Citing safety and soundness concerns, the NCUA is rejectingpleas by NAFCU and some credit unions to reverse its recentdecision and allow well- capitalized credit unions to be exemptfrom restrictions on how much they can spend on fixed assets.

“Our evidence shows that investing in higher levels ofnonearning assets can materially affect a credit union's earningsability and, therefore, its viability. Call Report data show ahigher percentage of earnings problems among credit unions withmore than 5% of shares and retained earnings invested in fixedassets,” NCUA Chairman Debbie Matz wrote in a letter to NAFCUPresident/CEO Fred Becker.

She added that the agency's regional directors are authorized toprovide a specific operating range for new acquisitions.

NAFCU Vice President and General Counsel Carrie Hunt said theagency hasn't spelled out some of the criteria that the directorswill use.

“It all comes down to implementation. And we feel, as do some ofour members, that there is considerable confusion about theagency's definitions and procedures in this area,” she said.

Hunt noted that they have heard from six credit unions thatcomplained they had received inadequate explanations from examinerswhen they asked about how the agency would implement the rule. Mostof the credit unions wanted to buy new computers or ATMs, shesaid.

As a result of the change, credit unions over the 5% level canstay where they are. But if their fixed assets drop, they mustremain at the new level. They can request a waiver to be allowed tobuy more fixed assets.

NCUA Assistant Public Affairs Director David Small said theagency's regional directors will deal with waiver requests fairly,while making sure that credit unions don't take unnecessaryrisks.

“NCUA can work with a credit union to determine if a waiver canbe structured so credit unions would not have to submit a waiverfor each additional fixed asset investment. The purpose of a waiveris to ensure the additional investment in fixed assets is safe andsound for the individual credit union,” Small said in an email.

Last October, the NCUA board voted two to one to end theexemption of federal credit unions eligible for regulatoryflexibility from the rule banning FCUs from investing more than 5%of their shared and retained earnings in fixed assets.

At that time, Matz said the changes were necessary because theagency needed “to be proactive to maintain safety and soundness.”She added that when the agency originally created the regulatoryflexibility program, “we were a little too flexible,” and theagency is making the changes so it doesn't wait until credit unionsare adversely affected by losses.

Both CUNA and NAFCUlobbied hard against the changes. Since then, NAFCU has beenespecially persistent in trying to persuade the agency to changeits mind or at least be clearer in explaining what guidance it isgiving regional directors and other staff members in implementingthe change.

CUNA Senior Vice President and Deputy General Counsel MaryMitchell Dunn said they are concerned about the decision to takeaway some of the waivers for credit unions eligible forRegFlex.

“They provided valuable incentives for well-run credit unions,and we think that's a net positive for them,” Dunn said.

In October, the NCUA board also voted to eliminate the exemptionfrom the rule requiring an FCU to obtain the liability andguarantee of a borrower's principals when making a member businessloan; eliminate the exemption from the rule requiring stress teststo determine the impact of a 3% increase or decrease in interestrates; and eliminate exemption from the existing rule that limitsthe delegation of discretionary control to third parties over thepurchase and sale of investments of up to 100% of net capital.

There are 3,142 FCUs eligible for the program with investmentstotaling $125 billion.