CUNA Regulatory Comment Call
October 8, 2010
Proposed IRPS: Corporate Credit Union Chartering
- As part of its overall efforts to reform the corporate credit union system, the National Credit Union Administration (NCUA) has issued a proposed Interpretive Ruling and Policy Statement (IRPS) to provide guidance on the requirements and process for chartering federal corporate credit unions; there is currently no guidance in this area. The proposed IRPS describes the standards NCUA would use and the timeline NCUA would follow for evaluating applications.
- Under the proposal, charter applications would need to include substantial information, including a detailed business plan and various NCUA forms.
- NCUAs objectives in proposing the guidance are to: (1) uphold the provisions of the Federal Credit Union Act; (2) promote safety and soundness within the credit union industry; and (3) provide quality services to members.
- A corporate charter application would need to be submitted by a group of at least seven people that represent natural person credit unions.
- Before chartering a corporate, NCUA must be satisfied that the institution will be viable and that it will provide needed services to its members.
- The NCUA Office of Corporate Credit Unions (OCCU) will conduct an independent investigation of the corporate credit unions charter application to assess the economic and long-term viability of the proposed corporate.
- Any applications submitted to NCUA prior to the final IRPS must be in compliance with the terms of this proposal.
- NCUA is accepting public comments until November 1, 2010; please send any comments to CUNA by October 26.
BRIEF DESCRIPTION OF THE PROPOSED IRPS
Aside from a 1982 IRPS that NCUA subsequently withdrew, there is currently no guidance for prospective applicants of federally chartered corporate credit unions. In light of the impending changes to the corporate system, NCUA has proposed an IRPS that would establish guidelines for federal corporate chartering. The proposed IRPS explains the requirements for new corporates and describes the standards NCUA would use for evaluating applications, as well as provides a timeline of the application review process. The IRPS is being proposed as part of NCUAs overall efforts to reform the corporate credit union system and would compliment the recent changes to NCUAs corporate credit union regulations.
According to the proposal, any applications submitted to NCUA before the final IRPS is adopted must be in compliance with the terms of the proposed IRPS.
Details of the Proposed Guidelines
Under the proposed IRPS, the NCUA Board and the OCCU would examine the range of factors discussed below in assessing a charter application. The proposal identifies the following primary objectives that the Board and the OCCU must be convinced will be achieved in approving a charter:
- The corporate credit union would uphold the provisions of the Federal Credit Union Act;
- The corporate would promote safety and soundness within the credit union industry; and
- The corporate would provide quality services to members.
A corporate charter application would need to be submitted by a group of at least seven people that represent natural person credit unions; this group is referred to as subscribers. Subscribers would be responsible for providing the OCCU with a number of documents and NCUA forms, including a Federal Credit Union Investigation Report, a Report of Officials and Agreement to Serve, an Organization Certificate, a Certification of Resolutions, and an Application and Agreement for Insurance of Accounts.
Under the proposed IRPS, subscribers would need to convince NCUA that the proposed corporate would be viable and would provide needed services to its members. To achieve this, subscribers would have to establish: (1) the character and fitness of management; (2) the depth of member support; and (3) present and projected market conditions.
Consistent with the Federal Credit Union Acts requirement that subscribers be of good general character and fitness, the proposal would require that employees and officials be competent, experienced, honest, and of good character. In its review, NCUA would conduct background and credit investigations on prospective officials and employees; these investigations would need to establish each subscribers character and ability to handle financial matters effectively. A prospective official or employee could be disapproved due to criminal convictions, indictments, or acts of fraud and dishonesty.
In addition, NCUA would approve only those applications for which it is reasonably assured that the management team will have the requisite skillsincluding leadership, accounting, funds management, and payment systems riskand the commitment to dedicate the time and effort necessary for the success of the corporate.
Subscribers would also need to demonstrate a sufficient customer base from which to draw business in the form of membership applications, capital and share commitments, and commitments to use the corporates services. Subscribers would be required to provide surveys and/ or written commitments certifying the potential membership base and capital commitment. Subscribers would also need to show how the corporate would maintain total capital of at least four percent of its moving daily average net assets.
The NCUA has estimated that the entire application process described in the proposed IRPS would require approximately 330 hours for completion. The estimated compliance burden is primarily attributable to the proposed business plan requirement.
Under the proposed IRPS, the business plan would be based on realistic and supportable projections and assumptions and would need to show the ability of the prospective corporate to provide effective service to members, compete in the marketplace, and adapt to changing market conditions. The business plan would need to contain, at a minimum, the following:
- Mission statement;
- Analysis of market conditions;
- Summary of survey results and/ or customer base analysis;
- List of proposed financial services to be offered, including the timing for each service;
- Anticipated staffing and credentials of key employees;
- Proposed recordkeeping, data processing, and communications systems and/or vendors, budget for the first three years;
- Semiannual pro-forma financial statements for the first three years, including the assumptions;
- Goals for the number of members and shares under various scenarios;
- Projected date the corporate will break-even or achieve independent operations;
- Source of funds for initial operating expenses;
- Written policies for shares, lending, investments, funds management, capital accumulation, and payment systems;
- Continuity plan for directors, committee members, and senior management; and
- Services and marketing strategies for financial and correspondent services.
The OCCU would conduct an independent assessment of the proposed corporates application for economic and long-term viability, as well as an evaluation of the proposed managements experience and suitability. The OCCU field staff would thoroughly analyze the prospective corporates business plan for realistic projections, attainable goals, and time commitment.
The proposed IRPS sets forth the following timeline for review of a charter application. Within 30 days of receiving the application, OCCU field staff will meet with the proposed officials and management team to evaluate the adequacy of management and the information provided. Within 60 days of completion of all required reviews, field staff will make a recommendation to the OCCU Director. Within 30 days of the recommendation, an OCCU analyst will determine if the application package can be forwarded to the NCUA Board. The Board will then vote on the application within 60 days.
If approved, a corporates officials would be required to sign a Letter of Understanding and Agreement (LUA) before it can begin operating. The LUA would impose certain operational restrictions, require compliance with NCUAs Rules and Regulations, and contain several mandatory financial performance milestones.
Questions to Consider Regarding the Proposed IRPS
- As mentioned, there is currently no guidance for the chartering of federal
corporate credit unions. Do you feel there is a need for guidance in this area?
- Do you believe the proposed collection of information would be necessary for NCUA
to properly perform its functions as the regulator of corporate credit unions? Would
this information have a practical use?
- NCUA estimates the burden on each charter applicant at approximately 330
hoursprimarily related to the proposed business plan requirement. Do you agree with
the accuracy of this estimate? Assuming 330 hours is accurate, do you feel it is
reasonable to expect such a time commitment for corporate charter applicants?
- Under the proposal, corporate charter applications received by NCUA before the
final IRPS is adopted must be in compliance with the proposal. Do you agree that
such treatment is appropriate?
- The proposed IRPS describes in detail the timeline of the charter application
review process. Is the proposed timeline reasonable? Do you know of any reason why
NCUA should not offer a timeline of the process?
- Any other comments or questions?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 email@example.com
Luke Martone Senior Regulatory Counsel (202) 508-6743 firstname.lastname@example.org