CUNA-sought changes in NCUA final FOM rule: Input sought on IOLTAs

May 1, 2015

ALEXANDRIA, Va. (5/1/15)--The National Credit Union Administration board approved its final associational common bonds rule, a rule that included a number of CUNA-suggested improvements from the original proposal.

CUNA made a number of recommendations to the original proposal, many of which were incorporated into the final rule.

These include:

  • Adding five categories of association that will automatically qualify for NCUA approval as a common bond. Those are parent teacher associations, chambers of commerce, athletic booster clubs, fraternal organizations and professional organizations;
  • Removal of the one-year requirement from a threshold test intended to allow the NCUA to determine whether an association was organized primarily for the purpose of expanding credit union membership; and
  • Reduction of the corporate separateness factors to one, which is whether or not a federal credit union and association's respective business transactions, accounts and records are not intermingled.

NCUA Chair Debbie Matz said that this rule would have allowed automatic approval for 87% of applications received by the NCUA since January 2014. Agency staff said the agency's Office of Consumer Protection will issue field-of-membership guidance in the form of a letter to credit unions likely in early June.

The board also proposed a rule to implement statutory requirements to the Federal Credit Union Act resulting from the enactment of the Credit Union Share Insurance Fund Parity Act. There will be a 60-day comment period once the proposal is published in the Federal Register.

The Credit Union Share Insurance Fund Parity Act requires the NCUA to provide enhanced, pass-through coverage for interest on lawyer trust accounts (IOLTAs) and other similar escrow accounts. Since the bill's passage in December 2014, the NCUA has taken a position that these accounts have always been covered by share insurance, but certain aspects of the new law require the NCUA to take action.

The act also leaves several unanswered questions, such as the meaning of the bill's "other similar escrow accounts" phrase and whether or not pre-paid cards should be considered as IOLTA.

The proposal specifically requests comments on what kinds of escrow accounts should qualify for pass-through coverage; what attributes these accounts should possess to obtain coverage; and how the NCUA can define these accounts to minimize the need for case-by-case analyses.

Frank Kressman, associate general counsel at the NCUA, said the agency welcomes comments on prepaid cards as well.

"There are a number of indicia that lead us to believe that prepaid card programs are not similar enough to IOLTAs," he said.

CUNA President/CEO Jim Nussle said the organization is disappointed with the NCUA's decision not to insure prepaid cards.

"We will continue to thoroughly review the proposal, but are concerned that the NCUA is not acting consistently with the Federal Deposit Insurance Corp. regarding insurance coverage for prepaid card accounts," he said. "The FDIC already determined that such accounts receive the same insurance coverage as other deposits."

For more coverage of Thursday's NCUA board meeting, see "NCUA adopts final corp. CU rule, proposes changes to bridge-loan rule" and "Share insurance fund posts $25M net income in 2015 1Q" in today's News Now.