CUNA Comment Letter
NCUA's Interim Final Rule Regarding the Share Insurance Regulations (Part 745)
July 15, 1999
Ms. Becky Baker
Secretary of the Board
Board of Governors of the
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428
RE: NCUA's Interim Final Rule Regarding the Share Insurance Regulations (Part 745)
Dear Ms. Baker:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on NCUA's interim final rule regarding possible changes to the share insurance regulations. CUNA represents more than 90% of our nation's 11,000 state and federal credit unions.
The interim final rule simplifies the share insurance regulations on revocable trust accounts and joint ownership accounts. The rule also included a request for comments on Part 745 in its entirety, including style, format, and suggestions for simplification. Specifically, the NCUA Board is seeking comments on whether examples of insurance coverage should be placed in a separate appendix, within specific provisions of the rules, or in an additional appendix with staff interpretations, similar to that used in Part 707 for Truth in Savings.
The NCUA Board suggested that commenters review the simplification of the deposit insurance rules as adopted by the Federal Deposit Insurance Corporation (FDIC) to determine if those changes are also appropriate for Board consideration. These FDIC deposit insurance rules mirror the substantive provisions of the NCUA interim final rule. They also contain amendments that relax recordkeeping requirements for certain agency or fiduciary accounts, create a six-month "grace period" following the death of a depositor for the restructuring of accounts in order to maintain insurance coverage, and clarify that a "defeating contingency" in a living trust agreement will prevent the account from receiving separate insurance coverage.
The NCUA Board is also interested in receiving comments on how to address insurance coverage for living trusts and on insurance issues unique to credit unions. The Board is particularly interested in receiving suggestions on how the insurance rules can be written so as to be more easily understandable by members and credit union employees.
Summary of CUNA's Position
CUNA supports the interim final rule, which is consistent with the FDIC insurance regulations and helps to simplify the share insurance rules. These changes should help protect many members who have previously misunderstood the insurance rules regarding these trust accounts. The rule also provides additional coverage for parents and siblings who are the beneficiaries of revocable trust accounts.
In response to NCUA's request for comments, we offer the following recommendations:
- The share insurance rules for living trusts should mirror those for other types of revocable trust accounts.
- Incorporate into the share insurance rules provisions of NCUA Opinion Letter 96-0804 regarding revocable trust accounts with multiple owners and with beneficiaries other than spouses, children, grandchildren, parent, or siblings.
- Provide flexibility for credit unions when determining the amount of insured shares on deposit for purposes of reporting this information on the 5300 Call Reports.
- Examples should be included within the particular provisions of the insurance rules.
- Include the changes to the insurance rules recently adopted by the FDIC, especially the clarification that credit unions have no affirmative duty to collect information regarding fiduciary relationships and the adoption of a six-month "grace period" following the death of a member for purposes of restructuring accounts to maintain insurance coverage.
- Provide a Web-based interactive program on the NCUA Web site that would allow credit unions and their members to calculate the share insurance coverage for specific accounts.
Living Trusts Accounts
Currently, there is confusion concerning the rules that apply to living trusts, and we believe the rules should mirror those that apply to other types of revocable trust accounts. Although revocable trust accounts are insured according to §745.4 of NCUA's regulations, which were amended by the interim final rule, living trusts do not appear to be specifically addressed in the regulations. They are also not specifically referenced in the "Your Insured Funds" brochure. Instead, it is only by referring to NCUA Opinion Letter 96-0804 that we learn that living trusts are insured under § 745.3(a)(2) of the regulations as accounts that are held by an agent or nominee. Applying the same insurance rules to both living trusts and testamentary accounts would eliminate this confusion.
Applying the same insurance rules to living trusts is also practical because these accounts serve essentially as estate planning tools, similar to other types of revocable trust accounts, and because a trust instrument could contain features of both a living trust and another type of revocable trust account. This treatment would be consistent with the FDIC's rules. In one of its simplification amendments adopted on April 28, 1998, the FDIC clarified that a living trust should receive the same insurance coverage as other types of revocable trust accounts, as long as the living trust does not contain a "defeating contingency."
Alternatively, if NCUA decides that the same insurance rules should not apply to both living trusts and testamentary accounts, then we believe that the title of § 745.4 should not be changed from "Testamentary Accounts" to "Revocable Trust Accounts" pursuant to the interim final rule. Changing the title to "Revocable Trust Accounts" may lead some to believe that the section applies to living trusts.
