CUNA Regulatory Comment Call

November 17, 2000



The National Credit Union Administration Board is seeking comments on a new proposal that significantly expands the so- called “incidental powers” for federal credit unions. Click here for a copy of the proposal.

The proposal was approved for comments by all three Board members. A chief proponent of the proposal was Board Member Dennis Dollar, with strong support from Board Member Yolanda Wheat. CUNA, which has advocated comprehensive changes in the incidental powers rule to NCUA, commended the agency for developing a regulatory framework that will enable federal credit unions to offer a much wider range of services to their members. CUNA’s comments on the proposal will be developed by our Federal Credit Union Subcommittee, chaired by Lockheed Georgia Employees FCU CEO Edwin Collins. For more information about this proposal, please feel free to contact CUNA’s Associate General Counsel Mary Dunn at, or Assistant General Counsel Michelle Profit at

Executive Summary

The new proposal would establish 11 categories of activities that would be preapproved as incidental powers and from which a federal credit union could obtain income. Federal credit unions could apply to NCUA for approval for activities that are not on the list. Approved activities include certification services; correspondent services; electronic financial services; excess capacity; financial counseling services; finder activities; marketing; monetary instruments; operational programs; stored value products; and trustee or custodial services. Comments will be due to NCUA by February 22, 2001. Currently, NCUA’s regulations limit the income a federal credit union can receive from services offered to members by third party vendors, except for insurance, to the credit union’s costs.

Highlights Of The Proposal

I. Incidental Powers Authority

The Federal Credit Union Act states that a federal credit union may “exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.” Until now, NCUA has interpreted that authority very narrowly, relying on court interpretations rendered more than 25 years ago. More recent court rulings and interpretations from banking regulators have expanded the definition of incidental powers for banks and thrifts. These interpretations have helped persuade NCUA that a more modern, flexible analysis is appropriate regarding incidental powers.

Under the proposal, a federal credit union may derive income from any activity authorized under the incidental powers authority. In determining whether an activity is appropriate as an incidental power, NCUA has established a three-part test to consider:

These standards are substantially similar to the ones utilized by the Office of the Comptroller of the Current for commercial banks. However, NCUA notes that such criteria “will be applied in the unique context of credit unions” and that it may arrive at a conclusion that differs from the one reached by the OCC regarding a particular activity.

NCUA also notes that some of the activities that would be permissible under the incidental powers proposal have in the past been performed traditionally by credit union service organizations, such as income tax preparation.

II. Categories of Preapproved Activities

Under the proposal, NCUA has established 11 categories of preauthorized activities and programs that a federal credit union is permitted to engage in and obtain income from. These are:

A. Certification Services

Certification services such as the following would be permissible:

B. Correspondent Services

These services would include:

C. Electronic Financial Services

Federal credit unions may offer through electronic means any activity function, product or service that they are otherwise authorized to provide, including:

D. Excess Capacity

NCUA states that Federal credit unions should be able to sell their excess capacity as a matter of good business practice. This could involve:

The sale of excess capacity will be permissible under two conditions: (1) the credit union established the service or made the investment tin good faith with the intent of serving its members; and (2) the credit union reasonably anticipates that the excess capacity will be taken up by future expansion of services to its members.

E. Financial Counseling Services

The proposal states that the Board believes it is part of the business of federal credit unions to provide financial counseling services to their members, which could include:

F. Finder Activities

This is the introduction of products and services to members that are offered by outside vendors. As a finder, the proposal would allow a FCU to introduce or otherwise bring together outside vendors with its members to negotiate and provide services. The proposal points out that the credit union does not act as a broker but may negotiate with vendors for group discounts or benefits for its members.

Finder activities could include:

G. Marketing

This includes activities used by the credit union to promote products and services provided by third party vendors. NCUA seems to be distinguishing “finder activities” from “marketing activities” on the basis that as finders, credit unions would be promoting new services, whereas marketing encompasses new and existing services. Permissible marketing activities could include:

H. Monetary Instrument Services

These are services that enable members to purchase, sell or change various currencies. Such services include:

I. Operational Programs

Programs established to deliver products that enhance members’ services and promote safe and sound operation. Such programs may include:

J. Stored Value Products

These products are payment devices that are an alternative to currency. With these products, monetary value is transferred to an access device and a medium of exchange is created. Examples include:

K. Trustee or Custodial Services

These are services in which the credit union acts under a written trust instrument or custodian agreement created or organized in the United States and which forms part of a pension or profit-sharing plan, authorized under the Internal Revenue Code. Such services may include:

III. Credit Unions May Apply for Approval for Activities Not Already on The List

In addition to the extensive list of powers NCUA has provided under the preapproved list, it would establish a procedure under which a federal credit union may apply to undertake an activity that is not already on the list.

A. Filing the Application

Here are the proposed steps for making such an application:

B. Processing the Application

C. Deciding the Application

This section provides that NCUA must make its determination based on a three-part test (listed on page 2).

IV. Conflicts

A. The proposal continues prohibitions on conflicts of interest for officials and senior management employees when the credit union undertakes incidental powers activities. These requirements are:

B. The proposal would allow the following payments:

D. Definitions.

“Senior management employee” would be defined as the:

“Official” is any member of the credit union’s board, credit committee or supervisory committee.

“Immediate family member” is a spouse or other family member living in the same household.


This proposal is a very important one for federal credit unions and if adopted, will significantly expand the incidental powers of federal credit unions and their ability to obtain income from such activities.

CUNA urges all leagues and federal credit unions to comment on this major proposal. We will publicize the comment date as soon as it is available. For more information or if you have questions, please contact

Eric Richard • General Counsel • (202) 508-6742 •

Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 •

Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •

Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •