The NCUA issued a legal opinion letter clarifying loan participations in an indirect loan

One of the requirements in NCUA’s loan participation rule (12 CFR 701.22) is that in order for a loan to be able to be purchased for participation, the loan is with the originating lender – “the participant with which the borrower initially or originally contracts for a loan…” The question arose regarding whether the dealer or the credit union is the originating lender.

The NCUA feels that when a loan participation involves an indirect lending arrangement and the dealer is acting as an agent of the credit union, and simply performing administrative functions when issuing the loan, the credit union would be considered the originating lender.

The letter is available here.

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