FCUs Loan Denial Based on Location of Collateral

Leon A. Kendall, Esq.
P.O Box 12155
St. Thomas, Virgin Islands 00801

Re: FCU’s Loan Denial Based on Location of Collateral.

Dear Mr. Kendall: 

You recently wrote to the Chairman of the National Credit Union Administration (NCUA), Dennis Dollar, questioning your federal credit union’s policy of making real estate loans only if the loan is secured by property within the United States. You believe this policy violates the Federal Credit Union (FCU) Act and the Equal Credit Opportunity Act. Chairman Dollar referred your letter to this office and asked us to respond directly to you. It appears from the information available to us that neither law has been violated.

You believe your FCU’s lending policy violates Section 126 of the Federal Credit Union Act that states “the provisions of this chapter shall apply to the several States, the District of Columbia, the several Territories, including the trust territories, and possessions of the United States, the Panama Canal Zone, and the Commonwealth of Puerto Rico.” 12 U.S.C. §1772. This section describes the territorial application of the Federal Credit Union Act. It does not require every FCU to provide its services in all the states and other areas described in that section, as you suggest, or restrict the powers of the NCUA Board in regard to any federally-insured credit union, wherever located.

An FCU, depending on its resources and location of its offices, may have legal and business reasons for limiting real estate loans to properties within a geographic area, for example, because of concerns about its ability to appraise property or pursue a foreclosure if necessary on property located a significant distance from its offices. Nevertheless, an FCU may not discriminate in violation of federal or state laws in determining whether to extend credit to a member.

The Equal Credit Opportunity Act prohibits discrimination in all types of extension of credit based on race, color, religion, national origin, sex, marital status, age, receipt of public assistance programs, and good faith exercise of rights under the Consumer Credit Protection Act. 15 U.S.C. §1691c. Your credit union’s mortgage lending policy appears neutral on its face, does not appear to have a discriminatory effect on a protected class of members, and appears to be based on legitimate business reasons. We hope that you find this information and discussion of the issues you raised regarding your FCU’s lending policy to be helpful.