[Federal Register Volume 80, Number 248 (Monday, December 28, 2015)]
[Rules and Regulations]
[Pages 80635-80643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32164]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 80, No. 248 / Monday, December 28, 2015 / 
Rules and Regulations  

[[Page 80635]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

RIN 3133-AE49


Pass-Through Share Insurance for Interest on Lawyers Trust 
Accounts

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The NCUA Board (Board) is amending its share insurance 
regulations to implement statutory amendments to the Federal Credit 
Union Act (FCU Act or the Act) resulting from the recent enactment of 
the Credit Union Share Insurance Fund Parity Act (Insurance Parity 
Act). The statutory amendments require NCUA to provide enhanced, pass-
through share insurance for interest on lawyers trust accounts (IOLTA) 
and other similar escrow accounts. As its name implies, the Insurance 
Parity Act ensures that NCUA and the Federal Deposit Insurance 
Corporation (FDIC) insure IOLTAs and other similar escrow accounts in 
an equivalent manner.

DATES: This rule is effective January 27, 2016.

FOR FURTHER INFORMATION CONTACT: Frank Kressman, Associate General 
Counsel, Office of General Counsel, at the above address or telephone 
(703) 518-6540.

SUPPLEMENTARY INFORMATION: 
I. Background
II. Summary of the April 2015 Proposed Rule
III. Public Comments on the April 2015 Proposed Rule
IV. Final Rule
V. Regulatory Procedures

I. Background

A. History of IOLTAs

    According to the National Association of IOLTA Programs (NAIP),\1\ 
IOLTA programs began in Australia and Canada in the late 1960s to 
generate funds for legal services to the poor.\2\ In the United States, 
Congress passed legislation in the 1980s permitting the establishment 
of certain interest-bearing checking accounts,\3\ which, among many 
things, helped to enable the creation of IOLTA accounts throughout the 
United States. The various states operate IOLTA programs pursuant to 
their own laws.\4\
---------------------------------------------------------------------------

    \1\ The NAIP was established in 1986 to enhance legal services 
for the poor and for the administration of justice through the 
growth and development of IOLTA programs. http://www.iolta.org/about-naip.
    \2\ http://www.iolta.org/what-is-iolta/iolta-history.
    \3\ The Depository Institutions Deregulation and Monetary 
Control Act of 1980 (Pub. L. 96-221; 94 Stat. 132).
    \4\ http://www.americanbar.org/groups/interest_lawyers_trust_accounts/resources/status_of_iolta_programs.html. As determined by each state, an IOLTA 
program may be mandatory, voluntary, or an attorney may opt out of 
the program.
---------------------------------------------------------------------------

    Under an IOLTA program, an attorney or law firm may establish an 
account at one or more financial institutions to hold their clients' 
funds to pay for legal services or for other purposes. An attorney or a 
law firm would deposit clients' funds in one or more IOLTAs and hold 
these funds in trust until needed. Typically, the interest or dividends 
on IOLTAs are donated to charities or other 501(c)(3) tax exempt 
organizations pursuant to state law. Generally, the donated funds are 
used to subsidize legal aid services or for other charitable purposes.

B. The Credit Union Share Insurance Fund Parity Act of 2014

    On December 18, 2014, President Obama signed into law the Insurance 
Parity Act.\5\ The Insurance Parity Act amended the share insurance 
provisions of the FCU Act by requiring enhanced, pass-through share 
insurance coverage for IOLTAs and other similar escrow accounts.\6\ The 
Insurance Parity Act specifically defines ``pass-through share 
insurance,'' with respect to IOLTAs and other similar escrow accounts, 
as ``insurance coverage based on the interest of each person on whose 
behalf funds are held in such accounts by the attorney administering 
the IOLTA or the escrow agent administering a similar escrow account, 
in accordance with regulations issued by [NCUA].'' \7\
---------------------------------------------------------------------------

    \5\ Pub. L. 113-252, 128 Stat. 2893 (2014).
    \6\ 12 U.S.C. 1787(k).
    \7\ Pub. L. 113-252, 128 Stat. 2893 (2014).
---------------------------------------------------------------------------

    The Insurance Parity Act defines an IOLTA as ``a system in which 
lawyers place certain client funds in interest-bearing or dividend-
bearing accounts, with the interest or dividends then used to fund 
programs such as legal service organizations who provide services to 
clients in need.'' \8\ Pursuant to the Insurance Parity Act, IOLTAs are 
treated as escrow accounts for share insurance purposes. Further, 
IOLTAs and other similar escrow accounts are considered member accounts 
if the attorney administering the IOLTA or the escrow agent 
administering the escrow account is a member of the insured credit 
union in which the funds are held.\9\
---------------------------------------------------------------------------

    \8\ Id.
    \9\ The Insurance Parity Act also emphasizes that its amendments 
to the FCU Act do not authorize an insured credit union to accept 
deposits of an IOLTA or similar escrow account in an amount greater 
than such credit union is authorized to accept under any other 
provisions of federal or state law.
---------------------------------------------------------------------------

C. Comparison of FDIC's and NCUA's Current Insurance Regulations 
Regarding IOLTAs

    The FDIC's deposit insurance regulations \10\ do not specifically 
mention IOLTAs by name. Rather, the FDIC insures an IOLTA as an agent 
or nominee account. To be insured by the FDIC, an agent or nominee 
account like an IOLTA must expressly disclose, by way of specific 
reference, the existence of any fiduciary relationship such as an agent 
or nominee pursuant to which funds are deposited into a bank account 
and on which a claim for deposit insurance coverage is based. The FDIC 
has stated that such an account, including an IOLTA, must disclose that 
the funds are held by the nominal account holder on the behalf of 
others.\11\ To be insurable, the FDIC must be able to ascertain the 
interests of the other parties in the IOLTA from the records of the 
insured depository institution or from the records of the lawyer.\12\ 
Funds attributable to each client will be insured on a pass-through 
basis if this

[[Page 80636]]

recordkeeping requirement is satisfied.\13\
---------------------------------------------------------------------------

    \10\ 12 CFR part 330.
    \11\ FDIC Opinion Letter No. 98--2 (June 16, 1998) at https://www.fdic.gov/regulations/laws/rules/4000-9940.html.
    \12\ Id.
    \13\ Id.
---------------------------------------------------------------------------

