CUNA Regulatory Comment Call

July 26, 1999

NCUA's Secondary Capital Proposal

NCUA is requesting comments on a proposed rule regarding secondary capital accounts in low-income designated federal credit unions. The proposed rule specifies that interest on these accounts may be accrued in that account, paid directly to the investor, or paid into a separate account from which the investor may make withdrawals.

Comments are due within 60 days after the rule is published in the Federal Register, which should be in the next few days. Please submit your comments to CUNA by September 16. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to CUNA's Assistant General Counsel Jeffrey Bloch at; or mail them to Jeffrey in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, DC 20005. You may also contact us if you would like a copy of the proposed rule.


Federal credit unions that serve predominately low-income members may by designated by NCUA as low-income credit unions (LICUs). This allows LICUs to receive shares, share drafts, and share certificates from nonmembers. Because of the limited resources of their members, LICUs often find it difficult to accumulate capital. In response to this problem, NCUA issued rules in 1996 to enhance the ability of LICUs to build capital by permitting LICUs to offer secondary capital accounts to nonnatural person members and nonnatural person nonmembers. These secondary capital accounts are uninsured and the funds must remain in the account for at least five years.


The rule issued by NCUA in 1996 requires that funds in the secondary capital account must be available to cover the LICUs operating losses that exceed its net available reserves and undivided earnings, and these funds include any accrued interest that has been paid into the account. The LICU cannot replenish funds that are used to cover the operating losses.

The proposed rule is intended to clarify that in addition to the alternative of paying the interest into the secondary capital account, the LICU may also either pay the interest directly to the investor or deposit it into a separate account from which the investor can make withdrawals. The proposed rule also deletes references to "allowance accounts for investment losses" because they are no longer recognized by generally accepted accounting principles or NCUA's regulatory accounting practices.