[Federal Register Volume 59, Number 96 (Thursday, May 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12120]


[[Page Unknown]]

[Federal Register: May 19, 1994]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 741

 

Nonmember and Public Unit Accounts

agency: National Credit Union Administration (NCUA).

action: Final amendments.

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summary: The final amendments change the amount of nonmember and public 
unit accounts that a credit union may maintain, without a waiver, to 20 
percent of total shares or $1.5 million, whichever is greater. Credit 
unions accepting nonmember and public unit accounts in excess of 20 
percent of total shares are still required to develop a written plan 
and send it to the Regional Director. However, prior NCUA approval is 
required only for amounts exceeding 20% of total shares and $1.5 
million.

effective date: June 20, 1994.

addresses: National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428

for further information contact: Michael J. McKenna, Staff Attorney, 
Office of General Counsel, at the above address, or telephone: (703) 
518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

    The NCUA Board, as part of its ongoing program of regulatory 
review, is revising the regulation under which federally insured credit 
unions maintain nonmember and public unit accounts. Federal credit 
unions (FCUs) are authorized by section 107(6) of the Federal Credit 
Union Act [12 U.S.C. 1757(6)] to receive nonmember shares from other 
credit unions, from certain governmental entities (``public units'') 
and, if the credit union has a ``low-income'' designation from NCUA, 
from other outside sources. These nonmember accounts, and equivalent 
accounts authorized for federally insured state credit unions under 
state law are defined by section 101(5) of the Act [12 U.S.C. 1752(5)] 
as ``accounts'' and ``member accounts'' for purposes of the various 
provisions of the FCU Act, including those establishing insurance 
coverage by the National Credit Union Share Insurance Fund (NCUSIF).
    Prior to these final amendments, NCUA's regulation on nonmember 
accounts has required any federally-insured credit union that wishes to 
accept nonmember accounts in excess of 20 percent of total shares to 
submit to NCUA a plan setting forth the intended use of the funds and 
obtain NCUA approval. On February 28, 1994, the NCUA Board issued 
proposed amendments to change the amount of nonmember and public unit 
accounts that a credit union may maintain without a waiver, to 20 
percent of total shares or $1.5 million, whichever is greater (See 59 
FR 10334, March 4, 1994). The Board is now adopting these proposed 
amendments, without substantive change from the proposal.

B. Comments

    Thirteen comments were received. Six were received from FCUs, one 
from a state-chartered credit union, one from a state credit union 
league, three from national trade associations, and two from bank trade 
organizations. Six commenters expressed complete approval of the 
proposed amendments. Most of these commenters believe the amendments 
will not have an effect on safety and soundness and will greatly reduce 
paperwork requirements. Five commenters expressed general support. The 
bank trade organizations opposed the proposed amendments.

C. Discussion

    The Board proposed that a credit union be able to maintain 
permissible nonmember accounts up to 20 percent of total shares or $1.5 
million, whichever is greater, before a waiver by the regional director 
is required. Eleven commenters supported this rule change. They believe 
that this amendment would generally benefit smaller credit unions by 
allowing them to receive significant amounts of nonmember deposits 
without the administrative delay caused by the current regulation. 
However, two of these commenters would go further and remove all 
limitations on the use of nonmember deposits.
    One commenter recommended that the final rule provide for an annual 
automatic increase of $250,000 in the $1.5 million nonmember threshold. 
The Board has determined that it will not increase the $1.5 million 
threshold until it has an opportunity to assess the impact of this 
final rule.
    As under the current rule, all credit unions accepting nonmember 
accounts in excess of 20 percent of total shares will be required to 
have a plan for the use of such deposits. The plan must describe how 
nonmember accounts will be used to serve the credit union's membership, 
e.g., by providing loans to its members or through increased earnings. 
The credit union must submit the plan to the regional director, prior 
to receiving nonmember accounts in excess of 20 percent, for NCUA's 
information and monitoring. However, under the change, NCUA approval 
will not be required unless the aggregate amount exceeds both 20 
percent of shares and $1.5 million. Three commenters objected to the 
production of a written plan by credit unions with nonmember deposits 
exceeding 20 percent of total shares but less than $1.5 million. They 
believe the requirement for a written plan in such circumstances 
generates needless paperwork. These commenters suggest a written plan 
should only be required in connection with a waiver request. The Board 
disagrees. Although the requirement for a written plan may 
disproportionately affect small credit unions, the plan is a necessary 
component to the successful management of nonmember deposits.
    One commenter recommended that in addition to the written plan, the 
credit union should also provide details on how the credit union plans 
to be completely self sustaining with regard to member deposits. This 
commenter believes that these credit unions need to eventually become 
independent from all public unit and nonmember deposits. While this is 
a worthy goal for all credit unions, it fails to recognize the reality 
that many low-income credit unions will have long term needs for, and 
legitimate uses of, nonmember funds. The Board declines to adopt this 
recommendation.
    One commenter recommended in those cases where a waiver is 
required, that the rule specify that the business plan must be approved 
by NCUA before the waiver is granted. This is implicit in the waiver 
decision. The regional director will only grant a waiver if the 
business plan is acceptable.

