Summary: NCUA Proposed Rule Part 701 and Part 741, Unit and Nonmember Shares

Summary
Prepared by NASCUS Legislative & Regulatory Affairs Department
June 2019

NCUA is proposing changes to federal credit union (FCU) rules for public unit and non-member shares. These rules apply to federally insured state credit unions (FISCUs) by reference in §741.204. Currently, §701.32(b) of NCUA’s rules limits a FCU’s total public unit and non-member shares to the greater of 20% of total share or $3 million. An NCUA Regional Director may approve a waiver request to exceed the limits.

NCUA is proposing to amend its rules to:

  1. Allow FCUs (and by reference in §741.204(a) FISCUs) to receive public unit and non-member shares up to 50% of the credit union’s paid-in and unimpaired capital and surplus less any public unit and non-member shares
  2. Eliminate the alternative $3 million limit
  3. Eliminate the waiver process for deposits in excess of the proposed limit
  4. Require an FCU (and FISCUs by reference) to develop and maintain a written plan if its public unit and non-member shares, taken together with borrowings, exceed 70% of paid-in and unimpaired capital and surplus

NCUA’s proposed rule may be read here. Comments are due to NCUA by July 29, 2019.

Summary

Section 701.32(b) of the NCUA’s rules limits the total amount of public unit (regardless of whether the public unit is a member of the FCU or not) and non-member shares a FCU may have to the greater of 20% its total shares or $3 million, unless the shares are U.S. Treasury accounts or matching funds accounts required by the NCUA’s Community Development Revolving Loan Fund Program.  If state law allows a FISCU to accept public deposits or non-member deposits, Section 741.204(a) of NCUA’s rules require FISCUs adhere to the FCU limits of §701.32(b).

NCUA’s rule provides a process by which a credit union may seek a waiver to the limits by submitting a written request to the NCUA Regional Director.

Proposed Changes

  • Increase threshold to 50% percent of paid-in and unimpaired capital and surplus less any public unit and non-member shares

The proposal increases the limit and the way the limit is calculated. By changing from 20% of total shares to 50% ‘‘paid-in and unimpaired capital and surplus less any public unit and non-member shares’’ provides credit unions with greater ability to accept public unit and non-member deposits because undivided earnings are included in the measurement of a credit union’s paid-in and unimpaired capital and surplus.

The proposed rule does not include public unit and non-member shares in the calculation of unimpaired capital and surplus for purposes of the 50% limit. By excluding the public and non-member deposits from the calculation NCUA seeks to
limit the ability of a credit union to increase its leverage indefinitely, which could pose a risk to the National Credit Union Share Insurance Fund (NCUSIF).

  • Elimination of the alternative $3 million limit

NCUA states that because the proposed 50% of paid-in and unimpaired capital and surplus limit is “sufficiently high” the alternative $3 million limit is unnecessary. However, NCUA specifically requests comments on whether the elimination the $3 million threshold would harm smaller credit unions that might rely on larger volumes of nonmember shares as a necessary source of funding.

NCUA also seeks comments on whether smaller credit unions, or low-income designated credit unions, should be allowed to apply for a higher threshold than the proposed 50% limit or whether the $3 million (or higher) alternative dollar threshold should be retained.

  • Elimination of waiver from NCUA Regional Director process to exceed the 50% limit

The proposed rule also eliminates the option for a credit union to obtain a waiver from the NCUA Regional Director to exceed the limit. While NCUA is expanding the amount of public unit and non-member deposits a credit union may hold, the agency DOES NOT believe it should allow a credit union to have public unit and non-member shares in excess of 50% of paid-in and unimpaired capital and surplus.

  • Requirement to maintain a written plan regarding use of funds

Under the proposed rule, an FCU must develop and maintain a written plan regarding the intended use of any borrowings, public unit, or non-member shares that, taken together, exceed 70% of the credit union’s paid-in and unimpaired capital and surplus. The plan would not have to be submitted to NCUA for prior approval. NCUA would review the plans during regular examination.

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