Board Action Bulletin
New Share Insurance Coverage Proposed for Certain Escrow Accounts
ALEXANDRIA, Va. (April 30, 2015) – The National Credit Union Administration Board convened its fourth open meeting of 2015 at the agency’s headquarters today and approved five items:
- A final rule providing regulatory relief by authorizing automatic approval of 12 types of associational groups for inclusion in federal credit unions’ fields of membership.
- A proposed rule to implement a new law providing pass-through share insurance coverage for lawyers’ trust accounts, realtor escrow accounts and prepaid funeral accounts.
- A final rule to extend corporate credit unions’ secured borrowing terms and allow retained earnings acquired in mergers to count toward capital going forward.
- A proposed rule to expedite access to short-term cash by allowing corporate credit unions to provide bridge loans to credit unions awaiting funds from the Central Liquidity Facility.
- A request from the Connecticut Department of Banking to exempt Connecticut-chartered credit unions from NCUA’s credit union service organization rule in favor of a substantially similar state rule.
The Chief Financial Officer briefed the Board on the performance of the National Credit Union Share Insurance Fund, which is in its strongest position in a decade. The Office of General Counsel also briefed the Board on a required interagency final rule implementing minimum requirements for state registration and supervision of appraisal management companies.
Associational Common-Bond Rule Provides Regulatory Relief
Federal credit unions will be able to more easily expand their fields of membership under a final rule (Part 701) amending NCUA’s associational common-bond requirements. The Board approved the rule by a 2–1 vote.
The final rule more clearly defines which associational groups do and do not qualify for membership in federal credit unions. The final rule will provide regulatory relief by authorizing automatic approval for the vast majority of associations that qualify.
“This is the first of several significant field-of-membership fixes we intend to introduce this year, and these changes will enhance the ability of federal credit unions to serve new members,” NCUA Board Chairman Debbie Matz said. “If this rule had been in place since the beginning of last year, 87 percent of associational applications would have been automatically approved. With the adoption of these streamlined field-of-membership procedures, federal credit unions will now spend less time filling out unnecessary paperwork and more time fulfilling their missions.”
The final rule grants automatic qualification under NCUA’s rules to certain categories of associations the agency has routinely approved for federal credit union membership. At the suggestion of commenters, the Board added five categories to the seven originally proposed. In all, 12 new types of associational groups will receive pre-approval, including:
- Alumni associations,
- Religious organizations, including churches or groups of related churches,
- Electric cooperatives,
- Homeowner associations,
- Labor unions,
- Scouting groups,
- Parent-teacher associations organized at the local level to serve a single school district,
- Chamber of commerce groups (members only and not employees of members),
- Athletic booster clubs whose members have voting rights,
- Fraternal organizations or civic groups with a mission of community service whose members have voting rights,
- Organizations having a mission based on preserving or furthering the culture of a particular national or ethnic origin, and
- Organizations promoting social interaction or educational initiatives among persons sharing a common occupational profession.
The final rule also establishes a threshold common-bond test that an association not be formed primarily for the purpose of expanding credit union membership. More than 99 percent of associational applications reviewed over the past three years have met this new requirement.
Additionally, the rule expands the criteria for the agency’s totality-of-circumstances test, used to determine whether an association that is not automatically approved satisfies the common-bond requirements to qualify for manual inclusion in a federal credit union’s field of membership.
Matz said NCUA’s internal Field-of-Membership Working Group, which she established in December 2014, is discussing ideas for additional regulatory relief and more procedural improvements. She said NCUA will propose new rules for more expansive community charters, underserved areas, and occupational charters by the end of 2015.
The final rule, available online here (opens new window), will become effective 60 days after publication in the Federal Register. NCUA will issue further guidance on implementing the rule before the final rule becomes effective.
Proposed Rule Would Add Share Insurance Coverage for Certain Accounts
The Board unanimously approved a proposed rule (Part 745) to amend the agency’s Share Insurance Fund regulations to allow enhanced coverage for certain escrow accounts.
The Credit Union Share Insurance Parity Act, which became law in 2014, requires enhanced, pass-through share insurance coverage for lawyers’ trust accounts and similar escrow accounts. Previously, NCUA’s insurance coverage was limited only to those clients of the attorney who were also members of the insured credit union where the lawyer established the account. Now, only the person administering the escrow account must be a member of the federally insured credit union in which such account is maintained for share insurance coverage to flow through to each client or principal, regardless of that person’s membership status.
The law became effective for lawyers’ trust accounts upon enactment. The proposed rule would provide greater clarity and regulatory certainty around broad categories of other escrow accounts that would receive pass-through share insurance coverage. These accounts include realtor escrow accounts and prepaid funeral accounts. The preamble invites comments about other similar escrow accounts that could be considered for pass-through coverage.
The proposed rule is designed to increase the competitiveness of federally insured credit unions by ensuring that NCUA and the Federal Deposit Insurance Corporation insure lawyers’ trust accounts and other similar escrow accounts in an equivalent manner.
Comments on the proposed rule, available online here (opens new window), must be received within 60 days of publication in the Federal Register.