D. Request for Comments

    The Board requests comment on whether periodic reporting on the 
sources and uses of nonmember shares, in excess of 20 percent of total 
shares, should be established. The Board considered a monthly or 
quarterly reporting requirement or alternatively, revisions to the NCUA 
Call Report (NCUA Form 5300), to gather additional information on 
sources and uses of nonmember funds. Five commenters objected to the 
suggestion that credit unions submit monthly or quarterly reports on 
the use of nonmember deposits. These commenters believe a new reporting 
requirement would be contrary to the intent of the higher dollar limit 
and would increase regulatory burden on small credit unions. Two of 
these commenters suggested the regional director exercise oversight of 
troubled credit unions as appropriate. One commenter supported the use 
of quarterly periodic reporting on the sources and uses of nonmember 
deposits in excess of 20 percent. This commenter believes such a 
requirement will give NCUA the ability to determine whether or not a 
credit union is adhering to its written plan as well as protect the 
NCUSIF. Three commenters supported a revision of the Call Report to 
gather additional information on nonmember accounts but two of these 
commenters objected to reporting on the sources and uses of nonmember 
deposits. The Board agrees that increased reporting may be burdensome 
to small credit unions and therefore will not require any additional 
reporting. However, NCUA will allot more time for additional on-site 
examiner review.
    The Board also specifically requested comment on the length of an 
approved waiver in those cases where a waiver request and approval are 
still required. The regulation currently states in Sec. 701.32(b)(2) 
that the waiver request will normally be for a two year period. Three 
commenters believe that the current two year period is appropriate. One 
commenter stated that the regional director should have full discretion 
to set the length of the waiver. Two commenters stated that the length 
of the waiver should be open-ended but could be terminated at any time 
by the regional director. Three commenters suggested the waiver period 
should be for three years. Two of these commenter stated the wavier 
should be routinely renewed unless a credit union seeks a waiver for an 
expanded amount or an examiner determines that a renewal of the waiver 
would present safety and soundness concerns. One commenter suggested 
that the waiver should be granted for five years.
    The Board believes the current language provides the regional 
director with sufficient discretion to approve waivers for shorter or 
longer periods, especially since the number of waivers should decrease 
with the adoption of these amendments. Furthermore, the Board is not 
inclined to permit an automatic renewal of the waiver. An automatic 
renewal would make the timeframe meaningless and may tend to actually 
promote a continuing dependence on nonmember deposits. Therefore the 
Board is not making any changes to the length of the waiver.
    Two commenters stated that the nonmember limitations should not be 
applied to any funds received in connection with the proposed new 
federal community Development Banking and Financial Institutions 
program or enterprise zone grants. The Board will consider such action 
if and when such legislation is established.
    The Board has adopted the proposed amendments in final with only a 
minor technical change. Language has been added to Sec. 701.32(b)(2) to 
clarify that a copy of the credit union's plan must be forwarded to the 
Regional Director. The Board believes that the final amendments remove 
burdens on small credit unions as well as provide them with greater 
flexibility in the maintenance of nonmember deposits without 
significantly increasing the risk to the NCUSIF.
    The Board has also made a technical change to Sec. 741.6(a), which 
references the limitation on nonmember deposits. The change is made to 
conform this section to the amendments in Sec. 701.32. The change 
deletes the term ``20%''.

