NCUA's Proposed Regulation on Auto Loan Participations
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NCUA Proposes to Eliminate Prescriptive Limits on Third-Party Serviced Indirect Vehicle Loans
The NCUA Board is seeking comment on a proposed rule that would remove the agency's longstanding regulation governing federally insured credit union purchases of indirect vehicle loans serviced by third parties. Comments are due by May 26, 2026.
What NCUA is proposing:
- Remove Section 701.21(h), which currently caps indirect vehicle loans and participations purchased from any one third-party servicer at 50% of net worth (rising to 100% after 30 months of experience with that servicer)
- Remove the parallel requirement in Section 741.203(c) that applies these same limits to federally insured, state-chartered credit unions
- Remove the related waiver process, the associated Regional Director timelines, and the related citation in the appeals rule at Section 746.201(c)
Why the change:
- The 2006 rule was built around a rigid, one-size-fits-all framework that the Board now views as unduly burdensome
- The Board believes each credit union's board is in the best position to tailor policies to its own size, risk profile, and complexity of transactions
- The action is consistent with a principles-based supervisory approach and is expected to qualify as a deregulatory action under Executive Order 14192
- It is also intended to reduce administrative costs and compliance complexity so credit unions can serve members more efficiently
What is NOT changing:
- Credit union boards are still responsible for safety and soundness, due diligence, and appropriate controls over indirect lending programs
- NCUA will continue to monitor third-party indirect vehicle lending through the examination process
- The underlying legal authority, and NCUA's ability to act on unsafe or unsound practices, remains intact
10,000-foot takeaway: NCUA is trading a bright-line concentration cap for board-level judgment. Credit unions gain flexibility, but the expectation is that internal policies, third-party due diligence, and concentration management become more robust, not less. If this is finalized, examiner scrutiny of indirect program governance will matter more, not less.
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