    Prior to the enactment of the Insurance Parity Act, NCUA's position 
with respect to the insurability of IOLTAs was very similar to FDIC's, 
except that NCUA's coverage was limited only to those clients of the 
attorney who were also members of the insured credit union in which the 
IOLTA was kept. This was due to the FCU Act's general limitation to 
insure only member accounts, with some exceptions not applicable to 
this rulemaking.
    Many federally insured credit unions maintained that NCUA's 
position on this issue placed them at a competitive disadvantage. The 
Insurance Parity Act removed any such disadvantage, however. 
Specifically, provided the lawyer administering the IOLTA or the escrow 
agent administering a similar escrow account is a member of the insured 
credit union in which such account is maintained, then the interests of 
each client or principal, on whose behalf funds are being held in such 
accounts by the lawyer or escrow agent, will be insured on a pass-
through basis in accordance with the limits in part 745 of NCUA's 
regulations, regardless of the membership status of the client or 
principal. In an IOLTA and other similar escrow accounts, the true 
owners of the funds are the clients and principals. The lawyers or law 
firms and the escrow agents are only agents holding the funds on the 
clients' and principals' behalf.

II. Summary of the April 2015 Proposed Rule

    In April 2015, the Board issued a proposed rule amending its share 
insurance regulations to implement statutory amendments to the FCU Act 
resulting from the enactment of the Insurance Parity Act.\14\ The 
sections below reiterate the discussion in the proposed rule.
---------------------------------------------------------------------------

    \14\ 80 FR 27109 (May 12, 2015).
---------------------------------------------------------------------------

A. Why NCUA issued a proposed rule?

    The Insurance Parity Act clearly states that NCUA shall provide 
pass-through share insurance for IOLTAs, and it defines an IOLTA. 
Accordingly, share insurance coverage for IOLTAs took effect with the 
enactment of the Insurance Parity Act, even without any regulatory 
action on NCUA's part. No implementing regulations were required to 
effect this aspect of the legislation. However, the proposed rule 
addressed other aspects of the legislation that did require NCUA to 
take regulatory action.
    Additionally, some of the language in the Insurance Parity Act is 
ambiguous and left certain questions unanswered. For example, these 
questions included:
     What escrow accounts should be included in the category 
``other similar escrow accounts'' as that phrase is used in the 
Insurance Parity Act?
     Should prepaid card programs, such as payroll cards, be 
considered IOLTAs or other similar escrow accounts for share insurance 
purposes?
     What recordkeeping requirements must be satisfied to 
receive share insurance on IOLTAs and other similar escrow accounts?
     Does the enhanced share insurance coverage provided by the 
Insurance Parity Act affect the Bank Secrecy Act (BSA) requirements for 
insured credit unions?
     Should nonmember funds kept in a federal credit union as a 
result of the enhanced share insurance coverage provided by the 
Insurance Parity Act count towards a federal credit union's limit on 
the receipt of payments on shares from nonmembers pursuant to Sec.  
701.32 of NCUA's regulations?
    As discussed below, NCUA analyzed the above questions and proposed 
how each should be addressed. However, NCUA requested public comment on 
alternative interpretations of the Insurance Parity Act and alternative 
regulatory approaches that commenters believe are appropriate and 
beneficial.

B. Pass-Through Share Insurance for IOLTAs and Other Similar Escrow 
Accounts

    As noted above, the Insurance Parity Act defines ``pass-through 
share insurance,'' with respect to IOLTAs and other similar escrow 
accounts, as ``insurance coverage based on the interest of each person 
on whose behalf funds are held in such accounts by the attorney 
administering the IOLTA or the escrow agent administering a similar 
escrow account, in accordance with regulations issued by [NCUA].'' \15\ 
This definition is clear and accurate, as well as consistent with how 
NCUA currently defines ``pass-through share insurance'' in its share 
insurance regulations relating to coverage of certain employee benefit 
plans.\16\ Accordingly, the Board proposed to adopt that statutory 
definition of ``pass-through share insurance'' as the regulatory 
definition of that term in part 745.
---------------------------------------------------------------------------

    \15\ Pub. L. 113-252, 128 Stat. 2893 (2014).
    \16\ 12 U.S.C. 1787(k)(4); 12 CFR 745.9-2.
---------------------------------------------------------------------------

C. What escrow accounts should be included in the category ``other 
similar escrow accounts'' as that phrase is used in the Insurance 
Parity Act?

    The Insurance Parity Act provides that, for share insurance 
purposes, IOLTAs are treated as escrow accounts. It also provides that 
pass-through insurance coverage is available for other kinds of escrow 
accounts that are similar to IOLTAs. However, the Insurance Parity Act 
does not define or further describe what constitutes an escrow account 
that is ``similar'' to an IOLTA.
    The Insurance Parity Act defines an IOLTA as ``a system in which 
lawyers place certain client funds in interest-bearing or dividend-
bearing accounts, with the interest or dividends then used to fund 
programs such as legal service organizations who provide services to 
clients in need.'' NCUA is tasked with defining the kinds of escrow 
accounts that are similar enough to IOLTAs to be eligible for pass-
through share insurance as discussed above. In the proposed rule, the 
Board acknowledged the challenge to describe with precision the 
circumstances under which such coverage should be provided. There are 
many different kinds of escrow accounts in use, with varying forms and 
structures. Also, the Board noted in the proposed rule that ``similar'' 
is a relative term that may necessitate NCUA reviewing escrow accounts 
with varying structures on a case-by-case basis to determine which are 
similar enough to IOLTAs to receive pass-through insurance coverage.
    Despite the amorphous nature of escrow accounts, the Board noted in 
the proposed rule the importance of providing insured credit unions 
with as much regulatory clarity and certainty as possible about which 
escrow accounts are considered similar enough to IOLTAs to receive 
pass-through insurance coverage. NCUA seeks to avoid, to the greatest 
extent possible, the need to make case-by-case analyses of escrow 
accounts, as that process is labor intensive and inefficient and it 
creates uncertainty for insured credit unions.
    There are some escrow accounts whose nature and structure are 
immediately recognizable as similar to an IOLTA. For example, the Board 
noted in the proposed rule that typical real estate escrow accounts and 
prepaid funeral accounts have attributes that, while not identical to 
IOLTAs, are similar to IOLTAs and should be entitled to pass-through 
share insurance coverage. One of the signature characteristics common 
to typical real estate escrow accounts, prepaid funeral

