CUNA Comment Letter
Proposed Rule Share Insurance (Part 745a)
January 31, 2000
Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428
RE: Proposed Rule Share Insurance (Part 745a)
Dear Ms. Baker:
The Credit Union National Association (CUNA), which represents more than 90 percent of the nations approximately 11,000 state and federal credit unions, appreciates the opportunity to comment on the National Credit Union Administrations (NCUA) proposed rule on share insurance. The NCUA requested comments on the rule, which would update and clarify NCUAs share insurance rules and make them more consistent with the Federal Deposit Insurance Corporations (FDIC). This proposed rule appeared in the Federal Register on November 30, 1999.
NCUA has proposed multiple amendments to the share insurance rules, most of which CUNA supports. CUNA addresses each proposed amendment below.
Living Trust Accounts
NCUA currently provides share insurance coverage to revocable trust accounts, which are testamentary trusts. NCUA proposes to treat a revocable trust account that is held in connection with a living trust the same as it treats other revocable trusts. To qualify the living trust must meet all requirements of revocable trust accounts. Specifically, living trusts that include conditions that could prevent a beneficiary from acquiring a vested and non-contingent interest in the accounts funds on the owners death would not be entitled to insurance coverage.
NCUA would consider the grantor of a living trust as the owner of the funds in the accounts while the person lived.
CUNA supports this proposed amendment and believes that the grantor should be considered the owner of the account. CUNA believes that NCUA should clarify how a living trust account or a revocable trust account with one owner would be insured if there were both qualifying and nonqualifying beneficiaries. The rule clearly states how nonqualifying beneficiaries should be treated for joint accounts, and it should do so for those accounts with one owner. Although CUNA supports this amendment generally, CUNA is concerned that credit union staff may have difficulty in interpreting when a living trust would qualify for insurance coverage. This determination would require staff to examine the trust and determine if there is a contingent interest. CUNA requests that NCUA include guidance in the supplementary information regarding this determination.
Joint Revocable Accounts
NCUA considers joint revocable trust accounts as revocable trust accounts that have more than one owner and are held for the benefit of another. NCUA proposes to provide separate insurance coverage to qualifying beneficiaries and owners of these accounts. NCUA also proposes to provide insurance coverage for Roth IRAs and Education IRAs. Under this insurance coverage, Roth IRAs would be combined with traditional IRAs and Education IRAs would be combined with irrevocable trust accounts.
CUNA generally supports this extension of separate coverage for joint revocable accounts, Roth IRAs and Education IRAs, as it would apply under the amendment. CUNA believes, however, that an Education IRA that indicates the beneficiary may be changed should be insured separately and not as an irrevocable trust account because the interest is indeed revocable.
Federal Law Preemption Explicitly Established
NCUA proposes to clarify that federal law governs the extent of insurance coverage, and that state law will not provide more insurance coverage than what is included under the Federal Credit Union Act. State law, the proposal clarifies, is used to determine property rights in accounts and not to provide extra share insurance coverage. CUNA supports this clarification.
For government accounts established by an official government custodian within its jurisdiction, NCUA proposes to provide coverage for share draft accounts separate from share certificate and regular share account insurance coverage. As a result, a governmental entity would be able to obtain $100,00 in coverage for its share draft accounts and an additional $100,000 of coverage for both share certificate and regular share accounts.
CUNA supports this extension of share insurance coverage because it provides greater opportunity for credit unions to attract funds from governmental units and makes credit unions as competitive as other financial institutions, which already provide more liberal insurance coverage.
Presently, funds held in the name of a guardian, custodian or conservator for the benefit of a ward or minor are insured up to $100,000 in the aggregate, separately from any other accounts of the guardian, custodian, conservator, ward or minor. NCUA proposes to treat these accounts in the same manner as the FDIC and reduce insurance coverage by adding a guardian account with a beneficiary together with the individual account of the beneficiary. Thus total coverage for the individual accounts of the beneficiary and the guardian account with this beneficiary would be $100, 000.
CUNA strongly opposes this change. This reduction in coverage is unnecessary given the strength of the NCUSIF. Also, it is within NCUAs discretion to provide insurance coverage that is different from FDICs. Moreover, credit union members have relied on the advice previously provided by NCUA and have communicated NCUAs earlier interpretation to their members.
Share Insurance Clarification
In NCUAs proposed rule, NCUA asked for comments on other share insurance issues not mentioned in the proposal. The share insurance rules would benefit from the following clarifications that: sole proprietorships are treated as individual accounts and aggregated with other individual accounts of the sole proprietor up to $100,000 and examples as to what happens when a husband and a wife have a joint revocable trust account for three kids versus when the husband and wife are the sole beneficiaries of that account. NCUA should also specify what are the membership requirements for custodian accounts in order for those accounts to receive share insurance coverage.
In conclusion, CUNA supports most of the proposed changes, but opposes the changes regarding guardian accounts and seeks other clarifications. If you have any questions regarding these comments, please contact Mary Dunn, Senior Vice President and Associate General Counsel for CUNA or Michelle Profit, Assistant General Counsel for CUNA at (202) 682-4200. Thank you for your consideration of these comments.
Michelle Q. Profit
Assistant General Counsel