CUNA Comment Letter
Interim Final Rule General Lending Maturity Limit and Providing Certain Services to Nonmembers Under the Regulatory Relief Act
December 23, 2006
Dear Ms. Rupp:
Ms. Mary Rupp
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the agencys interim final rule implementing amendments to the Federal Credit Union Act made by the Financial Services Regulatory Relief Act of 2006 (Reg Relief Act). The interim final rule increases from 12 to 15 years the general maturity limit for loans. In addition, the rule allows federal credit unions (FCUs) to provide certain, limited financial services to nonmembers within their field of membership. CUNA advocated tirelessly for these and other credit union-related provisions in the Reg Relief Act from the time they were originally included in the Credit Union Regulatory Improvements Act (CURIA) bill. By way of background, CUNA represents approximately 90 percent of our nations 8,700 state and federal credit unions, which serve nearly 87 million members.
Summary of CUNAs Comments
- CUNA commends NCUA for its quick action to implement the credit union provisions of the Reg Relief Act.
- CUNA supports the provisions to increase the general loan maturity limit and the new section in the agencys rules to clarify the recent statutory expansion of the financial services that an FCU may offer to persons within the FCUs field of membership, regardless of their membership status. These provisions will enable credit unions to grow and to better reach out to serve the underserved community.
- However, the new section on services for nonmembers should be revised so that the language for a fee applies not only to cashing checks and money orders, as well as receiving international and domestic electronic fund transfers, but also to selling negotiable checks such as travelers checks and money orders. In addition, the term electronic fund transfer should be defined so it clearly covers all wire transfers.
- CUNA suggests that the final rule be further revised to add change-counting machine usage as a permissible service that FCUs may offer to nonmembers.v
- In addition, NCUA should exclude nonmembers who receive these limited financial services from credit unions from coverage under NCUAs privacy regulations; FCUs should not be required to send privacy notices to those nonmembers.
- While CUNA supports the interim final rule, it raises a number of regulatory and operational issues regarding providing services to nonmembers that we believe are important to clarify in the final rule. Such issues include: privacy matters; Bank Secrecy Act (BSA) anti-money laundering requirements; disclosures required under truth-in-savings; check- cashing and related fraud concerns; and the ability of each FCU to determine whether and to what extent it will serve nonmembers in its field of membership. To address those issues, CUNA would like to help facilitate a working group to include a small number of FCU operational staff.
CUNA appreciates NCUAs prompt issuance of this interim rule following enactment of the Reg Relief Act, and is very supportive of the modification of the agencys lending rules extending the 12 year maturity limit restriction to 15 years. This provision in the rule will provide federal credit unions with greater flexibility in making their own business decisions regarding loan maturities for secured and unsecured loans. Examples of the types of loans that FCUs may now consider making for maturities up to 15 years include: vacation home loans; undeveloped land loans; recreational vehicle loans; boat loans; member business loans; and student loans.
The provisions in NCUAs rules involving due-on-sale clauses should be amended to conform to the changes in the interim final rule. Specifically, the due-on-sale clauses provisions cover contracts involving a long-term (greater than twelve years), fixed rate first mortgage loan, . (12 C.F.R. §701.21(g)(6)(ii) However, we recommend the agency not reference the maturity limit in the rule as it does now since the rule would have to be revised if the maturity limit increases in the future.
CUNA strongly supports the provision in the interim final rule permitting FCUs to offer limited financial services to nonmembers within their field of membership. This will provide credit unions with more capability to serve the underserved individuals within their field of membership. Under revised Part 701.30(a), FCUs may provide the following services to persons within their fields of membership, regardless of membership status:
(a) Selling negotiable checks including travelers checks, money orders, and other similar money transfer instruments (including international and domestic electronic fund transfers); and
(b) Cashing checks and money orders and receiving international and domestic electronic fund transfers for a fee.
The phrase for a fee appears only in section (b) referring to electronic fund transfers. Although section (a) states that credit unions may sell the products listed, we think NCUA should add the phrase for a fee to section (a) to clarify that FCUs may charge a fee for selling the enumerated products.
We believe that the statute would allow for NCUA to add change-counting (for example an automatic change-counting machine) as a permissible service for nonmembers. Change counting is an activity with parallels to selling travelers checks. In the case of travelers checks, the credit union is changing money into a form that is more easily negotiable overseas. In the case of coin counting, the credit union would be converting bulky coins into bills, which are more easily negotiable. FCUs could promote the machine to entice nonmembers and get them in the door.
