CUNA Comment Letter

NCUSIF Premium and One Percent Deposit

August 24, 2009

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

RE: Proposed Changes to 12 C.F.R. 701 and 741, NCUSIF Premium and One Percent Deposit

Dear Ms. Rupp:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed rule issued by the National Credit Union Administration (NCUA) to provide additional guidance for credit unions entering or leaving the National Credit Union Share Insurance Fund (NCUSIF) system. By way of background, CUNA is the largest credit union trade organization in the country, representing approximately 90 percent of our nation's nearly 8,000 state and federal credit unions, which serve approximately 91 million members.

The proposal is intended to clarify and provide more details of the requirements of credit unions that enter or leave the federal share insurance system. The proposal contains a number of useful revisions, and we support the agency's objective to clarify this section of its regulations. The description of the development of the NCUSIF in the Supplementary Information and the explanation of how the proposed changes would fit into the existing rule are particularly useful.

Concerns Remain Over NCUA's Handling of Insurance Costs Associated with Corporate Credit Unions

However, because this proposal deals with NCUSIF insurance costs, it has caused federally insured credit unions to revisit concerns they experienced just a few months ago when, prior to the passage of P.L. 111-22 establishing the Temporary Corporate Credit Union Stabilization Fund, credit unions were facing unprecedented insurance costs related to the agency's handling of the problems in the corporate credit union system. With the establishment of the temporary Stabilization Fund, credit unions are able to spread out those costs. Nonetheless, credit unions are adamant that NCUA's treatment of future insurance costs be handled in a manner that is more systematic, more transparent, and more considerate of the impact of those costs on the credit union system.

Thus, we are supporting some provisions of the proposal and recommending some changes to make the provisions regarding insurance premiums and one percent deposit assessments clearer and the agency's actions based on these provisions more transparent.

Credit Unions Leaving the NCUSIF

Under the proposal, NCUA would clarify that credit unions leaving the NCUSIF in a year that an insurance premium is assessed would be responsible for that year's premium based on their insured shares as of the last reporting period, factoring in the number of months remaining in the year divided by 12 (premium/distribution ratio). Some have raised the concern that credit unions leaving the NCUSIF are being allowed to escape their NCUSIF assessments; this is particularly at issue since NCUA is spreading out insurance costs over several years, with the temporary Stabilization Fund. However, as we understand it, NCUA is not able to assess multiple year costs to departing credit unions because of accounting rules. In light of this, we support the agency's proposed approach.

Credit Unions Converting to NCUSIF Coverage

The proposal would provide more details than under the current rule for how premium assessments, one percent deposit payments and NCUSIF distributions would be handled for credit unions converting to NCUSIF coverage. As under the current rule, a credit union that converts to NCUSIF coverage would be required to fund its one percent deposit immediately, based on the total of its insured shares at the end of the last reporting period prior to conversion. Similar treatment is provided for mergers in which a federally insured credit union merges with a non-federally insured credit union, and the insured institution is the continuing credit union.

The proposal would clarify that if the NCUSIF assesses a premium in the calendar year of conversion, the credit union will pay a premium based on its insured shares at the end of the reporting period, factoring in the premium/ distribution ratio. If the NCUSIF declares a one percent deposit assessment, whether the credit union will be charged will be based on whether the assessment was before or after the conversion. If the NCUSIF declares a dividend in the year of the credit union's insurance conversion, the credit union will receive no dividend. If the dividend is declared in the year following conversion, the credit union will receive a distribution based on its insured shares at the end of the year of conversion times the premium/distribution ratio. Parallel treatment is provided for mergers. We support these provisions, as credit unions that receive the benefits of NCUSIF coverage should also help underwrite NCUSIF costs in a consistent manner.

Depletion of the One Percent Deposit

Under the proposal, subsection 12 C.F.R. 741.4(h), Depletion of one percent deposit, spells out that the NCUSIF may use all or part of the one percent deposit to meet its expenses. Further, insured credit unions may be charged "any amount necessary to replenish the one percent deposit at any time following the effective date of the depletion." This is generally consistent with the Federal Credit Union Act and current regulatory requirements.

However, we believe the agency has a responsibility to ensure federally insured credit unions, which have significant ownership stakes in the NCUSIF, fully understand what the NCUSIF's expenses are, particularly in the event of depletion of the one percent deposit and/or equity level of the Fund-as was the case with NCUA's Corporate Stabilization efforts earlier this year. In that connection, we urge NCUA to clarify that the NCUSIF will provide federally insured credit unions with a full accounting as to the cause, nature, and extent of the NCUSIF's expenses when it directs them to replenish their one percent deposit and/or pay a premium.

Also, this section should direct NCUA to consider fully the impact of deposit replenishments or premium assessments on federally insured credit unions and whether such costs could be spread out over time, as currently permitted under the new Stabilization Fund. In order to accomplish this, the NCUA should consider whether the current funding mechanism that allows the NCUSIF to spread out insurance costs should be made permanent.

Delinquent Insurance Payments

Under the proposed rule, 12 C.F.R. 741.4(k) would be revised to clarify provisions regarding delinquent payment of NCUSIF premiums, one percent deposits or replenishments. As under the current rule, the proposal would allow the NCUSIF to waive or abate interest penalties if its feels circumstances warrant such action. We believe the agency should revise this section to authorize limited waivers or delayed payments of any penalties, based on exigent circumstances at the credit union. The section should also clarify that NCUA will take the credit union's good faith efforts to make timely payments into account when determining whether penalties should be waived or the credit union allowed flexibility in making the payments.

The proposed sentence structures in 12 C.F.R. 741.4(i)(1)(ii)-(v); (2)(i)-(iii); and j(1)(ii), (iii) have resulted in provisions that could be clearer. These are important provisions, and we believe they should be clarified. We recommend that the final rule begin each of these provisions with the directive and place the conditional clauses at the end of the phrase. We believe this approach will make it easier for all interested parties to understand the provisions regarding the insurance coverage implications of converting to or from NCUSIF insurance.

Thank you for the opportunity to express our views on the Board's proposed rule regarding the NCUSIF premium and one percent deposit. If you have questions about our letter, please do not hesitate to give Senior Vice President and Deputy General Counsel Mary Dunn or me a call at (202) 508-6743.

Sincerely,

Luke Martone
Regulatory Counsel