CUNA Regulatory Comment Call

October 8, 2010

Proposed IRPS: Corporate Credit Union Chartering


Please send comments on the proposed IRPS (accessible here) to Senior Vice President and Deputy General Counsel Mary Dunn and Regulatory Counsel Luke Martone, or contact us at (800) 356-9655 ext. 6743 with any questions.



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 NCUA’s overall efforts to reform the corporate credit union system and would compliment the recent changes to NCUA’s 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:

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.

Economic Advisability

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 Act’s 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 subscriber’s 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 skills—including leadership, accounting, funds management, and payment systems risk—and 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 corporate’s 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.

Business Plan

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:

NCUA Review

The OCCU would conduct an independent assessment of the proposed corporate’s application for economic and long-term viability, as well as an evaluation of the proposed management’s experience and suitability. The OCCU field staff would thoroughly analyze the prospective corporate’s 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 corporate’s 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 NCUA’s Rules and Regulations, and contain several mandatory financial performance milestones.

Questions to Consider Regarding the Proposed IRPS

  1. 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?

  2. 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?

  3. NCUA estimates the burden on each charter applicant at approximately 330 hours—primarily 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?

  4. 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?

  5. 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?

  6. Any other comments or questions?

Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 •
Luke Martone • Senior Regulatory Counsel • (202) 508-6743 •