CUNA Regulatory Comment Call


November 19, 1999

Share Insurance Coverage Revised

(A MAJOR RULE)

EXECUTIVE SUMMARY

National Credit Union Administration (NCUA) requests comments on a proposed rule to make their rule more consistent with the Federal Deposit Insurance Corporation's (FDIC) insurance rules. The proposed rule would have the following characteristics.

  1. NCUA intends to treat a revocable trust account that is held in connection with a living trust in the same manner as it treats all other revocable trust accounts. NCUA considers the grantor of a living trust as the owner of the funds in the account.
  2. NCUA proposes to provide separate insurance coverage for qualifying joint revocable trust accounts.
  3. NCUA will clarify that state law will not extend insurance coverage beyond that provided under the Federal Credit Union Act.
  4. NCUA will clarify that Roth IRAs and Education IRAs are both member accounts eligible for share insurance.
  5. NCUA will liberalize its share insurance coverage for government and Indian tribe accounts by allowing insurance coverage for these draft accounts that is separate from share insurance for share certificate and regular share accounts.
  6. NCUA will reduce insurance coverage for guardian accounts by adding those accounts with the individual account of the beneficiary of the guardian account and insuring the aggregate for up to $100,000.

Comments on this and other aspects of share insurance must be by January 31, 2000. Please submit your comments to CUNA by January 24, 2000, by fax at 202/371-8240 or by e-mail to CUNA's Assistant General Counsel Michelle Profit at mprofit@cuna.com.

RULE

These proposed amendments to the NCUA's regulation are intended to keep the NCUA's and FDIC's insurance program consistent and thereby prevent confusion in understanding and applying the share insurance rules.

NCUA intends to treat a revocable trust account that is held in connection with a living trust in the same manner as it treats all other revocable trust accounts. Living trusts that include conditions that could prevent a beneficiary from acquiring a vested and non-contingent interest in the account funds upon the owner's death would not be entitled to insurance coverage under this section. NCUA will consider the grantor of a living trust as the owner of the account, and the owner must be eligible to open the credit union account to qualify for insurance.

NCUA proposes to provide separate insurance coverage for qualifying joint revocable trust accounts. These accounts are revocable trust accounts, as described in 12 C.F.R. 745.4. They are established by more than one owner and held for the benefit of others.

This regulation clarifies that federal law preempts state or local law in determining share insurance coverage. Therefore, state law will not extend coverage beyond that provided under the Federal Credit Union Act or NCUA's regulations. State law will be used to determine property interests in an account. In this case, the state or local law that governs is the law of the jurisdiction where the insured credit union's principal office is located.

NCUA will clarify that Roth IRAs and Education IRAs are both member accounts eligible for share insurance. However, the ROTH IRAs will be treated the same as a traditional IRAs for share insurance purposes and Education IRAs will be treated the same as irrevocable trust accounts for share insurance purposes. Thus, Roth IRAs and traditional IRAs will be combined and insured for an aggregate of up to $100,000. Similarly, Education IRAs and irrevocable trust accounts for share insurance will be combined and insured for an aggregate of up to $100,000.

NCUA proposes to liberalize its share insurance coverage for some kinds of public unit accounts. More liberal coverage will be available when an official custodian establishes public unit accounts in an authorized, federally insured credit union that is located within the jurisdiction from which the custodian's authority is derived. Public accounts are invested by an official custodian of: the United States; a state or political subdivision of the United States; the District of Columbia; specified territories or possessions of the United States; and funds of an Indian tribe. NCUA proposes to provide insurance coverage of up to $100,000 for share draft accounts and up to an additional $100,000 for share certificate and regular share accounts. Previously, all these accounts were combined for up to the aggregate of $100,000.

NCUA will reduce insurance coverage for guardian accounts by adding those accounts with the individual account(s) of the beneficiary of the guardian account and insuring the aggregate for up to $100,000. Currently, NCUA insures these accounts separately from any other accounts of the guardian, custodian, conservator, ward or minor. This change will conform NCUA's rules to those of the FDIC.

Finally, NCUA proposes to revise the Appendix that provides illustrative examples of share insurance coverage. The revisions would add information to the Appendix and include questions and answers.

Questions regarding Share Insurance

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