CUNA: IOLTA proposal doesn’t extend coverage far enough
WASHINGTON (7/13/15)--The National Credit Union Administration’s proposed rule on interest on lawyer trust accounts (IOLTAs) falls short of what is possible under the law, CUNA wrote to the agency last week.
In its comment letter on the proposal, CUNA says the proposal fails to achieve full insurance parity with the Federal Deposit Insurance Corp. (FDIC).
The NCUA’s proposed rule would make the necessary changes required by the Credit Union Share Insurance Fund Parity Act, a CUNA-supported bill that was signed into law in December. The law specifically addressed providing pass-through insurance coverage on IOLTAs, as well as “other similar escrow accounts.”
CUNA believes this extends the NCUA’s authority to share insurance to the owners of funds in any account established by a member. Of particular concern is that the proposed rule does not extend coverage to prepaid and stored value cards, and CUNA urges the NCUA board to do so in the final rule.
“The Federal Credit Union Act does not preclude--and frankly supports--the NCUA board defining a prepaid or payroll master account as a member account:. A person or business must be a member to establish these accounts; therefore, it should logically follow that these are member accounts,” the letter reads. “NCUA has precedence for extending deposit insurance to nonmembers and for using nonmembers as the basis for providing additional insurance coverage for certain types of accounts.”
CUNA believes credit unions can use such accounts to better serve unbanked consumers who currently use prepaid, payroll and other stored value cards, and that facilitating credit unions’ ability to offer these products would be a significant step toward bringing those consumers into the mainstream financial system.
“Boldness by NCUA will reward credit union members with the opportunity to obtain the most novel financial products and services available,” the letter reads. “For these reasons, we encourage NCUA to adopt an approach, consistent with the Federal Credit Union Act, that ensures insurance parity with the FDIC so that credit unions are not stifled in the marketplace.”