[[Page 80637]]

accounts, and IOLTAs is that each of these kinds of account has a 
licensed professional or other individual serving in a fiduciary 
capacity and holding funds for the benefit of a client as part of some 
transaction or business relationship.
    The Board proposed, at a minimum, to extend pass-through share 
insurance coverage to escrow accounts with these characteristics, up to 
the limits provided for in part 745 of NCUA's regulations. However, the 
Board encouraged commenters to identify and discuss other kinds of 
escrow accounts, in addition to real estate and prepaid funeral 
accounts, which also have characteristics similar enough to IOLTAs to 
warrant pass-through insurance coverage.
    Specifically, the Board requested comment on the following: (1) 
what kinds of escrow accounts should qualify for pass-through share 
insurance coverage and why; (2) what specific attributes these escrow 
accounts need to possess to obtain coverage; (3) how NCUA can define 
these accounts to capture their essence and minimize the need for case-
by-case analyses of their characteristics; and (4) any other aspect of 
this topic. In addition, the Board specifically invited comment on 
whether it is appropriate to limit the pool of other similar escrow 
accounts to those where a recognizable fiduciary duty is owed by the 
escrow agent to the principal.

D. Prepaid Cards

    In the proposed rule, the Board welcomed comments on NCUA's 
proposed treatment of prepaid card programs. To put this issue in 
context and provide background information about such programs, the 
Board included the following excerpt on prepaid cards from the Federal 
Financial Institutions Examination Council's Web site.\17\
---------------------------------------------------------------------------

    \17\ http://ithandbook.ffiec.gov/it-booklets/retail-payment-systems/payment-instruments,-clearing,-and-settlement/card-based-electronic-payments/prepaid-(stored-value)-cards.aspx

    The market for prepaid cards, sometimes called stored-value 
cards, is one of the fastest-growing segments of the retail 
financial services industry. While the terms prepaid cards and 
stored-value cards are frequently used interchangeably, differences 
exist between the two products.
    Prepaid cards are generally issued to persons who deposit funds 
into an account of the issuer. During the funds deposit process, 
most issuers establish an account and obtain identifying data from 
the purchaser (e.g., name, phone number, etc.).
    Stored-value cards do not typically involve a deposit of funds 
as the value is prepaid and stored directly on the cards. Because 
its business model requires cardholders to pay in advance, it 
substantially eliminates the nonpayment risk for the issuing 
financial institution. The functionality of this product is leading 
to a wide range of card programs that operate in either closed or 
open-loop systems, and program innovation has resulted in the 
development of systems that operate in both structures. Closed-loop 
systems are generally retailer/issuer business models, while 
general-purpose cards issued by financial institutions tend to 
operate in open-loop systems. Open-loop system prepaid cards are 
processed using the same systems as the branded network cards 
(MasterCard, Visa, American Express, and Discover) and offer the 
same functionality.
    In the past, prepaid cards were mostly issued by nonfinancial 
businesses in limited deployment environments such as mass transit 
systems and universities. In recent years, prepaid cards have grown 
significantly as financial institutions and nonbank organizations 
target under-banked markets and overseas remittances. Technological 
innovations in the way information is stored (e.g., magnetic strip 
or computer chip), the physical form of the payment mechanism, and 
biometric account access and authentication are converging to create 
efficiencies, reduce transaction times at the point of sale, and 
lower transaction costs.
    There are several types of prepaid cards, including gift, 
payroll, travel, and teen cards. Either the consumer or an issuer 
funds the account for the card. When a consumer uses the card to 
make a purchase, the merchant deducts the amount of the purchase 
from the card. Transaction authorization can take place through an 
existing network, a chip stored on the card, or information coded on 
the magnetic strip. Once the stored value in the card is exhausted, 
customers may either replenish the value or acquire a new card.
    In addition to cards, stored-value payment devices are emerging 
in a variety of other physical forms, most notably key fobs. With 
the recent introduction of contactless payment technologies, use of 
chips (smart cards), radio frequency identification (RFID), and 
near-field communication (NFC) payment devices are becoming more 
innovative. Initiatives are underway to introduce mobile phones with 
integrated microchips that can initiate a payment when waved over a 
specially-equipped reader. The integrated chip can store value, 
authenticate a consumer, or contain consumer preferences and loyalty 
program information that can be used for marketing purposes.
    Prepaid cards may be subject to legal and regulatory risks. For 
example, the Federal Reserve Board's final rule on Regulation E, 
issued August 30, 2006, extended its applicability to prepaid cards 
used for consumers' payroll. The Federal Reserve Board noted that it 
will monitor the development of other card products and may 
reconsider Regulation E coverage as these products continue to 
develop. State laws vary widely with regard to fees. Additionally, 
financial institutions should ensure that prepaid card product 
programs comply with the Bank Secrecy Act and anti-money laundering 
guidance.

    The proposed rule articulated NCUA's general position that prepaid 
card programs, including payroll cards, should not be considered escrow 
accounts similar to IOLTAs for share insurance purposes because the 
characteristics that define an attorney's relationship with, and the 
fiduciary duties owed to, the attorney's clients are typically not 
present in the prepaid card scenario. An IOLTA and a prepaid card 
program serve very different purposes and typically have significantly 
different structures. For this and other reasons, a prepaid card 
program is not sufficiently similar to an IOLTA, for purposes of the 
Insurance Parity Act, to qualify for pass-through share insurance 
coverage as an escrow account similar to an IOLTA. However, the Board 
encouraged comments and requested information about prepaid card 
programs that commenters thought may be sufficiently similar to IOLTAs 
for share insurance purposes.

E. Insurance for Prepaid Cards Outside of the Insurance Parity Act 
Context

    The Board explained in the proposed rule that, under certain 
circumstances, some prepaid card programs currently may be entitled to 
pass-through share insurance coverage under other aspects of part 745 
unrelated to IOLTAs and the Insurance Parity Act. For example, if funds 
in a prepaid card program deposited in a federally insured credit union 
qualify as a share account that can be traced back to a specific owner 
in a specific dollar amount and the owner is a member of the credit 
union where the funds are kept, then those funds would be entitled to 
share insurance pursuant to the current terms and limits of part 745.

