CUNA Regulatory Comment Call
June 17, 2008
Proposed Rule to Amend Incidental Powers
- NCUA has issued a proposed rule that would update Incidental Powers, Part 721.
- The proposal would add illustrations of permissible activities under the categories of correspondent services, operational programs, and finder activities.
- The objective of the proposed amendments is to increase clarity within these categories.
- Comments are due by July 28, 2008; please submit your comments to CUNA by July 15, 2008.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at firstname.lastname@example.org; or mail them to Mary in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rule. You may also access a copy of the proposed rule here.
Incidental Powers, Part 721, describes the powers a federal credit union (FCU) may exercise as authorized under the Federal Credit Union Act. The FCU Act states that an FCU may exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it was incorporated. The current Part 721 includes a list of pre-approved categories considered to be incidental powers, as well as a non-exhaustive list of illustrations within each category.
The categories include:
- Certification services;
- Correspondent services;
- Electronic financial services;
- Excess capacity;
- Financial counseling services;
- Finder activities;
- Loan-related products;
- Marketing activities;
- Monetary instrument services;
- Operational programs;
- Stored value products; and
- Trustee or custodial services.
NCUA has issued this proposed rule in an effort to help clarify certain provisions and update the rule by adding examples of activities that have been recognized as permissible incidental powers activities since Part 721 was last amended in 2001.
BRIEF DESCRIPTION OF THE PROPOSED RULE
The proposal would affect three categories of incidental powers: correspondent services; operational programs; and finder activities. Primarily, the proposal would provide additional illustrations of permissible activities within each of these categories.
i. Correspondent Services The proposed rule would recognize that FCUs may provide correspondent services to foreign as well as federal or state-charted credit unions.
Generally, correspondent service agreements address circumstances where a credit union, as a service to another credit union, provides a service to a member of the other credit union. Such a service may be offered, for example, where the geographic location of the member does not permit the members own credit union to provide the service. A typical service would be the receipt of funds drawn from the account of an individual at a credit union to which that individual is not a member.
The current rule allows correspondent services between credit unions, which NCUA generally defines to mean a federal or state-chartered credit union. In a 2006 opinion letter, however, NCUA stated that an FCU may receive funds from a member of a foreign credit union and then in turn transmit those funds to the members credit union located in a foreign country.
The proposed rule would revise this current provision to allow FCUs to provide correspondent services to both foreign and domestic credit unions.
ii. Operational Programs The proposed rule would also add payroll services to the list of permissible activities under the operational programs category. This category generally relates to programs offered by credit unions to establish or deliver products and services that enhance member service and promote safe and sound operations.
Payroll services permit an FCU to make disbursements from a business members account to third parties, as well as deduct the appropriate amounts for income taxes and employee-paid benefit premiums. NCUA has noted that payroll services are related to other permissible activities, such as electronic financial services and payroll deductions. The proposal would explicitly list payroll services as an example of an operational program.
iii. Finder Activities The finder activities category of incidental powers allows an FCU to introduce its members to an outside vendor so that the two sides may negotiate and consummate a transaction. Finder activities may include the offering of third-party products to a credit unions members, or the credit union may act as an intermediary between the parties for the sole purpose of bringing them together. Finder activities differ from marketing activities in that, as the finder, a credit union simply identifies an outside party with a product or service it believes its members would be interested in.
The proposed rule would clarify that included in this category are an FCUs negotiation of group discounts and the performance of administrative functions to outside vendors. The proposal would also add language elaborating that vendors may be providers of both non-financial and financial products, which includes insurance. NCUA believes that specifically noting insurance as an example will be a helpful clarification.
Additionally, the proposed rule would add language explaining that FCUs may act as finders for the financial products of other financial institutions. The incidental powers rule does not limit the types of vendors or products and services an FCU may promote. NCUA has noted, however, that in utilizing any incidental powers activities FCUs must be particularly mindful of the provisions stating that FCUs must comply with all applicable law and regulations.
QUESTIONS TO CONSIDER REGARDING THE PROPOSED CHANGES
- What issues may arise from the provision of the proposal to include foreign credit unions under the correspondent services category?
- Are there any unforeseen problems that may arise in including payroll services within the operational programs category?
- Are there any specific concerns with the provision of the proposal to clarify that finder activities include an FCUs negotiation of group discounts?
- Are there any specific concerns with the provision of the proposal to clarify that finder activities include the performance of administrative functions for outside vendors?
- Is the inclusion of insurance as an illustration under finder activities likely to add clarification?
- Any other comments or concerns regarding NCUAs proposed rule?
Eric Richard General Counsel (202) 508-6742 email@example.com |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 firstname.lastname@example.org
Jeffrey Bloch Assistant General Counsel (202) 508-6732 email@example.com
Lilly Thomas Assistant General Counsel (202) 508-6733 firstname.lastname@example.org
Luke Martone Senior Regulatory Counsel (202) 508-6743 email@example.com