CUNA Comment Letter

Proposed Rule on Suretyship and Guaranty

December 1, 2003

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

RE:      Proposed Rule on Suretyship and Guaranty; Maximum Borrowing Authority (Parts 701 and 741)

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on NCUA’s proposal to amend the rules regarding the maximum borrowing authority of state-chartered credit unions and to allow a federal credit union to act as a surety or guarantor on behalf of its members. CUNA represents more than 90% of our nation’s nearly 10,000 state and federal credit unions.

Summary of CUNA’s Comments

Maximum Borrowing Authority

The proposed rule will permit state-chartered credit unions to apply for a waiver from the maximum borrowing limitation of 50% of paid-in and unimpaired capital and surplus, up to the amount permitted under state law. We understand that the maximum borrowing authority for federal credit unions is set by statute, which cannot be changed by NCUA.

CUNA supports allowing state-chartered credit unions to obtain waivers from the maximum borrowing limitation, which allows NCUA to assess each waiver on a case-by-case basis in order to ensure the safety and soundness of the credit union. We also appreciate the inclusion of the nonexclusive list of examples contained in the supplementary information portion of the proposed rule that describes instances in which a state-chartered credit union may find it appropriate to seek a waiver.

CUNA believes that federal credit unions should also have the flexibility to apply for waivers from the maximum borrowing limitation. We do not believe that providing this flexibility to federal credit unions, in addition to state-chartered credit unions, would present any additional safety and soundness concerns.

We recognize that providing this flexibility for federal credit unions will require a statutory change to the Federal Credit Union Act (FCUA). We note that NCUA and the other federal financial institution regulators are currently reviewing their respective regulations and statutes, as required by the Economic Growth and Regulatory Paperwork Reduction Act. As part of this process, NCUA and the other regulators are seeking comments on ten categories of regulations and statutes between now and 2006.

NCUA recently requested comments on two of these categories, which includes the provisions regarding the maximum borrowing limitation. We would welcome this opportunity to work with NCUA in urging Congress to amend the FCUA so that federal credit unions may also apply for a waiver from this limitation.

Suretyship and Guaranty

CUNA supports the proposal to provide credit unions with the option of entering into surety and guaranty agreements because it will allow credit unions more flexibility in their efforts to meet the needs of their members. We also appreciate NCUA’s willingness to review the rules that apply to banks and thrifts in this area as guidance as it developed this proposal with regard to surety and guaranty agreements. This will help accomplish the goal of allowing credit unions to provide a more full and attractive range of financial products and services for their members.

We recognize that credit unions, in general, have limited experience with surety and guaranty agreements and that operational challenges may surface as credit unions begin to enter into these arrangements. These may include issues such as compliance with applicable licensing and insurance requirements, how the surety or guaranty obligation should be reflected in the credit unions’ books and records, and an understanding of the liability that may be involved.

In order to address these challenges, NCUA should carefully review this rule after it has been in effect for one year in order to address the operational issues that arise. We encourage a specific review of the rule at that time, along with a public comment period so that all interested parties can assess and address these operational challenges.

Thank you for the opportunity to comment on NCUA’s proposal to amend the rules regarding the maximum borrowing authority of state-chartered credit unions and to allow a federal credit union to act as a surety or guarantor on behalf of its members. If Board members or agency staff have questions about our comments, please give Associate General Counsel Mary Dunn or me a call at 202-638-5777.

Sincerely,

Jeffrey Bloch
Assistant General Counsel