CUNA Regulatory Comment Call


February 16, 2001

NCUA's Interim Final Rule on Prepayment Fees to Federal Home Loan Banks

(NOT A MAJOR RULE)

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, DC 20005. Please contact us if you need more information. You may also contact us if you would like a copy of the interim final rule or you may access it on the Internet at the following address: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html

BACKGROUND

FICUs are eligible for membership at the FHLB in their district provided that they meet certain requirements. As members of an FHLB, FICUs may receive long term, secured advances for the purpose of providing funds for residential loans.

The NCUA Board, when acting as conservator or liquidating agent of an FICU, has the power to repudiate contracts or leases in which: 1) the credit union is a party; 2) the performance is determined to be burdensome by the agent; and 3) the repudiation will promote the orderly administration of the credit union's affairs, as determined by the agent. Under the FCUA Act, the NCUA Board may not repudiate a contract regarding an extension of credit from an FHLB to an FICU.

DESCRIPTION OF THE INTERIM FINAL RULE

The interim final rule clarifies and describes the circumstances under which the NCUA Board, as conservator or receiver of the FICU, will honor a claim for prepayment fees by an FHLB when the FICU has an outstanding extension of credit with the FHLB.

The rule will apply to fees described in a written contract, provided that: 1) the fee does not exceed the present value of the economic loss suffered by the FHLB; and 2) the collateral is sufficient to pay in full the principal and interest due on secured advances and the applicable prepayment fee. The rule will track the one used by the FDIC for federally-insured banks.

At the time the NCUA Board considered this rule, Board Member Wheat questioned whether the NCUA Board should also honor similar claims from corporate credit unions. NCUA staff at that time indicated that honoring such claims may be incompatible with the FCUA Act. This issue may also not be as important for corporate credit unions, which focus on the short-term liquidity needs of credit unions.

QUESTIONS TO CONSIDER REGARDING NCUA's INTERIM FINAL RULE ON PREPAYMENT FEES TO FEDERAL HOME LOAN BANKS

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com