F. What recordkeeping requirements must be met to receive share 
insurance on IOLTAs and other similar escrow accounts?

    As noted in the proposed rule, FDIC's deposit insurance regulations 
provide that the FDIC will recognize a claim for insurance coverage 
based on a fiduciary relationship (such as an IOLTA or escrow account) 
only if the relationship is expressly disclosed, by way of specific 
references, in the deposit account records of the insured depository 
institution.\18\ FDIC's deposit insurance regulations further provide 
that if the deposit account records of an insured depository 
institution disclose the existence of a relationship which might 
provide a basis for additional insurance, then the details of the 
relationship and the interests of other parties in the account must be 
ascertainable either from the deposit

[[Page 80638]]

account records of the insured depository institution or from records 
maintained, in good faith and in the regular course of business, by the 
depositor or by some person or entity that has undertaken to maintain 
such records for the depositor.\19\
---------------------------------------------------------------------------

    \18\ 12 CFR 330.5(b)(1).
    \19\ 12 CFR 330.5(b)(2).
---------------------------------------------------------------------------

    Similarly, NCUA's current share insurance regulations provide that 
the account records of an insured credit union shall be conclusive as 
to the existence of any relationship pursuant to which the funds in the 
account are deposited and on which a claim for insurance coverage is 
founded. Examples of such relationships include those involving 
trustees, agents, and custodians.\20\ These kinds of accounts also 
include IOLTAs and other escrow accounts similar to IOLTAs. NCUA will 
not recognize a claim for insurance based on such a relationship in the 
absence of such disclosure. Further, NCUA's share insurance regulations 
provide that if the account records of an insured credit union disclose 
the existence of a relationship which may provide a basis for 
additional insurance, then the details of the relationship and the 
interests of other parties in the account must be ascertainable either 
from the records of the credit union or the records of the member 
maintained in good faith and in the regular course of business.\21\
---------------------------------------------------------------------------

    \20\ 12 CFR 745.2(c)(1).
    \21\ 12 CFR 745.2(c)(2).
---------------------------------------------------------------------------

    IOLTAs and other similar escrow accounts exemplify the kinds of 
accounts in which a relationship exists upon which a claim for 
insurance coverage could be founded. They are among the kinds of 
accounts that NCUA's regulations are intended to cover. Accordingly, 
based on NCUA's current share insurance regulations, for IOLTAs and 
other similar escrow accounts to receive the share insurance coverage 
to which they are entitled, the recordkeeping provisions of NCUA's 
share insurance regulations must be satisfied. No additional 
recordkeeping requirements are imposed by the Insurance Parity Act. 
Therefore, the Board did not propose any regulatory changes or 
additions in this regard, but nonetheless welcomed comments on this 
topic.

G. Does the enhanced share insurance coverage provided by the Insurance 
Parity Act affect the BSA requirements for insured credit unions?

    The proposed rule did not intend to discuss in detail an insured 
credit union's BSA requirements. Rather, NCUA intended it to remind 
insured credit unions of their continued BSA responsibilities with 
respect to IOLTAs and other similar escrow accounts. This is especially 
true given that IOLTAs and other similar escrow accounts will begin to 
contain funds for nonmembers which are likely not known by the credit 
unions in which the accounts are kept. The Board did not propose to 
make any regulatory changes in this regard, but nonetheless welcomed 
comments.

F. Do nonmember funds kept in a credit union as a result of the 
enhanced share insurance coverage provided by the Insurance Parity Act 
count towards a federal credit union's limit on the receipt of payments 
on shares from nonmembers pursuant to Sec.  701.32 of NCUA's 
regulations?

    The Insurance Parity Act provides that IOLTAs and other similar 
escrow accounts are considered member accounts if the attorney 
administering the IOLTA or the escrow agent administering the escrow 
account is a member of the insured credit union in which the funds are 
held. In the proposed rule, the Board stated that if an IOLTA or other 
similar escrow account satisfies the above requirement and, therefore, 
is treated by the Insurance Parity Act as a member account, then the 
IOLTA or other similar escrow account also should be considered a 
member account for purposes of Sec.  701.32 of NCUA's regulations. 
Therefore, funds in those member accounts do not count towards a 
federal credit union's limit on the receipt of payments on shares from 
nonmembers pursuant to Sec.  701.32 of NCUA's regulations.\22\ 
Accordingly, the Board did not propose any regulatory changes in this 
regard, but nonetheless welcomed comments.
---------------------------------------------------------------------------

    \22\ 12 CFR 701.32.
---------------------------------------------------------------------------

III. Public Comments on the April 2015 Proposed Rule

    NCUA received eighteen comment letters on the proposed rule: four 
from credit unions; three from national trade associations; nine from 
credit union leagues; one from an attorney; and one from a credit card 
company. Below is a summary of those comments.

A. General Comments

    Generally, all of the commenters supported the proposed rule. 
However, as explained in more detail below, several commenters offered 
suggestions for additional types of escrow accounts that they believed 
should be afforded enhanced pass-through share insurance coverage. In 
addition, most commenters advocated for pass-through share insurance 
coverage on prepaid cards but did not provide legal analysis to support 
such expanded coverage.

B. Definition of ``Pass-Through Share Insurance''

    All of the commenters that addressed this definition supported the 
proposed use of the statutory definition of ``pass-through share 
insurance.'' Accordingly, this final rule adopts the proposed 
definition without change.

C. Other Similar Escrow Accounts and Prepaid Cards

    As a preface to the following discussion of the commenters' 
positions on escrow accounts and prepaid cards, a reminder of how NCUA 
currently insures those accounts and how that might change as a result 
of the Insurance Parity Act will provide additional clarity. In the 
written comments received and in other forms of communications NCUA has 
had with various stakeholders on this topic, there appears to be some 
degree of misunderstanding.
    Accordingly, the Board reiterates and emphasizes that, even in the 
absence of the Insurance Parity Act, it currently insures certain 
escrow accounts and prepaid cards under current share insurance 
provisions. The Insurance Parity Act amends the membership requirements 
associated with covering those kinds of accounts, but it does not 
organically create or authorize such coverage as though such authority 
did not previously exist.
    The membership requirements in the Insurance Parity Act shift the 
focus from the membership status of the principals, the actual owners 
of the funds, to the membership status of: (1) The attorney 
administering the IOLTA; (2) the escrow agent administering the escrow 
account; and (3) if prepaid cards are deemed ``other similar escrow 
accounts,'' then the party associated with a prepaid card that is 
acting in a similar capacity as the attorney or escrow agent. As 
discussed more fully below, in many instances, the shift in whose 
membership status matters will make it logistically easier for certain 
kinds of accounts to obtain enhanced pass-through coverage, for example 
IOLTAs. However, for some kinds of accounts including certain prepaid 
cards if they are determined to qualify, this shift in focus could 
actually make it significantly more difficult to obtain enhanced pass-
through coverage.
    Further, any increase in an insured credit union's total amount of 
insured shares as a result of the enhanced coverage provided by the 
Insurance Parity Act will require that credit union to increase 
proportionally the 1%

