CUNA Comment Letter

Share Insurance Expanded

April 26, 2004

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

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the interim final rule on share insurance that expands the amount of coverage for qualified beneficiaries, under certain circumstances. CUNA, a national trade association, represents more than 90 percent of the nation’s 9,653 state and federal credit unions.

CUNA’s Views on Share Insurance:

Discussion
NCUA has revised the current living trust account rules to provide for insurance coverage of up to $100,000 per qualifying beneficiary who, as of the date of a credit union’s failure, would become entitled to the living trust assets on the owner’s death. While this approach provides insurance coverage for qualifying beneficial interests irrespective of defeating contingencies, a beneficiary’s trust interest that is dependent on the death of another trust beneficiary will still not qualify for separate insurance. If a beneficiary’s interest is subordinate only to a life estate of another beneficiary, that interest will be insured. The amended rule allows for separate insurance for both the life estate and the remainder interest for qualified beneficiaries.

CUNA supports removal of the defeating contingency provision because it simplifies the existing share insurance rules, and makes it easier for members to understand their insurance coverage. The existing insurance coverage rules that make distinctions on insurance coverage based on contingency provisions are confusing. It is hard for a consumer to determine if a trust contains a defeating contingency because identifying these provisions requires a difficult, time-consuming review of trust documents. Moreover, the concept of a defeating contingency and the affect that it has is also difficult for consumers to grasp. As a result, in the past many members did not understand the impact that a defeating contingency in a living trust agreement had on insurance coverage at the credit union.

Furthermore, CUNA supports this interim rule because it helps reassure members and all consumers who use living trust accounts that they are receiving the same insurance protection, regardless of whether their accounts are maintained at credit unions or other federally insured institutions. CUNA supports NCUA’s decision to issue this change as an interim final rule effective on the same day as a similar FDIC insurance rule. This action helped ensure members that they received adequate protection consistent within the protection afforded consumers at other federally insured institutions.

In addition, CUNA believes that NCUA’s policy of maintaining parity with the FDIC’s insurance rules for similar accounts benefits credit unions. If NCUA did not strive to maintain such parity, then credit union members would be disadvantaged and might chose to open accounts at other financial institutions to increase their insurance coverage. As a result, CUNA supports NCUA’s policy of maintaining parity, because it protects the ability of credit unions to help their members.

Conclusion
CUNA supports NCUA’s decision to issue this as an interim final rule and to ensure that credit union members receive comparable coverage to bank customers. If you have any further questions, please contact CUNA's Senior Vice President and Associate General Counsel Mary Dunn or me at (202) 638-5777.

Sincerely,

Michelle Q. Profit
Assistant General Counsel