CUNA Comment Letter

Charitable Contribution Proposal

January 27, 1999

Ms. Becky Baker
Secretary to the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Charitable Contribution Proposal

Dear Ms. Baker:

Credit Union National Association (CUNA) and Affiliates, which represents over 90% of the federal and state chartered credit unions nationwide through state leagues, welcomes the opportunity to respond to NCUA's proposal to incorporate into regulations the agency's long-standing IRPS 79-6 on charitable contributions and donations. The proposal was in the October 29 Federal Register.

In 1997 NCUA proposed to eliminate some Interpretive Rulings and Policy Statements (IRPS) and incorporate others in regulations after notice and comment. At that time CUNA recommended that credit unions be provided with ample time to respond to each proposal and in the case of IRPS 79-6 have an opportunity to comment on what should be the criteria for an allowable donation. Earlier this month CUNA had a conference call on NCUA's proposal on charitable contributions, and more than 40 league staff participated in the discussion. The general consensus of the group was that the proposed language is too limiting and does not adequately reflect the financial and other donations that credit unions routinely make to their communities. In addition, the consensus was that the NCUA should only provide guidelines on this issue, not a regulation.

Therefore, CUNA does not support the incorporation of this IRPS into the regulations and recommends that a new IRPS on charitable contributions be drafted that more clearly reflects what federal credit unions do and that does not limit their wide range of giving.

When IRPS 79-6 was issued, the Supplementary Information stated that the agency recognized that credit unions have an obligation to contribute their fair share toward community funds that are used for "diverse charitable, recreational, and educational needs of the public." NCUA found that donations meeting this obligation was an activity incidental to a federal credit union's business within the scope of powers set forth in Section 107(15) of the Federal Credit Union Act. However, in IRPS 79-6 the agency determined that credit unions could only make contributions to community organizations that are exempt from taxation under Section 501(c)(3) of the Internal Revenue Code.

We certainly agree that federal credit unions do have incidental authority under the Federal Credit Union Act to make donations to "diverse charitable, recreational, and education needs of the public." This is the credit unions' way of "people helping people" and supporting their members and their communities. However, we do not agree that credit unions' giving should be limited to donations to 501(c)(3) organizations. Under the Internal Revenue Code a taxpayer can receive a deduction for donations made to a 501(c)(3) organization (26 CFR 501(c)(3)). Putting such a limitation on donations by tax-exempt credit unions makes no sense.

We have heard from credit unions about donations that they make to non-501(c)(3) organizations and would like to provide a sample of those:

A perfect example of how this regulation would be constraining is the assistance the credit unions are currently giving to the area hard hit by Hurricane Mitch. Credit unions are making donations through the National Credit Union Foundation and numerous state credit union foundations, which are 501(c)(3) organizations. However, they are also making donations directly to credit unions in the area and through their leagues --which would violate the 501(c)(3) and the principal place of business requirements.

In addition, we do not support the further limitation in proposed section 701.25(a)(1) that the entity to which a credit union is making a donation must be one that is "located in or conducts its activities in a community in which the federal credit union has a principal place of business". It is not the principal place of business that determines a credit union's community; it is the members they serve. A credit union could have members spreadout over a large area --in several communities or states or nationwide --and yet have one principal place of business. Such a credit union should be able to make donations in any community in which it has members and wherever the credit union perceives "charitable, recreational, or education needs of the public". Thus, beyond helping their own members and communities credit unions should be able to respond to the needs of others -- whether providing funding to a credit union in Poland for a computer or giving blankets and food stuffs to flood victims in another state.

We do not support the requirement in proposed section 701.25(b) that requires the board of directors to approve each charitable contribution and determine that it is in the best interest of the credit union. Rather the board of directors should adopt a policy for charitable giving and on an annual basis approve guidelines for the amount to be given and the types of recipients they want to fund. This could be part of the annual budget. Then it could be up to the board, or a committee, or management to determine how that amount could be allocated. Certainly, the board would be able at any time to consider a need or event which has just arisen that warrants a donation. Also the board should review each year's annual donations. During the examination process NCUA could review these donations for any safety and soundness concerns.

Though NCUA's proposal affects federal credit unions, it might be helpful for the agency to review the way some states have addressed donations for state-chartered credit unions that do not limit the credit unions' ability to make donations. For example, the California Financial Code (Section 14408) does not regulate any gift or donation for $1,000 or less. However, when the amount is over $1,000, then the credit union board must determine that the gift or donation is in the best interests of the credit union, approve it, identify the recipient, and state the value. The Washington Revised Code (31.12.402(20)) does not set out any board of director requirements, but gives state-chartered credit unions broad authority to make contributions to charitable, social, welfare, educational or 501(c)(3) organizations in areas where their members reside.

Because of our concerns with the proposed section 701.25, we strongly recommend that NCUA not incorporate IRPS 79-6 into the regulations. We believe that guidance in the form of an IRPS on the issue should be adequate. Any safety and soundness concerns can be addressed during the examination process. In addition, we recommend that the new guidance recognize the broad range of giving that credit unions are involved in and therefore, not limit credit union donations (1) to 501(c)(3) organizations and (2) to the community where the credit union has its principal place of business.

We appreciate the opportunity to comment on this proposal and would be happy to meet with NCUA staff to discuss this further.

Sincerely yours,

Sarah Cummer
Regulatory Affairs Counsel