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| Credit Union News
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10/04 - NCUA Final Rule On Increased Share Insurance:
Effective October 26, 2006, the NCUA issued a final rule amending the share insurance provisions of the Federal Credit Union Act (FCU Act). The final rule follows the issuance of the interim final rule which became effective April 1, 2006. The provisions of the final rule coincide with the Federal Deposit Insurance Reform Act of 2005. The FDIC published its interim final rule on March 23, 2006 (and it’s almost identical to the NCUA’s interim final rule), and its final rule on September 12, 2006 (71 FR 53547).
For the most part, the final rule mirrors the provisions of the interim final rule. First, the final rule increases federal share insurance coverage for certain retirement accounts to $250,000. Before 2010, the NCUA and FDIC will have to coordinate their efforts to consider whether to index the current $100,000 “standard maximum share insurance amount” (SMSIA, which applies to credit unions) and the $100,000 “standard maximum deposit insurance amount” (SMDIA, the FDIC equivalent), as well as the new $250,000 limit for IRAs and Keoghs, to inflation. The first increase could occur in 2011, and the process could be repeated every five years. The final rule also formalizes the NCUA’s legal opinions that pass-through insurance coverage applies to “529” tuition programs, and that federal insurance coverage extends to shares denominated in a foreign currency.
Regarding the share insurance changes, the interim final rule provided for pass-though coverage to each participant of an employee benefit plan who is a member of the credit union but limits the acceptance of shares in employee benefit plans to insured credit unions that are “well-capitalized” or “adequately capitalized.” The final rule changes this provision by extending full coverage to all participants in an employee benefit plan. The NCUA does not believe it is necessary to restrict this extended coverage only to plans where the plan trustee or the employer sponsoring the plan is a member or if some percentage of plan participants are members. The NCUA finds the language of the Conforming Amendments Act (which also amended the FCU Act) does not impose any membership restrictions and support’s the agency’s position. Thus, the examples in Paragraphs G. 3(a) and (b) of the Appendix to 12 CFR 745 have been revised to reflect this change.
While the NCUA and the FDIC have been coordinating their efforts to implement the changes mandated by the recent deposit insurance reforms, the two agencies will act separately on other issues, such as changes to insurance fund logos.
09/12 - NCUA Issues Final Rule On Permissible Loan Interest Rates:
Unique among federal "banking" charters federal credit unions may not change interest at a rate higher than 15% unless allowed by their regulator. The NCUA has published a final rule setting forth the criteria the NCUA Board considers in setting a permissible interest rate exceeding 15 percent and to establish procedures regarding publication of its determination. The amendment simplifies the means for notifying federal credit unions of any increase in the interest rate ceiling rather than issuing an amendment to the regulation every 18 months as it has previously done. This final rule became effective September 9, 2006.
This new procedure for providing notice to federal credit unions regarding the Board's determination on the permissible interest rate parallels the NCUA Board's long-standing procedure in providing notice of the annual operating fee charged to federal credit unions. The NCUA Board will notify federal credit unions of an increase in the interest rate ceiling through official NCUA publications and the media, primarily through a Letter to Federal Credit Unions. Interested persons may obtain copies of the Letters from the NCUA website or by contacting the NCUA Publications Office. Federal credit unions will usually receive notice of an adjustment within two to three days of the Board's determination through these methods.
09/12 - NCUA Issues Final Rule On Third-Party Servicing Of Indirect Vehicle Loans:
The NCUA has issued a final rule to regulate purchases by federally insured credit unions of indirect vehicle loans serviced by third-parties. The rule limits the aggregate amount of these loans serviced by any single third-party to a percentage of the credit union's net worth. The rule, which becomes effective July 28, 2006, ensures that federally insured credit unions do not undertake undue risk with these purchases.
In December 2005, the Board issued for public comment a proposed rule establishing concentration limits for indirect automobile loans and loan participations serviced by third-party servicers. 70 FR 75753 (Dec. 21, 2005). As stated in the preamble to the proposed rule, the NCUA Board is concerned some credit unions may involve themselves in indirect, outsourced programs--meaning programs in which a third party manages a credit union's relationship with automobile dealers and, because the third party handles loan servicing, with the credit union's members as well--without undertaking adequate due diligence, implementing appropriate controls, and having sufficient experience with a third party servicer.
The Board proposed to limit the aggregate amount of outsourced loans and participations a credit union may purchase from any one servicer to 50 percent of the credit union's net worth. After 30 months of experience with a particular servicer, the limit increases to 100 percent of net worth. The proposal exempted federally-insured depositories and their wholly-owned subsidiaries from the definition of servicer. The proposal also included a process for a credit union to request a waiver from the concentration limits from its regional director.
The final rule (71 FR 36661, June 28, 2006) retains the concentration limits, the servicer exemptions, and the waiver provision as proposed but, in response to public comments, the Board made certain changes. The final rule includes an additional exemption for certain credit union service organization (CUSO) servicers and excludes loans in which the servicer and its affiliates were not involved in the origination process from the concentration limits. These changes, while not affecting the rule's substantive and procedural rationales, do narrow the rule's scope and impact. The final rule also includes a 45-day time period for a regional director to act on waiver requests and provides for an appeal to the NCUA Board.
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