[[Page 80639]]

deposit it is required to maintain with the National Credit Union Share 
Insurance Fund (NCUSIF) pursuant to the Act.\23\ Finally, the Board 
notes that the shift in membership focus in the Insurance Parity Act 
represents a rare departure from the Act's general requirement that 
share insurance coverage be provided only to credit union members. 
Accordingly, this final rule respects the major implications of such an 
exception in interpreting congressional intent.
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 1782(c)(1).
---------------------------------------------------------------------------

1. Escrow Accounts
    Several commenters suggested other types of accounts that they 
believed satisfies the definition of ``other similar escrow accounts'' 
and, therefore, should be afforded pass-through share insurance 
coverage in the same manner as an IOLTA, specifically meaning that the 
membership status of the principal, the owner of the funds, is 
irrelevant provided the escrow agent is a member of the credit union in 
which the founds are held. Those suggestions included: (1) Agent-trust 
fiduciary accounts such as vacation rental security accounts and 
cemetery trust accounts; (2) any escrow account used to facilitate a 
purchase transaction such as the purchase of boats, commercial vessels, 
and planes; (3) any account established by a licensed or registered 
escrow agent; (4) landlord/tenant accounts; and (5) public adjuster 
accounts and education disbursement accounts.
    As indicated in the proposed rule, there are many escrow accounts 
currently in use that are similar to IOLTAs and entitled to the 
enhanced pass-through insurance contemplated by the Insurance Parity 
Act. The Board supports providing enhanced insurance coverage for those 
accounts. In the proposal, the Board requested that commenters 
specifically identify the attributes of those accounts they believe 
should receive enhanced pass-through coverage and to define the essence 
of those accounts. Such a detailed description would help NCUA identify 
certain accounts as similar to IOLTAs without the need for a case-by-
case analysis of escrow accounts. Unfortunately, while commenters 
identified broad and general categories of escrow accounts, they did 
not provide specifics in a way that allows NCUA to eliminate the need 
for case-by-case review. This is not surprising as there is a lack of 
universally accepted titles to describe certain kinds of escrow 
accounts. Further, there are many kinds of escrow accounts that are 
similar to each other but which are not structurally or functionally 
identical which further hampers precise labeling.
    It is this lack of uniformity in language, function, and 
organizational structure that makes it difficult for NCUA to promulgate 
regulations that identify by name the escrow accounts eligible for 
enhanced share insurance coverage. Despite this obstacle, NCUA will 
provide enhanced share insurance coverage to certain escrow accounts, 
in addition to real estate escrow accounts and prepaid funeral accounts 
as proposed, on a case-by-case basis, provided such escrow accounts 
satisfy the definition of ``other similar escrow account'' as defined 
in both the proposed rule and this final rule.\24\ Specifically, 
``other similar escrow account'' means an account where a licensed 
professional or other individual serving in a fiduciary capacity holds 
funds for the benefit of a client as part of a transaction or business 
relationship, such as real estate escrow accounts and prepaid funeral 
accounts.
---------------------------------------------------------------------------

    \24\ 80 FR 27109, 27114 (May 12, 2015). In the proposed rule, 
NCUA used the term ``realtor'' account to describe what is being 
called in this final rule a ``real estate escrow'' account. NCUA is 
changing terminology in this final rule at the suggestion of two 
commenters, who have indicated that the term ``realtor'' is a 
federally registered collective membership mark. NCUA agrees it is 
better to use the more generic term, but confirms that there is no 
substantive change being made from the proposed rule to the final.
---------------------------------------------------------------------------

    Two commenters advocated a less restrictive definition of ``other 
similar escrow account'' that would consider the existence of a 
fiduciary relationship as an indicia of evidence of an ``other similar 
escrow account,'' but would not make it a determinative factor. These 
commenters stated that a less restrictive definition would allow for 
inclusion of accounts that, while not rising to the level of a 
fiduciary relationship, exhibit trust and confidence and involve the 
holding of funds on behalf of another. The commenters offered landlord/
tenant accounts as examples of accounts that would fall into that 
broader definition. However, several other commenters disagreed with 
having a broader definition of ``other similar escrow account.'' 
Instead, these commenters preferred NCUA's proposed requirement that an 
actual fiduciary relationship exist. The Board agrees with those 
commenters supporting the proposed definition that makes a fiduciary 
relationship a required component for enhanced share insurance. 
Congress made it clear that only escrow accounts that are similar to 
IOLTAs are to be provided with enhanced pass-through coverage. The 
lawyer-client relationship is largely characterized by the fiduciary 
duty lawyers owe their clients. Accordingly, requiring the fiduciary 
component to be present with respect to providing enhanced pass-through 
insurance coverage for ``other similar escrow accounts'' comports with 
congressional intent.
    Two commenters stated that NCUA should clarify that real estate 
escrow accounts and prepaid funeral accounts qualify as ``other similar 
escrow accounts'' that are eligible for enhanced insurance coverage, 
but that the universe of ``other similar escrow accounts'' is not 
limited to those two named accounts. The Board made this clear in the 
proposed rule, but, as discussed above, the Board reiterates it here 
nonetheless.
    One commenter argued that enhanced pass-through coverage should be 
expanded to include accounts held and administered by entities, such as 
law firms, real estate agencies, and funeral homes. This commenter 
stated that, as written, the proposed rule could be read as only 
permitting pass-through share insurance for accounts opened and held by 
individuals such as a lawyer or real estate agent, but not by their 
firms or brokerages. The Board agrees with the commenter that coverage 
should not be limited to accounts held and administered only by 
individual professionals but not their firms, and confirms the proposed 
rule did not have that effect. However, accounts opened by a law firm 
instead of an individual attorney, for example, will still need to 
satisfy the fiduciary relationship requirement. Accordingly, law firms 
and other entities administering the accounts must comply with all 
relevant law to maintain that relationship, which may or may not 
require an individual lawyer or escrow agent to also be named on the 
account.
    Further, the Insurance Parity Act did not eliminate the membership 
requirement to obtain share insurance. Rather, it shifted the 
membership requirement from the owner of funds to the administrator of 
the IOLTA or escrow account. That means, for example, that a law firm 
that wishes to open an escrow account at a credit union must meet the 
credit union's field of membership criteria. NCUA recognizes, however, 
that a law firm, as an entity, may have difficulty meeting the 
membership criteria of the credit union of its choosing. Accordingly, 
if the firm itself does not qualify for membership in a particular 
credit union, but one of its lawyers does, then the firm may maintain 
an IOLTA in that credit union if the eligible lawyer joins the credit 
union. This is consistent with congressional intent to place credit

