CUNA Regulatory Comment Call


September 20, 1999

NCUA's Proposal on Overdrafts

NCUA is requesting comments on a proposed rule to permit federal credit unions (FCUs) to advance money to members to cover account deficits without having a credit application from the member, as long as the credit union has a written overdraft policy. 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 November 4. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to CUNA's Assistant General Counsel Jeffrey Bloch; or mail them to Jeff in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, DC 20005.

BRIEF BACKGROUND

The Federal Credit Union Act does not specifically address an FCUs authority to pay or honor a share draft written that will result in an overdrawn account. NCUA's longstanding position has been that an FCUs payment of an overdraft as a financial accommodation to a member constitutes a loan or line of credit to a member.

BRIEF DESCRIPTION OF THE PROPOSAL

The proposed rule will permit FCUs to advance money to members to cover account deficits without having a credit application from the member, as long as the credit union has a written overdraft policy. This policy must: 1) address how the credit union will honor overdrafts; 2) set a cap on the total dollar amount of all overdrafts the credit union will honor; 3) establish a time limit of no more than ten days for a member either to deposit funds or obtain a loan from the credit union to cover each overdraft; 4) limit the number and dollar amount of overdrafts the credit union will honor per member; and 5) establish the fee and interest rate, if any, the credit union will charge members for honoring overdrafts.

By proposing this rule, NCUA is not directing or encouraging credit unions to replace using written overdraft agreements with a written overdraft policy. Because written overdraft agreements function essentially as a lending agreement that becomes operational in the event of an overdraft, NCUA believes that they are a preferable way of addressing the safety and soundness concerns presented by overdrafts.

QUESTIONS TO CONSIDER REGARDING THE NCUA'S PROPOSAL ON OVERDRAFTS

NCUA IS SPECIFICALLY INTERESTED IN RECEIVING COMMENTS ON THE ISSUES RAISED BY THE FOLLOWING QUESTIONS.

Leagues and credit unions should feel free to fax their responses to CUNA at 202-371-8240; e-mail them to Jeffrey Bloch at jbloch@cuna.com or mail them to CUNA's Regulatory Advocacy Department, Suite 300, 805 15th Street, NW, Washington, DC 20005. Thank you!!

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