I am headed East today to do a vendor management seminar. If there is one thing I cannot stress enough during the session, it is the NCUA’s scrutiny on indirect lending. Sometimes the NCUA gives us small clues about what is important to them in examinations. With indirect lending, they have given us much more than small clues, so don’t miss their obvious warning signs.
Warning sign #1: The NCUA issued Letter to Credit Unions 10-CU-15 related to Indirect Lending and Appropriate Due Diligence. The letter states that examiners are looking for warning signs or red flags related to indirect lending. It also provides that it is “necessary” to have a comprehensive, effective, and ongoing due diligence program to mitigate the risks associated with indirect lending. The program should include, at a minimum:
- A planning process to assess the risk of vendor relationships both initially and ongoing;
- Comprehensive written policies;
- A review process to assess the vendor’s financial and operational risks;
- A contract review process (which includes review “by legal counsel with the specialization necessary to provide a written opnion on indirect lending contracts”); and
- A risk management process to control the risk associated with the vendor relationship.
This letter provides clear and obvious guidance–don’t miss it.
Warning sign #2: The NCUA just released information that Board Member Hyland will host a webinar on November 9th at 2:00 EST, entitled, “Indirect Lending: Balancing the Risks and Rewards.” The webinar is free, so I suggest you don’t miss this warning sign and get registered asap!
Warning sign #3: During a discussion with a credit union that recently had an NCUA exam, the credit union proclaimed that the NCUA looked at “a lot” of indirect loans. In fact, those were the only loans that the NCUA reviewed.
Based on these warning signs, it is clear that the NCUA is not taking oversight of indirect lending lightly, and neither should you.