CUNA Comment Letter

NCUA’s Annual Regulatory Review (2006)

August 1, 2006

Regulatory Review (2006)
Office of General Counsel
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Dear Sir or Madam:

On behalf of the Credit Union National Association, I appreciate the opportunity to file comments in response to the agency’s Annual Regulatory Review. CUNA is the nation’s largest trade organization for credit unions, representing about 90% of the approximately 8,900 state and federal credit unions in this country, which serve nearly 86 million members.

Under the agency’s policy, NCUA reevaluates one-third of its current rules each year and all rules are reviewed every three years. Also, under the Economic Growth and Regulatory Paperwork Reduction Act, NCUA and other regulators are required to seek comments from stakeholders and report to Congress on the agency’s efforts to minimize or eliminate unwarranted, outdated, or excessive regulations.

For credit unions, which are one of the most highly regulated businesses in this country, these reviews are very important, and CUNA commends the agency’s efforts to identify unnecessary and/or overly burdensome regulatory requirements that have been imposed on federally insured credit unions. Our comments on the particular rules listed in the notice for consideration as well as recommendations for improving the review process are addressed below.

Summary of CUNA’s Views

Field of Membership

CUNA remains deeply concerned about the impact of the agency’s recent field of membership (FOM) changes to permit only multiple group credit unions to add new underserved areas – even though CUNA agrees the NCUA Board had no alternative in light of the bankers’ litigation and highly hypocritical actions that hurt those who need credit union service the most.

Vice Chairman Rodney Hood voted against the final rule because, as he stated, in his view the agency is not required to mandate that multiple group credit unions that convert to a non-multiple group charter relinquish their underserved areas. He offered an unsuccessful amendment to restore this authority.

CUNA has developed a legislative proposal to lift the statutory constraints on service to underserved areas for single and community credit unions, which would also render moot the concern raised by Vice Chairman Hood. We want to work with NCUA to achieve passage of this proposal at the appropriate time, and CUNA commends the Chairman’s efforts to discuss this matter with key policymakers.

In the meantime, CUNA’s Federal Credit Union Subcommittee is reviewing the association’s policies on a range of FOM issues and plans to provide recommendations to CUNA’s Governmental Affairs Committee at the Governmental Affairs Conference in February 2007.

Net Worth and PCA Reform Remain A Top Priority

NCUA has developed a legislative proposal that calls for broad reform of the current net worth requirements for natural person credit unions and would result in a PCA framework that will more accurately set net worth requirements in relation to the relatively low level of risk associated with credit unions’ operations.

CUNA strongly supports PCA reform as a top association priority and we continue to work to promote its adoption. We urge NCUA to continue its diligent work with the U.S. Department of the Treasury and Congress until statutory improvements in PCA have been achieved.

We also encourage NCUA to review the discretionary supervisory actions that the agency may apply to credit unions with net worth of less than 6% but more than 4%. While the agency has already limited the impact of such action for credit unions with less than 6% and more than 5% net worth, CUNA continues to question whether any discretionary sanctions should apply for credit unions that are only slightly under the adequately capitalized level. We also question whether undercapitalized credit unions that still have more than 4% net worth should be subject to all the discretionary supervisory actions listed in the PCA rule for such credit unions, such as the limits on credit union service organization (CUSO) transactions and the ability of the agency to limit or alter any activity of the credit union if the agency determines such action poses an excessive risk to the credit union. CUNA’s Examination and Supervision Subcommittee would welcome the opportunity to assist the agency with this review.


One of the regulatory provisions the agency is reviewing is its “Definitions,” 12 CFR 700, which lists and describes key terms used in NCUA’s rules. We encourage NCUA to include all defined terms in the agency’s rules in this section so there is one complete list of key terminology and how those terms are utilized. Also, we urge NCUA to propose for comments some additional terms, including “fiduciary duty” of credit union board members and senior management officials. Navy Federal Credit Union has proposed relevant changes to the agency’s Chartering and Field of Membership Manual which we encourage NCUA to consider.

Corporate Credit Unions

Corporate credit unions are working with NCUA to develop a comprehensive risk-based capital system for corporates using the principles of the BASEL Accords to tailor the system to the specific needs and activities of these institutions. CUNA strongly supports this effort.

Low-Income Credit Unions

In February, the NCUA Board approved a final rule to allow low-income designated credit unions (LICUs) offering uninsured secondary capital accounts to redeem the funds in those accounts at the same rate they are discounted when they are within five years of maturity. Such credit unions are authorized to offer these accounts to non-natural person members and nonmembers. We supported this change and urge the agency to continue working with the National Federation of Community Development Credit Unions to help ensure community development credit unions are not subjected to unnecessary regulatory burdens in any aspects of the operations, consistent with safety and soundness.

Loans to Members and Lines of Credit to Members

The Credit Union Regulatory Improvements Act (CURIA) contains a number of changes to the statutory and regulatory framework surrounding credit union activities. One of the amendments would increase the 12-year loan maturity limit in the Federal Credit Union (FCU) Act, which we strongly support. Also, as provided in CURIA, NCUA should have greater flexibility to adjust the usury ceiling, which among other things, would make it easier for federal credit unions to serve the underserved.

Also, the FCU Act requires approval of the FCU’s board of directors in any case in which the aggregate of loans to an official and loans on which the official serves as endorser or guarantor exceeds $20,000 plus pledged shares. CUNA believes the statute should allow the FCU’s board to set the limit or the limit should be increased in the statute.

Investment and Deposit Activities

The FCU Act is very specific in addressing permissible investments for federal credit unions. Even so, restricted investment activities are cited by some credit unions as an impediment to growth and improved services for members. In that connection, we encourage NCUA to consider what measures it might take which do not involve statutory changes to address investment activities. (We will be filing a comment letter next month on the proposal to expand authority for certain investment repurchase transactions.)

We also encourage NCUA to consider whether all adequately capitalized credit unions, not just those with Rag-Flex status, could be eligible for additional investment flexibility. Also, NCUA prohibits the purchasing of an investment with the proceeds from a borrowing transaction if the purchased investment matures after the maturity of the borrowing repurchase transaction. This restriction does not apply to Reg-Flex credit unions, and we urge NCUA to lift this restriction for all FCUs. We do not believe that removing this prohibition will raise liquidity or safety and soundness concerns, which has been the justification for imposing the prohibition.

Process for Identifying Rules for Review and Soliciting Comments

As we have stated before, we believe the process for seeking comments on regulations that are included in the agency’s Regulatory Review could be improved. For example, some of the rules included are already the subject of proposed changes or recent modifications. It is confusing for those rules to be included on the regulatory review list.

Also, the notice for the regulatory review is difficult to find on NCUA’s website. As a result, we are not sure if very many credit unions are aware that the Regulatory Review is underway and that they can comment.

We also think it would be beneficial for NCUA to provide a yearly summary of rules it has reviewed, comments that were provided and what the agency plans to do to address recommendations that are obtained through the Regulatory Review process.

Thank you for the opportunity to share our views on the review.


Mary Mitchell Dunn
CUNA Deputy General Counsel and
Senior Vice President