Paperwork Reduction Act

    The final amendments do not change paperwork requirements.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires the NCUA to prepare an 
analysis to describe any significant economic impact a proposed 
regulation may have on a substantial number of small credit unions 
(primarily those under $1 million in assets). The revised rule is 
generally less restrictive than the current regulation. Overall, the 
NCUA Board expects the change to benefit credit unions by permitting 
them to maintain a larger amount of nonmember accounts before 
requesting a waiver from the Regional Director. Accordingly, the Board 
determines and certifies that this final rule does not have a 
significant economic impact on a substantial number of small credit 
unions and that a Regulatory Flexibility Analysis is not required.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. The amendment applies to federally-insured 
state-chartered credit unions that accept public unit and nonmember 
accounts. The final rule would make it possible for a federally-insured 
credit union to accept a larger amount of nonmember deposits without 
requesting an exemption.

List of Subjects

12 CFR Part 701

    Credit unions, Nonmember accounts, Public units.

12 CFR Part 741

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board.

    Dated: May 12, 1994.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA is amending 12 CFR parts 701 and 741 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787 and 1789. Section 701.6 is also 
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610.

    2. Section 701.32(b) is amended by redesignating paragraphs (b)(2) 
through (b)(4) as paragraphs (b)(4) through (b)(6) respectively, 
revising paragraph (b)(1) and the newly designated (b)(6), and adding 
new paragraphs (b)(2) and (b)(3) to read as follows:


Sec. 701.32  Payments on shares by public units and nonmembers, and 
low-income designation.

* * * * *
    (b) Limitations. (1) Unless a greater amount has been approved by 
the Regional Director, the maximum amount of all public unit and 
nonmember accounts shall not, at any given time, exceed 20% of the 
total shares of the federal credit union or $1.5 million, whichever is 
greater.
    (2) Before accepting any public unit or nonmember shares in excess 
of 20% of total shares, the board of directors must adopt a specific 
written plan concerning the intended use of these shares and forward a 
copy of the plan to the Regional Director. The plan must include:
    (i) A statement of the credit union's needs, sources and intended 
uses of public unit and nonmember shares;
    (ii) Provision for matching maturities of public unit and nonmember 
shares with corresponding assets, or justification for any mismatch; 
and
    (iii) Provision for adequate income spread between public unit and 
nonmember shares and corresponding assets.
    (3) A federal credit union seeking an exemption from the limits of 
paragraph (b)(1) of this section must submit to the Regional Director a 
written request including:
    (i) The new maximum level of public unit and nonmember shares 
requested, either as a dollar amount or a percentage of total shares;
    (ii) The current plan adopted by the credit union's board of 
directors concerning the use of new public unit and nonmember shares;
    (iii) A copy of the credit union's latest financial statement; and
    (iv) A copy of the credit union's loan and investment policies.
* * * * *
    (6) Upon expiration of an exemption, nonmember shares currently in 
the credit union in excess of the limits established pursuant to (b)(1) 
of this section will continue to be insured by the National Credit 
Union Insurance Fund within applicable limits. No new shares in excess 
of the limits established pursuant to (b)(1) of this section shall be 
accepted. Existing share certificates in excess of the limits 
established pursuant to (b)(1) of this section may remain in the credit 
union only until maturity.
    3. The authority citation for part 741 continues to read as 
follows:

    Authority: 12 U.S.C. 1757, 1766, and 1781-1790.

    Section 741.11 is also authorized by 31 U.S.C. 3717.


Sec. 741.6  [Amended]

    4. Section 741.6(a) is amended by removing the term ``20%''.

[FR Doc. 94-12120 Filed 5-18-94; 8:45 am]
BILLING CODE 7535-01-M