Revocable Trust Accounts
Section 745.4(c) of the regulations states that if the named beneficiary of a revocable trust account is other than a spouse, child, grandchild, parent, or sibling of the account owner, the funds in such account must be added to any individual accounts of the owner and insured up to $100,000 in the aggregate. NCUA Opinion Letter 96-0804 clarifies this rule as it applies to such accounts with more than one owner. According to the opinion letter, the actual ownership interest of each owner must be added to any other individual account held by the owner and will be insured up to $100,000 in the aggregate. We believe that incorporating this language of the opinion letter into § 745.4(c) should help to avoid confusion regarding revocable trust accounts with more than one owner.
For purposes of clarification, we believe that § 745.4(a) should not begin by explaining that revocable trust accounts include testamentary accounts, tentative or "Totten" trusts, or payable-on-death accounts. Most credit unions do not recognize these terms and their use creates confusion for the reader, and detracts from explaining the purpose of these provisions. Such terminology will become even more obsolete as more states adopt the Uniform Probate Code, or similar statutes, which generally do not use such terms. We recommend the agency follow the FDIC approach, which includes the terminology in a separate sentence after explaining the purpose of the provisions regarding revocable trust accounts.
We also want to mention that many credit union account cards include a line to list a beneficiary even though the account is not a "trust" account. We believe it may be helpful to clarify in § 745.4 that such accounts are not considered revocable trust accounts and are considered either individual or joint accounts for insurance purposes, depending on the number of owners.
Computation of Insured Share Deposits
We also want to mention that the 5300 Call Report, which was distributed to credit unions with a request for comments this past April, requires credit unions to calculate the amount of insured share deposits. Because of the insurance rules applicable to certain situations, such as the interim final rule regarding joint ownership accounts, the calculation does not ensure that NCUA will have an accurate accounting of insured funds on deposit in federally insured credit unions.
The Call Report for commercial and savings banks allows the reporting institution to use an internal calculation to determine the amount of deposits insured by the FDIC in addition to the standard calculation contained in the Call Report. We encourage NCUA to give credit unions the same flexibility in determining the amount of insured shares on deposit in the credit union. This can be done by providing credit unions with the choice of the following two options: 1) using the current formula; or 2) using a credit union-derived formula that takes into account multiple owners on joint accounts and multiple beneficiaries on testamentary accounts.
You also solicit input regarding the use of the Truth in Savings rule format for the insurance rules. We believe the insurance rules would be more understandable if examples were included within the particular provisions of the insurance rules. This would allow the reader to immediately understand how a particular provision applies in a specific insurance scenario. This use of examples within particular provisions is also the style used by the FDIC. We also believe that the insurance rules could follow the Truth in Savings format by providing staff interpretations in an additional appendix. We envision that these interpretations could serve as an alternative to NCUA's private opinion letters on certain share insurance issues, and this could eliminate confusion for those who may be unfamiliar with the private opinion letters that address these issues.
We have also reviewed the changes to the insurance rules that were recently adopted by the FDIC and generally believe that they would be appropriate for inclusion in NCUA's share insurance rules. Specifically, we support clarification that there would be no affirmative duty for a credit union to collect information regarding fiduciary relationships. We also support the creation of a six-month "grace period" following the death of a member that will provide surviving account owners time to restructure the accounts in order to maintain the amount of insurance coverage that was in place prior to the member's death. During a time of grief, the survivors may not view the restructuring of a credit union account as a matter of high priority. The six-month "grace period" will allow survivors to tend to the most urgent matters without the need to worry about their insurance coverage. The FDIC incorporated this "grace period" in its insurance rules.
Finally, we recommend that NCUA provide a Web-based interactive program on its Web site that would allow credit unions and their members to calculate the share insurance coverage for specific accounts. The FDIC has recently installed such a program on its Web site, known as the Electronic Deposit Insurance Estimator (EDIE). EDIE is a user-friendly interactive program that allows users to calculate deposit insurance coverage for specific accounts by answering a series of questions regarding the types of accounts involved and the amount in each account. A similar program on NCUA's Web site would be invaluable to credit unions and their members.
Thank you for the opportunity to comment on NCUA's interim final rule regarding possible changes to the share insurance regulations. If Board members or agency staff have questions about our comments, please give me a call at 202-218-7795.
Assistant General Counsel