Board Essentials Module 4: Restrictions on Loans to Directors

There are restrictions on loans made to a credit union’s directors and their related interests.  Since preferential treatment of directors is prohibited, a loan to a director (or the director’s immediately family or business enterprise) must be based on the same terms and underwriting criteria as loans to other members.  In addition, if the director serves as a borrower, co-signer, or guarantor, loans aggregated in excess of certain thresholds must be approved in advance by a majority of the entire board, and the interested director must abstain.  Regulators require strict compliance with these rules, so it’s imperative that all directors understand the restrictions.