Written by Steve Van Beek
Yesterday, NCUA issued Legal Opinion Letter 12-0764 which amends the definition of "fleet" for purposes of NCUA's Member Business Lending regulation - specifically the LTV ratio requirement under 12 CFR 723.7(e). This is a welcomed change and one that NAFCU has advocated for in the past - including our 2011 Regulatory Review comment letter.
The amended definition of "fleet" applies when there are more than five vehicles:
"We found a wide variety in the number of vehicles that constitutes a fleet. Among those many descriptions, however, we found that a range from five to ten vehicles was not uncommon. We were particularly persuaded by Internal Revenue Service (IRS) publications on this topic and treatment of fleets by auto industry fleet programs. The IRS, in addressing mileage rate deductions, refers to five or more vehicles as being a fleet operation. In addition, a number of auto manufacturers generally use five as a base number for providing fleet discounts. We believe this similar treatment by government and industry provides a reasonable basis to conclude that a minimum of five vehicles constitutes a fleet. Also, we believe that increasing the number to five provides regulatory relief to most credit unions making vehicle MBLs without diminishing necessary safety and soundness precautions. Accordingly, we believe five or more vehicles is an appropriate number to define a fleet for our purposes."
NCUA also went on to clarify and update the "business purpose" component of the "fleet" definition to require central control of business use for the purpose of transporting persons or property for commission or hire. Thus, the updated definition of "fleet" is:
"Accordingly, we amend the definition of “fleet” as follows: A fleet is five or more vehicles that are centrally controlled and used for a business purpose, including for the purpose of transporting persons or property for commission or hire."
As always, the full legal opinion letter is the best source for a full discussion and analysis.
Piles of Outdated Guidance. We've blogged in the past about the regulatory burden caused by outdated guidance from regulators - including NCUA. Yesterday's announcement gives NCUA a great opportunity to change their existing practice and further reduce the regulatory burden for credit unions. How? By going back to their 2005 legal opinion letter and clearly indicating it has been superseded by the 2012 legal opinion letter.
Two years from now, if a credit union searches for "fleet" on NCUA's website - which legal opinion letter will come up first? If it is the 2005 letter, will that letter clearly indicate that it has been superseded? If not, a credit union may stop their research after finding the 2005 letter. After all, the 2005 letter directly addresses the issue of what is considered a "fleet."
Look to Other Regulators. As we mentioned in our prior blog post, the OCC and the Federal Reserve already have procedures in place to clarify superseded guidance documents. Or, check out this example from a past OTS guidance document.
Hopefully NCUA takes these simple steps to prevent unnecessary regulatory burden in the future. Credit union compliance officers work very, very hard to analyze and interpret current NCUA's regulations and guidance. NCUA should work just as hard to help clarify which guidance and rules are applicable (the 2012 letter) and which are outdated (the 2005 letter).