CUNA Comment Letter

Changes to Calculation of Fixed Assets and Fixed Asset Waivers

June 21, 2004

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

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates the opportunity to provide its support for the proposal that amends the fixed asset rule that governs federal credit union ownership of fixed assets. CUNA, a national trade association, represents approximately 90 percent of the nation’s 9,400 state and federal credit unions.

SUMMARY OF CUNA’s Position

Discussion

The Federal Credit Union Act authorizes a federal credit union to purchase, hold, and dispose of property necessary or incidental to its operations. Generally, a federal credit union may only invest in property it intends to use to transact credit union business, that is, to support its internal operations or serve its members. The fixed asset rule limits a federal credit union’s investment in fixed assets to five percent of a federal credit union’s shares and retained earnings. The rule also imposes requirements on the planning for, use of, and disposal of real property acquired for future expansion. The current rule provides a waiver process so that federal credit unions may apply for a waiver of the five percent limitation, and the proposed rule retains these waiver provisions but reorganizes them to simplify and make them easier to follow.

CUNA supports the proposed elimination of the requirement that a federal credit union include its investments in any entity that holds fixed assets used by the federal credit union, when it calculates its investment in fixed assets. CUNA agrees with NCUA that elimination of this requirement would prevent credit unions from overestimating their assets. The current rule defines investments in fixed assets that must be counted as any investments in, and loans to, a partnership or corporation, including a CUSO, that holds any fixed assets used by the federal credit union. Federal credit unions are expected to pay the fair market value for the use of these fixed assets, which includes lease payments. Lease payments also are captured as part of the federal credit union’s investment in fixed assets, under the rule on operating and lease payments. The change in the proposal will reduce the likelihood that a credit union will overestimate its assets.

CUNA supports the establishment of a time frame for submission of waiver requests. The fixed assets rule provides that a federal credit union must use its property at least partially, within three years of acquisition unless the federal credit union obtains a waiver. The proposal would require that this waiver request must be in writing and submitted to NCUA within 30 months of acquisition. CUNA supports the waiver process and believes that this proposal clarifies the procedural requirements for obtaining such a waiver. Providing a federal credit union with 30 months to submit a waiver request is a reasonable time frame relative to the three-year limitation in the rule.

CUNA also supports the proposed clarifications that would explain the meaning of partial occupancy and full occupancy in the current rule. The proposal clarifies that premises are “partially occupied” when the credit union is using some part of the space on a full-time basis and that “full use” occurs when the federal credit union, or some combination of the federal credit union, its CUSOs, and its vendors use the entire space on a full-time basis. CUNA supports clarifying the definitions of these terms and believes that these explanations will help federal credit unions comply with the rules.

CUNA asks that NCUA consider whether credit unions with less than 9 percent net worth could be eligible for RegFlex treatment as it relates to the fixed assets rule. Under RegFlex, federal credit unions that qualify for RegFlex treatment are exempt from the five percent limitation. The proposal states, however, that if federal credit unions that qualify for RegFlex become ineligible for RegFlex, then they lose their exemption and must comply with all the provisions of the fixed assets rule. As a result, if a former RegFlex credit union has 6 percent in fixed assets and it is disqualified from RegFlex, then it must reduce its fixed assets to 5 percent or seek a waiver of the limit. CUNA asks that NCUA consider extending RegFlex treatment to some credit unions that become ineligible for RegFlex.

Conclusion

CUNA supports the amendments to the fixed asset rule that would reduce the likelihood that a credit union overestimates its assets and would help credit unions comply with the waiver and occupancy requirements. 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