[[Page 80640]]

unions on a more level playing field with banks with respect to IOLTAs 
and other similar escrow accounts. It is the responsibility of the law 
firm or other entity wishing to establish an escrow account, however, 
to first determine if state and other applicable law and rules of 
professional conduct allow for such an arrangement. This final rule 
does not authorize any parties to create an illegal or unethical 
account relationship.
2. Prepaid Cards
    Generally, all of the commenters that addressed prepaid cards 
believed NCUA should include them as ``other similar escrow accounts.'' 
However, the commenters did not provide sufficient legal analysis to 
support their positon. Rather, these commenters generally suggested 
that NCUA should offer the same insurance coverage as FDIC on prepaid 
cards and that failure to do so would place credit unions at a 
competitive disadvantage. In this regard, no commenters acknowledged 
that NCUA currently insures some prepaid cards held by members and 
that, except for the membership requirement, NCUA's analysis for 
calculating this coverage is essentially the same as the FDIC's 
analysis.
    One commenter provided a detailed analysis of the prepaid card 
industry and suggested ways in which NCUA could offer pass-through 
share insurance coverage on these accounts. This commenter divided 
prepaid cards into two categories: general-purpose reloadable cards 
(GPRs) and cards that allow for the disbursement of funds. The 
commenter stated that GPRs function like checking or share draft 
accounts, without checks or drafts, and allow a member to add or load 
additional funds onto the card. Cards for the disbursement of funds are 
used by employers and governments to distribute salaries and other 
benefits. The commenter did not specifically explain why these 
mechanisms for accessing funds are escrow accounts or how the 
distributors of such products would obtain the required credit union 
membership under the Insurance Parity Act.
    This commenter went on to state that prepaid account funds are 
typically, but not always, deposited in omnibus accounts in a bank or a 
credit union in a master account held in the name of the prepaid card 
program for the benefit of the individual accountholders in the 
program. Individual cardholder funds are typically, but not always, 
tracked on a subaccount basis and recorded by the prepaid card issuer, 
processor, or prepaid program manager. The commenter acknowledged that 
while an attorney-client fiduciary relationship is not present, the 
Electronic Fund Transfer Act \25\ imposes the same or similar type of 
fiduciary obligations on the issuer with respect to disbursing and 
safeguarding funds in accordance with the instructions of the account 
holder. The commenter argued that, as a result, NCUA should provide 
pass-through share insurance on prepaid cards even where the cardholder 
is not a member of the credit union where the funds are held. The Board 
notes that Regulation E, which implements portions of the Electronic 
Fund Transfer Act, views escrow accounts and certain prepaid cards such 
as payroll cards as quite different for regulatory purposes, which 
further highlights the dissimilarities between certain prepaid cards 
and escrow accounts.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 1693 et seq.
---------------------------------------------------------------------------

    One commenter stated that pass-through coverage should be provided 
on cards where the owners of those cards are members of the credit 
union where the funds are held. As noted above, NCUA currently does 
this under appropriate circumstances.
    Several commenters argued that NCUA currently, and irrespective of 
the Insurance Parity Act, has the authority to permit prepaid cards to 
be considered member accounts. These commenters stated that the FCU Act 
provides the Board with broad latitude in defining a member account and 
that NCUA regulations and legal opinions have created a precedent for 
allowing insurance coverage to nonmembers in certain instances. We 
agree that these statements are true but only in certain instances as 
discussed above.
    These commenters further reasoned that any account opened at a 
credit union is a ``member account,'' thereby allowing the Board to 
authorize insurance coverage for payroll cards or other accounts 
established by credit union members that hold nonmember accounts. The 
Board does not agree that this statement is legally accurate.
    One commenter stated that NCUA should provide pass-through share 
insurance coverage on prepaid cards where a fiduciary relationship can 
be clearly established and the fiduciary is a member of the credit 
union. Another commenter stated that NCUA should provide pass-through 
share insurance coverage only on those prepaid card accounts that have 
the characteristics of ``other similar escrow accounts.'' This 
commenter suggested that NCUA could stipulate that a qualifying prepaid 
card account must meet the proposed record keeping requirements for 
escrow accounts, thereby eliminating those prepaid card accounts that 
lack the characteristics of escrow accounts because the record keeping 
requirements are not part of the business model of these types of 
products. Conversely, the commenter reasoned that prepaid card accounts 
that meet the record keeping requirements would present similar 
characteristics of escrow accounts. Because ``other similar escrow 
accounts,'' as that term is defined in this rule, are entitled to 
enhanced pass-through insurance under the Insurance Parity Act, a 
prepaid card satisfying that definition would be entitled to such 
treatment. However, prepaid cards currently do not satisfy that 
definition.
    Two other commenters also advocated pass-through share insurance on 
prepaid card accounts that establish a similar relationship as escrow 
accounts and have similar characteristics, including payroll cards and 
prepaid gift cards. These commenters, however, did not elaborate on how 
to assess those characteristics or the level of similarity.
    Finally, one commenter suggested that NCUA should simply stipulate 
that credit unions can exercise the same powers authorized for banks 
under 12 CFR part 300 or allow credit unions to request to have all of 
the same trust powers that are exercised by banks. This would exceed 
NCUA's authority under the FCU Act and the Insurance Parity Act.
    For many years, the credit union industry has requested that NCUA 
and Congress enable the NCUSIF to insure IOLTAs on a pass-through basis 
without regard to the membership status of the lawyer's clients. The 
essential purpose of the Insurance Parity Act is to provide that relief 
with respect to IOLTAs. Further, the Insurance Parity Act granted 
additional enhanced coverage for escrow accounts similar to IOLTAs, 
which is relief the credit union industry historically has not 
requested.
    The Insurance Parity Act limits enhanced coverage to a narrow 
universe of accounts. The Insurance Parity Act is not intended to 
eliminate every distinction between banks and credit unions or alter 
how every kind of credit union account may be created, structured, and 
insured. The fact that credit unions, generally speaking, must only 
serve their members is a critical distinction between banks and credit 
unions. While there are some statutory exemptions from the membership 
requirements applicable to accounts the NCUSIF may insure, the general 
principle of share insurance coverage is that coverage is member-based. 
Accordingly, in interpreting whether prepaid cards are to be considered

