CUNA Comment Letter

CUNA Urges NCUA To Adopt Broader CUSO Rule Changes

April 23, 2001

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

Dear Ms. Baker:

The Credit Union National Association, which represents more than 90% of our nation’s state and federal credit unions, appreciates the opportunity to comment on the National Credit Union Administration’s proposed regulation to amend its regulations regarding credit union service organizations. CUNA’s comments were developed under the auspices of our Federal Credit Union Subcommittee, chaired by Mr. Edwin Collins, Lockheed Federal Credit Union.

The proposed rule will clarify that the current list of permissible CUSO activities establishes broad categories and that these categories are intended to be illustrative, not exhaustive, of the activities that may be permissible. The rule will also encourage credit unions, before requesting a regulatory amendment, to seek an advisory opinion from the Office of General Counsel on whether a proposed activity falls within one of the authorized activities. We support these changes, as far as they go. We believe they will help to reduce the regulatory burden associated with the approval of new CUSO activities and allow the rules to encompass new services as technology and demand for member services evolve.

However, as with incidental powers for federal credit unions, we favor an approach that would not require preapproval from NCUA but would set the parameters for eligible CUSO activities and let credit union boards determine whether activities are appropriate and consistent with the regulation. The illustrative examples should remain in the regulation, with the clarifying language NCUA is proposing that indicates the listed activities are not the only ones in which a CUSO may engage.

The current CUSO rules limit a CUSO structured as a corporation to a "corporation as established and maintained under relevant state law." This prevents a CUSO engaging in permissible trust activities from being chartered as a national trust company. The proposed rule will allow this structure by adding a federally chartered corporation to the category of permissible structures for CUSOs.

CUNA supports this change. However, we question what the practical impact of this amendment will be without further clarification. In order for a CUSO to have a national trust charter, it must be organized as a national bank or federal thrift. At present, there appear to be serious, though not insurmountable, impediments to such charters when the organization would be owned by credit unions.

One potential solution is for federal credit unions to have greater trust powers, which we recommended in our comment letter to NCUA on incidental powers and as state chartered credit unions in some states are achieving. Another recommendation would be for NCUA to have expanded power to charter national trust credit unions, similar to the authority for the Office of The Comptroller of the Currency and the Office of Thrift Supervision.

Absent these changes, a credit union must turn to the OCC or OTS to charter a national trust organization. In the past, OCC has not been receptive to dealing with credit unions seeking a national trust bank charter. CUNA has renewed efforts to explore OCC’s concerns further and would like to coordinate and work with NCUA in clarifying OCC’s current views on chartering a national trust owned by credit unions.

There are regulatory hurdles that currently preclude obtaining a national charter from the Office of Thrift Supervision. As you know, OTS regulations require that an organization (including a trust) chartered by OTS have federal deposit insurance from the Federal Deposit Insurance Corporation (12 CFR 543.9). Under the Federal Deposit Insurance Corporation Act, FDIC must determine, among other matters, whether the application is for a "depository institution which is engaged in the business of receiving deposits other than trust funds" 12 USC 1815(a)(1). (Currently, FDIC is proposing to place in its regulation an FDIC General Counsel’s opinion that states this requirement may be met by the maintenance of one or more non-trust deposit accounts of least $500,000, 66 FR 20103.)

There is a concern that by holding a single deposit for FDIC-insurance purposes an OTS-chartered trust may be viewed as a "financial institution" by NCUA. Ownership of a financial institution by a federal credit union is prohibited under the Federal Credit Union Act. Thus, it has been recommended that NCUA provide a definition of "financial institution" to exclude trust organizations that hold only a single deposit as required for FDIC insurance, and we support the agency’s thorough consideration of this approach.

It is interesting to note that the FDIC’s Supplementary Information accompanying its proposal states that the Bank Holding Company Act "contemplates that a trust company – functioning solely as a trust company and holding no deposits (or substantially no deposits) except trust deposits – could hold ‘insured deposits.’ In other words, the BHCA contemplates (without requiring) that an institution could be insured by the FDIC even though the institution does not accept non-trust deposits form the general public." (66 FR 20104) We are discussing the implications of this language with FDIC.

CUNA’s Governmental Affairs Committee is meeting May 1 and will be discussing this issue and recommendations to invigorate the proposed language regarding national charters. We want to share those recommendations with the NCUA Board and will be providing further amplification regarding our views on this issue immediately following that meeting.

Thank you for the opportunity to comment on this proposal. We appreciate the agency’s desire to reduce regulatory obligations and want to work with NCUA to insure the CUSO regulation comports with statutory requirements in the least burdensome manner possible.


Mary Mitchell Dunn
Associate General Counsel