates by reference substantive provisions of the federal credit union regulations governing the purchase, sale and pledge of eligible obligations. The Division concludes that the above-described type of indirect automobile lending program is authorized under 209 CMR 50.06(3)(1) provided the eligible obligation, membership and other requirements of 12 C.F.R. section 701.23(a)-(b) are met. Since this power is derived from 209 CMR 50.06(3), a credit union must file an individual application with the Division prior to entering into indirect automobile lending programs with automobile dealers. An applicant credit union must demonstrate to the Division's satisfaction that it meets the financial, managerial, policy and procedure and other requirements of 209 CMR 50.05(1)-(3) and 209 CMR 50.06(1)-(2).