FCU Dividends Can Vary on Regional Basis, NCUA States

ALEXANDRIA, Va.-Federal credit unions may pay different dividend rates on shares based on location of the branch, provided a rational reason exists, NCUA Associate General Counsel Sheila Albin wrote in a recent legal opinion letter. "You state USA Federal Credit Union operates branches in Japan, Korea, Guam, and the United States, and economic conditions vary from country to country. As a result, you wish to pay varying dividend rates for the same type of share accounts depending on the economic conditions and degree of competition in a particular location," Albin told USA Federal Credit Union CEO Mary Cunningham in legal opinion letter 04-1144. "Our view is the Federal Credit Union Act (Act) permits, and NCUA's regulations do not prohibit, regional dividend rates." Though the Federal Credit Union Act appears to contradict itself on this issue in separate sections, she wrote, "Nevertheless, the legislative history as a whole of the authority to offer different types of share accounts evidences a congressional intent to expand authority in this context," Albin said. "We believe the best interpretation, reading the two provisions together, is that an FCU's board of directors has the flexibility to pay varying dividend rates on shares based on the location where shares are maintained." She continued, "We base our interpretation on a board of directors having a rational basis for distinguishing between the same types of account in determining dividend rates. The circumstances of your credit union, with branches in foreign countries, present a rational basis." However, Albin cautioned that varying dividends on a regional basis could impact required disclosures under NCUA's truth in savings regulation for which the credit union should contact local legal counsel, as well as applicable consumer laws.