In addition, we urge NCUA to define the term electronic fund transfer in the new section to clarify that the term covers Regulation E electronic fund transfers (12 C.F.R. §205.3) and all types of wire transfers. As the regulation is currently written, it is unclear as to whether the Regulation E definition of electronic fund transfer applies, which specifically excludes wire transfers, or whether the anti-money laundering definition of transmittal of funds in the Treasury Departments regulations (31 C.F.R. §103.11) would apply, which specifically excludes electronic fund transfers. Many credit unions will likely assume that the Regulation E definition will apply, meaning they cannot conduct wire transfers for nonmembers. We believe that outcome would be contrary to the intent of the statutory provision, which is to permit FCUs to provide write transfers services to nonmembers.
There are a number of operational and compliance issues associated with FCUs providing these services to nonmembers. One issue is privacy. In particular, under the Financial Right to Privacy Act and NCUA regulations (12 C.F.R. §716) would FCUs have the obligation to safeguard the nonpublic personal financial information of and to provide initial/annual privacy notices to nonmembers who purchase or receive financial services at the FCU? For example, would FCUs have to provide a privacy notice for each transaction at the time of the transaction? We believe that nonmembers obtaining these limited financial services from credit unions should not be covered under the definition of member relationship in NCUAs privacy regulations. Credit unions would collect only minimal nonpublic personal information about the nonmember conducting the transaction. Further, it would pose an excessive burden on credit unions to provide notices to nonmembers who conduct a minimal number of transactions at the credit union. The credit unions would likely not have sufficient information to send the notices in the mail to these individuals.
A second issue related to provided limited financial services to nonmembers is complying with Bank Secrecy Act (BSA) anti-money laundering obligations, particularly regarding identification requirements for check cashing and recordkeeping requirements for wire transfers. It is important to spell out to what extent FCUs must perform background checks before conducting a transactions for nonmember. For example, would the credit union be required to perform a name match against the Office of Foreign Assets Controls List of Specially Designated Nationals and Blocked Persons? BSA requires financial institutions to report patterns of suspicious behavior. It would be extremely difficult for FCUs to identify patterns of suspicious behavior if the FCU does not collect information on the nonmember, the nonmember uses multiple financial institutions, and the nonmember received services from the FCU on an infrequent basis.
A third issue involves Truth-in-Savings Act (TISA) and NCUAs implementing regulations (12 C.F.R. §707). Under TISA, all fees that may be assessed in connection with an account must be disclosed. Such fees, include but are not limited to: maintenance fees (service and dormant account fees); fees related to deposits or withdrawals, such as fees for the use of an automated teller machine; fees to stop payment on a share draft; fees for return of share drafts for insufficient funds; fees for special account services, such as balance inquiries and fees to certify share drafts; fees to open or close accounts and fees for overdrawing an account. It would be beneficial for the final regulations to address what notice, if any would an FCU be required to provide to a nonmember before charging a fee for conducting a transaction.
A fourth concern pertains to nonmember check cashing and related fraud. With cashing checks for nonmembers, especially with respect to on-us checks, there is an increased risk of fraud because the credit union does not have an account on which to place a hold in case the check is bad. Would FCUs be able to charge a fee in order to receive payment for such checks if the payee does not have an account with the FCU?
A final issue is clarification that it is up to each FCU to determine their policy with regard to serving nonmembers. We urge NCUA to indicate in the final rule that the management of FCUs may use business judgment to establish a policy stating whether they want to serve nonmembers at all and, if so, which of the permissible services they want to offer.
While we appreciate NCUAs intent to implement these provisions quickly, we feel strongly it is critical to clarify the important and complex issues mentioned above. CUNA recommends the establishment of a working group to include some FCUs that are currently providing services to nonmembers or desire to do so in the future, to discuss and sort through those issues before the final regulations are issued. CUNA would be pleased to facilitate such a working group.
In conclusion, CUNA feels that with the modifications suggested above, this new rule will enhance credit unions loan offerings to current members as well improve the ability of FCUs to reach out to nonmembers. Thank you for the opportunity to share our comments. If you have any further questions, please feel free to contact CUNAs SVP and Deputy General Counsel Mary Dunn by phone at (202) 508-6736 or by e-mail at firstname.lastname@example.org or me by phone at (202) 508-6743 or by e-mail at email@example.com.
Catherine A. Orr
Senior Regulatory Counsel