[[Page 80641]]

``other similar escrow accounts'' for purposes of the Insurance Parity 
Act, NCUA must respect the statutory limitations in place and interpret 
the Insurance Parity Act in a responsible, justifiable, and not overly 
broad manner.
    NCUA's research on prepaid cards has yielded results similar to 
those of the Federal Financial Institutions Examination Council and the 
FDIC, although those two entities may use different terminology to 
discuss prepaid cards. Prepaid cards are an ever expanding vehicle in 
the financial services marketplace, and they seem to be constantly 
evolving into new shapes and forms. They come in many varieties and are 
structured in many different ways. This variety and continuous 
evolution makes it difficult to devise a single, universal, and useful 
definition that applies to all prepaid cards.
    In its General Counsel's Opinion No. 8, the FDIC discussed prepaid 
products, in relevant part as follows:

    Stored value products, or ``prepaid products,'' may be divided 
into two broad categories: (1) Merchant products; and (2) bank 
products.
    A merchant card (also referred to as a ``closed-loop'' card) 
enables the cardholder to collect goods or services from a specific 
merchant or cluster of merchants. Generally, the cards are sold to 
the public by the merchant in the same manner as gift certificates. 
Examples are single-purpose cards such as cards sold by book stores 
or coffee shops. Another example is a prepaid telephone card.
    Merchant cards do not provide access to money at a depository 
institution. When a cardholder uses the card, the merchant is not 
paid through a depository institution. On the contrary, the merchant 
has been prepaid through the sale of the card. In the absence of 
money at a depository institution, no insured ``deposit'' will exist 
under section 3(l) of the FDI Act. See FDIC v. Philadelphia Gear 
Corporation, 476 U.S. 426 (1986).
    Bank cards are different. Bank cards (also referred to as 
``open-loop'' cards) provide access to money at a depository 
institution. In some cases, the cards are distributed to the public 
by the depository institution itself. In many cases, the cards are 
distributed to the public by a third party. For example, in the case 
of ``payroll cards,'' the cards often are distributed by an employer 
to employees. In the case of multi-purpose ``general spending 
cards'' or ``gift cards,'' the cards may be sold by retail stores to 
customers.
    A bank card usually enables the cardholder to effect transfers 
of funds to merchants through point-of-sale terminals. A bank card 
also may enable the cardholder to make withdrawals through automated 
teller machines (``ATM's''). In other words, a bank card provides 
access to money at a depository institution. The money is placed at 
the depository institution by the card distributor (or other company 
in association with the card distributor), but is transferred or 
withdrawn by the cardholders. In some cases, the card is 
``reloadable'' in that additional funds may be placed at the 
depository institution for the use of the cardholder.
    This General Counsel's opinion does not address merchant cards 
because such cards do not involve the placement of funds at insured 
depository institutions. The applicability of this General Counsel's 
opinion is limited to bank cards and other nontraditional access 
mechanisms, such as computers, that provide access to funds at 
insured depository institutions.\26\
---------------------------------------------------------------------------

    \26\ FDIC General Counsel's Opinion No. 8--Insurability of Funds 
Underlying Stored Value Cards and Other Nontraditional Access 
Mechanisms; 74 FR 67155 (November 13, 2008).

    Merchant cards, as discussed above, do not involve a deposit of 
funds at a financial institution by the card holder as the value is 
prepaid and stored directly on the cards. Accordingly, this kind of 
vehicle is clearly not insurable under the Insurance Parity Act as 
there is no account held at a federally insured credit union.
    Because open loop cards, which FDIC refers to as bank cards, 
provide access to money at an insured depository institution such as a 
federally insured credit union, NCUA has examined these instruments 
carefully to determine if they should be insured as escrow accounts 
similar to IOLTAs. The Board noted in the proposed rule that open loop 
cards are currently insured by the NCUSIF under certain circumstances, 
which include the requirement that the cardholder be a member of the 
federally insured credit union in which the funds are held. The Board 
also noted in the proposed rule that prepaid card programs, including 
open loop cards such as payroll cards, should not be considered escrow 
accounts similar to IOLTAs for share insurance purposes because, among 
other reasons, the characteristics that define an attorney's 
relationship with, and the fiduciary duties owed to, the attorney's 
clients are typically absent in the open loop prepaid card scenario. 
Commenters argued that there is some element of a trust relationship in 
the prepaid card scenario but generally acknowledged that it does not 
rise to the level of an attorney-client relationship. NCUA's ongoing 
research of prepaid cards supports the position NCUA took in the 
proposed rule that an IOLTA and a prepaid card program serve very 
different purposes for the client and card holder and have drastically 
different structures.
    In addition to the structural and functional dissimilarities 
between open loop cards and IOLTAs, open loop cards are not escrow 
accounts as that term is commonly understood and contemplated in the 
Insurance Parity Act. Further, in evaluating prepaid card products, the 
FDIC has determined that while not all prepaid card programs are 
structured the same, it generally views companies that sell or 
distribute general purpose prepaid cards as deposit brokers and the 
funds they deposit as brokered deposits. While this does not directly 
address whether open loop cards are escrow accounts similar to IOLTAs, 
FDIC's position on open loop cards supports NCUA's determination in 
this regard. More specifically, a deposit broker serves a drastically 
different purpose than an attorney representing a client, and a 
brokered deposit placed in a depository institution to obtain a high 
investment yield also is drastically different from funds a client 
places in trust with its lawyer as part of their legal relationship. 
The fact that the characteristics and purposes of an IOLTA and a 
brokered deposit are so dissimilar supports NCUA's conclusion that open 
loop cards are not escrow accounts similar to IOLTAs for purposes of 
the Insurance Parity Act and, therefore, not entitled to pass-through 
coverage unless the cardholder is a member of the federally insured 
credit union in which the funds are deposited and satisfies other 
criteria discussed above.
    In conducting this analysis, NCUA paid particular attention to 
payroll cards as many in the credit union industry seemed particularly 
interested in those accounts. NCUA's research shows that there are 
several different kinds of payroll card products, including some that 
while called a ``payroll card'' may actually be a debit card product 
sponsored by a third party vendor that is not the cardholder's 
employer. NCUA's analysis revealed that many of the same barriers to 
enhanced pass-through coverage that exists for other types of prepaid 
cards also apply to payroll cards. More specifically, the structure and 
characteristics of a payroll card are not that of an escrow account 
that is similar to an IOLTA. The Board notes, however, that even 
without the special membership treatment provided by the Insurance 
Parity Act, the NCUSIF currently insures on a pass-through basis those 
payroll cards that satisfy NCUA's regular account and membership 
requirements as discussed above.
    In conclusion, NCUA will expand its insurance coverage pursuant to 
the Insurance Parity Act for IOLTAs and other accounts that satisfy the 
definition of ``other similar escrow account,'' as defined herein. NCUA 
also will continue to insure on a pass-through

[[Page 80642]]

basis those prepaid card products and escrow accounts that are not 
similar to IOLTAs as it currently does based on the provisions of part 
745, but will not afford those accounts enhanced coverage under the 
Insurance Parity Act. NCUA will continue to monitor the prepaid card 
industry and its evolution and may revisit this subject in the future 
if necessary.