Share Insurance Fund Continues Strong Positive Trends
The Share Insurance Fund ended the first quarter of 2015 in a strong position due to stable income and expenses, continued improvement in the performance of federally insured credit unions and a decline in insurance and guarantee program liabilities.
The Share Insurance Fund posted net income of $25 million in the first quarter of 2015 and a 1.30 percent equity ratio. NCUA calculated the ratio on an insured share base of $903 billion. For the first quarter, investment and other income was $53.3 million, operating expenses were $43.8 million, and the provision for insurance losses was reduced by $14.5 million.
“The amount of assets in CAMEL codes 3, 4 and 5 credit unions continues to drop, reflecting less risk for the Share Insurance Fund,” Matz said. “The assets in CAMEL codes 1 and 2 credit unions are now up to 90.7 percent of all federally insured assets—the highest level in the last ten years.”
Overall, the amount of assets in CAMEL codes 3, 4 and 5 credit unions has decreased 49.7 percent since reaching a high of $205.6 billion in September 2010. The continuation of these positive trends and other factors contributed to a net decrease of $8.7 million, or 4.9 percent, in the Share Insurance Fund’s reserve for insurance losses in the first quarter of 2015.
For the first quarter of 2015:
- The number of CAMEL codes 4 and 5 credit unions fell 15.7 percent from the first quarter of 2014, to 258
- Assets in CAMEL codes 4 and 5 credit unions declined 14.7 percent from the first quarter of 2014, to $11.6 billion.
- The number of CAMEL code 3 credit unions declined 7.9 percent from the first quarter of 2014, to 1,355.
- Assets in CAMEL code 3 credit unions declined 14.2 percent from the first quarter of 2014, to $91.8 billion
There were three involuntary liquidations and assisted mergers in the first quarter of 2015, compared to six in the first quarter of 2014. The total amount of losses associated with failures in the first quarter of 2015 was $1.8 million, a decrease of 90.3 percent from $18.6 million in the first quarter of 2014. Fraud was not a contributing factor in any of these three failures.
The first-quarter figures are preliminary and unaudited.
Corporate Rule Amendments Approved
The Board unanimously approved a final rule to amend NCUA’s regulations (Part 704) governing corporate credit unions and the scope of their activities. The rule does not make changes to liberalize capital and investment standards.
Several of the amendments will simplify and clarify parts of the rule and facilitate compliance. Two changes also provide regulatory relief. One change extends corporate credit unions’ maximum secured borrowing term from 30 to 180 days, enhancing their ability to provide seasonal liquidity. The other change allows surviving corporate credit unions to count retained earnings acquired in mergers going forward. That change will reduce future risks to the Share Insurance Fund after any corporate consolidations.
The final rule, available online here (opens new window), will become effective 30 days after publication in the Federal Register.
Proposed Rule Would Facilitate Bridge Loans by Corporate Credit Unions
Corporate credit unions could more easily provide short-term bridge loans to credit unions awaiting funding from the Central Liquidity Facility under a proposed rule (Section 704.7) unanimously approved by the Board.
Central Liquidity Facility loans are funded by borrowings from the Federal Financing Bank. An advance from the Federal Finance Bank can take up to 10 business days. This, in turn, creates a time lag between when the Central Liquidity Facility loan is approved and when it is funded.
Under the proposed rule, corporate credit unions could make bridge loans for up to 10 business days to provide interim funding to Central Liquidity Facility borrowers, allowing them to receive funds expeditiously. A bridge loan would be repaid to a corporate credit union when the Central Liquidity Facility funds the member credit union’s advance.
In recognition of the low risk and to ensure a corporate credit union is not unduly prevented from lending to very large consumer credit unions, the proposed rule would exclude these loans from the calculation of “net assets” and “net risk weighted assets” for determining minimum capital requirements.
Comments on the proposed rule, available online here (opens new window), must be received within 30 days of publication in the Federal Register.
Connecticut Regulator’s Request for CUSO Rule Exemption Approved
The Board unanimously approved a request from the Connecticut Department of Banking to exempt federally insured, state-chartered credit unions in Connecticut from NCUA’s rule on credit union service organizations (Sections 712.3(d)(1), (2) and (3)).
In approving the request, the Board determined:
- The applicable Connecticut laws were equal to, or more stringent than, NCUA rules.
- NCUA would have access and information to evaluate safety and soundness.
- Examiners would be provided with parallel authority along with direct access to the books and records, as well as copies of any financial statements or reports, which a credit union service organization provides to the state regulator.
The change is effective immediately.
Interagency Rule Strengthens Regulation of Appraisal Management Companies
Finally, the Board received a briefing on a joint-agency final rule on appraisal management companies required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
“One of the lessons learned from the financial crisis was the need to prevent conflicts of interest and fraud in real estate appraisals,” Matz said. “That’s why the Dodd-Frank Act required federal and state agencies to strengthen the regulation of appraisal management companies.”
While it is legally permissible for a credit union service organization to perform appraisal management services, Matz said the agency will not know how many credit union service organizations are in this business or would be covered until the agency’s national registry is completed in December.
The final rule sets minimum requirements for state registration and supervision of appraisal management companies. NCUA is one of six federal financial services regulators approving the rule.
The final rule, available online here (opens new window), will become effective 60 days after publication in the Federal Register.
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