CUNA Comment Letter

Eligible Obligations

August 24, 2007

Ms. Mary Rupp
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314

Re:    Proposed Rule 701 – Eligible Obligations

Dear Ms. Rupp:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed rule on eligible obligations that the National Credit Union Administration (NCUA) has recently issued, which amends the current rule governing the purchase, sale, and pledge of eligible obligations by adding a conflict of interest provision similar to the one in the general lending rule. CUNA represents approximately 90 percent of our nation’s 8,500 state and federal credit unions, which serve 87 million members.

NCUA’s current rule provides that a federal credit union (FCU) may purchase its members’ eligible obligations (loans and groups of loans it is authorized to make) from any source, subject to certain limitations, provided the loans are ones that the FCU is empowered to grant, with a limitation of 5% of the FCU’s unimpaired capital and surplus. NCUA maintains that similar to situations in which a federal credit union is the original lender to its member, eligible obligation transactions may present the same types of conflict of interest concerns. Therefore, the proposal would generally provide that an official, employee, or immediate family members of such individuals may not receive, directly or indirectly, any commission, fee or other compensation in connection with an eligible obligation transaction.

SUMMARY OF CUNA’s POSITION

2006 review of regulations, the agency does not discuss why the recommendation was made or what problems it sought to address.

CUNA agrees that credit unions should avoid conflicts of interest, including for these types of activities, as well as any appearance of such a conflict. However, NCUA has not provided any information in the Supplementary Information or elsewhere to support the need for this new rule change. Furthermore, there is no other indication that FCU officials have engaged in activities involving eligible obligations that benefited them, their employees, or immediate family members to the detriment of the members’ best interests.

In discussing the proposal, NCUA indicated that the recommendation for it resulted from its 2006 review of regulations but does not discuss why the recommendation was made or what problems it sought to address. In light of the fact that NCUA is not purporting to address any tangible problem, but only a speculative one, and the fact that under the current rule no such conflicts that we are aware of have arisen, we do not support proceeding with this rule at this time.

Thank you for the opportunity to comment on the proposed rule. If you or other Board staff have questions about our comments, please give Senior Vice President and Deputy General Counsel Mary Dunn or me a call at (202) 638-5777.

Sincerely,

Jeffrey Bloch
Senior Assistant General Counsel