CUNA Regulatory Comment Call


April 19, 2004

Changes To Calculation of Fixed Assets & Fixed Asset Waivers
(Not a Major Rule)

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com and to Assistant General Counsel Michelle Profit at mprofit@cuna.com; or mail them to Mary and Michelle c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, D.C. 20004. You may also contact us at 800-356-9655, ext. 6733, if you would like a copy of the proposed rule, or you may access it at: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html

DISCUSSION

The fixed asset rule limits a federal credit union’s (FCU’s) investment in fixed assets to five percent of an FCU’s shares and retained earnings. The rule also imposes requirements on the planning for, use of, and disposal of real property acquired for future expansion. The current rule provides a waiver process so that FCUs may apply for a waiver of the five percent limitation, and the proposed rule retains these waiver provisions but reorganizes them to simplify and make them easier to follow.

When a FCU acquires premises for future expansion and does not fully occupy the space within one year the credit union must have a board resolution in place by the end of that year with definitive plans for full occupation. The proposed amendment clarifies that full use occurs when the FCU, or some combination of the FCU, its CUSOs, and its vendors use the entire space on a full-time basis.

When a FCU acquires premises for future expansion, the credit union must partially occupy the premises within a reasonable period that does not exceed three years. The proposal clarifies that premises are partially occupied when the credit union is using some part of the space on a full-time basis. Under the current proposal, NCUA may waive this partial occupation requirement. The request must be made in writing within 30 months after the property is acquired.

In order to prevent a FCU from over estimating its fixed assets, the proposal eliminates the requirement that an FCU, when calculating its investment in fixed assets, include its investments in any entity that holds fixed assets used by the FCU. The current rule defines the investment in fixed assets that must be counted as any investments in, and loans to, a partnership or corporation, including a CUSO, that holds any fixed assets used by the FCU. Generally, FCUS may only invest in CUSOs, and FCUs are expected to pay the fair market value for the use of these fixed assets, which includes lease payments. Accordingly, these provisions could cause an FCU to overstate its investment in fixed assets when it leases CUSO property.

The proposal adds a new paragraph with a cross-reference to the RegFlex rule. Under RegFlex, FCUs that qualify for RegFlex treatment are exempt from the five percent limitation. The proposal states, however, that if FCUs that qualify for RegFlex become ineligible for RegFlex, then they lose their exemption and must comply with all the provisions of the fixed assets rule. As a result, if a former RegFlex credit union has 6 percent in fixed assets and it is disqualified from RegFlex, then it must reduce its fixed assets to 5 percent or seek a waiver of the limit.

In addition to these substantive changes, the proposal reorganizes and clarifies certain requirements of the current rule in order to make it easier to understand.

QUESTIONS REGARDING THE PROPOSAL

  1. Does your credit union support the clarification regarding what constitutes partial use of a property? The proposal clarifies that premises are partially occupied when the credit union is using some part of the space on a full-time basis. Please explain your answer.
















  2. Does your credit union support the clarification on the waiver procedure for partial occupation? Please explain. When a FCU acquires premises for future expansion, the credit union must partially occupy the premises within a reasonable period, not to exceed three years. Under the current proposal, NCUA may waive this partial occupation requirement if the request is made in writing within 30 months after the property is acquired.
















  3. Does your credit union support elimination of the requirement that an FCU include its investments in any entity that holds fixed assets used by the FCU, when the FCU calculates its fixed assets? Please explain. The current rule defines the investment in fixed assets that must be counted as any investments in a CUSO that has fixed assets used by the FCU. FCUs must pay the fair market value for the use of these fixed assets, including lease payments. Accordingly, these provisions in the current rule could cause an FCU to overstate its investment in fixed assets when it leases CUSO property.
















  4. Do you have any additional comments on the fixed asset rule proposal?
















  5. Please submit your name, address, and phone number.
















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