The subject of dividends has come up in a number of questions to CUNA’s compliance staff recently, making this a good time to address questions with the NCUA’s Truth in Savings Regulation.

The regulation (12 CFR 707), issued more than 20 years ago, described how dividends are to be calculated and paid.

Five things worth remembering for credit unions when it comes to dividends are:

• Federal credit unions may only offer dividend-bearing and non-dividend bearing share accounts. State-chartered credit unions may offer both share and deposit accounts, if permitted by their state law;
   
• Credit unions must calculate dividends on the full amount of principal in an account for each day by use of either the daily balance method or the average daily balance method;
   
• The following dividend calculation methods are prohibited by NCUA:
  • The “rollback” method, also known as the “grace period” or “in by the 10th” method, where credit unions pay dividends on the lowest balance in the account for the period;
     
  • The “increments of par value” method, where credit unions only pay dividends on full shares in an account;
     
  • The “ending balance” method, where credit unions pay dividends on the balance in the account at the end of the period;
     
  • The “investable balance” method, where credit unions pay dividends on a percentage of the balance, excluding an amount credit unions set aside for reserve requirements; and
     
  • The “low balance” method, where credit unions pay dividends on the lowest balance in the account for any day in that period.
     
• Credit unions are not required to pay dividends after term share accounts mature. The NCUA provides the following examples for when dividends are not required to be paid:
  • During any grace period offered by a credit union for an automatically renewable term share account, if the member decides during that period not to renew the account;
     
  • Following the maturity of non-rollover term share accounts; or
     
  • When the maturity date falls on a holiday, and the member must wait until the next business day to obtain the funds.
     
• Credit unions are not required to pay dividends on checks or share drafts deposited to a member’s account that are returned for insufficient funds. If a credit union accrues dividends on a check that it later determines is not good, it may deduct from the accrued dividends any dividends attributed to the proceeds of the returned check. If dividends have already been credited before the credit union determines the item has insufficient funds, the credit union may deduct the amount of the check and associated dividends from the account balance.

For more information, see CUNA’s CompBlog and CUNA’s eGuide on the Truth in Savings regulation.

In addition to CompBlog, CUNA’s Compliance Community contains discussion boards and a number of other resources for credit union compliance professionals around the country.