E. Recordkeeping Requirements

    Only two commenters addressed this topic. One commenter fully 
supported the proposed language, while one commenter recommended that 
specific fields be included on the 5300 Call Report to capture the 
value of negotiable instruments, IOLTAs, and prepaid cards. This 
commenter believed that the additional fields would assist in accurate 
reporting of balances covered by federal insurance. This final rule 
maintains the recordkeeping requirements as proposed.

IV. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires NCUA to prepare an 
analysis to describe any significant economic impact a regulation may 
have on a substantial number of small entities.\27\ For purposes of 
this analysis, NCUA considers small credit unions to be those having 
under $50 million in assets.\28\ This rule implements the Insurance 
Parity Act, which enhances share insurance coverage for IOLTAs and 
other similar escrow accounts. Accordingly, NCUA certifies the rule 
will not have a significant economic impact on a substantial number of 
small credit unions.
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 603(a).
    \28\ On September 24, 2015, the Board published Interpretative 
Ruling and Policy Statement 15-1, which amends the definition of 
small credit unions for purposes of the RFA to credit unions with 
assets of less than $100 million. 80 FR 57512 (Sept. 24, 2015). This 
change, however, does not take effect until November 23, 2015, which 
is after the date this rule was issued by the Board.
---------------------------------------------------------------------------

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden.\29\ For purposes of the PRA, a 
paperwork burden may take the form of either a reporting or a record-
keeping requirement, both referred to as information collections. This 
rule, which enhances share insurance coverage for IOLTAs and other 
similar escrow accounts, will not create new paperwork burdens or 
modify any existing paperwork burdens.
---------------------------------------------------------------------------

    \29\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. This rule will not have a substantial direct 
effect on the states, on the connection between the national government 
and the states, or on the distribution of power and responsibilities 
among the various levels of government. NCUA has determined this rule 
does not constitute a policy that has federalism implications for 
purposes of the executive order.

Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this rule will not affect family well-
being within the meaning of Section 654 of the Treasury and General 
Government Appropriations Act, 1999.\30\
---------------------------------------------------------------------------

    \30\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 745

    Credit, Credit unions, Share insurance.

    By the National Credit Union Administration Board on December 
17, 2015.
Gerard Poliquin,
Secretary of the Board.

    For the reasons stated above, NCUA amends 12 CFR part 745 as 
follows:

PART 745--SHARE INSURANCE AND APPENDIX

0
1. The authority for part 745 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789; title V, Pub. L. 109-351; 120 Stat. 1966.

0
2. Add Sec.  745.14 to subpart A to read as follows:


Sec.  745.14  Interest on lawyers trust accounts and other similar 
escrow accounts.

    (a)(1) Pass-through share insurance. The deposits or shares of any 
interest on lawyers trust account (IOLTA) or other similar escrow 
account in an insured credit union are insured on a ``pass-through'' 
basis, in the amount of up to the SMSIA for each client and principal 
on whose behalf funds are held in such accounts by either the attorney 
administering the IOLTA or the escrow agent administering a similar 
escrow account, in accordance with the other share insurance provisions 
of this part.
    (2) Pass-through coverage will only be available if the 
recordkeeping requirements of Sec.  745.2(c)(1) of this part and the 
relationship disclosure requirements of Sec.  745.2(c)(2) of this part 
are satisfied. In the event those requirements are satisfied, funds 
attributable to each client and principal will be insured on a pass-
through basis in whatever right and capacity the client or principal 
owns the funds. For example, an IOLTA or other similar escrow account 
must be titled as such and the underlying account records of the 
insured credit union must sufficiently indicate the existence of the 
relationship on which a claim for insurance is founded. The details of 
the relationship between the attorney or escrow agent and their clients 
and principals must be ascertainable from the records of the insured 
credit union or from records maintained, in good faith and in the 
regular course of business, by the attorney or the escrow agent 
administering the account. NCUA will determine, in its sole discretion, 
the sufficiency of these records for an IOLTA or other similar escrow 
account.
    (b) Membership requirements and treatment of IOLTAs. For share 
insurance purposes, IOLTAs are treated as escrow accounts. IOLTAs and 
other similar escrow accounts are considered member accounts and 
eligible for pass-through share insurance if the attorney administering 
the IOLTA or the escrow agent administering the escrow account is a 
member of the insured credit union in which the funds are held. In this 
circumstance, the membership status of the clients or the principals is 
irrelevant.
    (c) Definitions. (1) For purposes of this section:
    (i) Interest on lawyers trust account and IOLTA mean a system in 
which lawyers place certain client funds in interest-bearing or 
dividend-bearing accounts, with the interest or dividends then used to 
fund programs such as legal service organizations who provide services 
to clients in need.
    (ii) Other similar escrow account means an account where a licensed 
professional or other individual serving in a fiduciary capacity holds 
funds for the benefit of a client or principal as part of a transaction 
or business relationship. Examples of such accounts include, but are 
not limited to, real estate escrow accounts and prepaid funeral 
accounts.
    (iii) Pass-through share insurance means, with respect to IOLTAs 
and other similar escrow accounts, insurance coverage based on the 
interest

[[Page 80643]]

of each person on whose behalf funds are held in such accounts by the 
attorney administering the IOLTA or the escrow agent administering a 
similar escrow account.
    (2) The terms ``interest on lawyers trust account'', ``IOLTA'', and 
``pass-through share insurance'' are given the same meaning in this 
section as in 12 U.S.C. 1787(k)(5).

[FR Doc. 2015-32164 Filed 12-24-15; 8:45 am]
 BILLING CODE 7535-01-P