The NCUA board Thursday unanimously approved a final rule thatprovides enhanced pass-through share insurance coverage for real estateagents' escrow accounts, prepaid funeral accounts and other escrowaccounts similar to lawyers' trust accounts. Currently, the NCUA'sinsurance coverage was limited only to clients who were alsomembers of the insured credit union where an attorney established alawyers' trust account.

However, CUNA criticized the rule because it didn't also extendcoverage to prepaid cards.

“We have little doubt that the law gives (the) NCUA theauthority to extend insurance coverage to prepaid accounts, and weare very disappointed that (the) NCUA has not exercised thatauthority at this time,” CUNA President/CEO Jim Nussle said in arelease. “While we appreciate recent actions on business lendingand field of membership aimed at removing from regulationrequirements that are not in law, this final rule is an example ofthe agency unnecessarily impeding access to credit unions by makingit more difficult for them to offer products and services to theirmembers.”

NAFCU President/CEO Dan Berger said in a release, “NAFCU and ourmembers appreciate the agency's efforts to incorporate the CreditUnion Share Insurance Fund Parity Act into its rules andregulations. However, we believe the agency could have donemore in adopting a more flexible definition of other similar escrowaccounts.”

NCUA Chairman Debbie Matz said using NCUSIF funds to paynon-members holding prepaid cards from a failed credit union wasnot permissible and not good policy.

“As we consider this final rule, it's important to keep in mindthat the pass-through insurance in this final rule would only takeeffect in the rare case when a credit union fails – and only ifnon-members of the failed credit union had placed funds into acovered escrow account that was maintained by a member,” she said.“That's because under the [InsuranceParity Act], the additional pass-through insurance only coversnon-members. Members are already covered under (the) NCUA'sexisting share insurance rules.”

Extending pass-through coverage to prepaid cards, Matz said,would burden credit unions because they would have to track cardbalances for members and non-members. Additionally, credit unionswould have to pay the required 1% deposit into the share insurancefund to cover those balances.

“The balances of non-members' prepaid cardstied to accounts at federally insured credit unions may be verysmall – perhaps less than a hundred dollars per card,” Matzcontinued. “However, tracking those non-members' balances couldprove to be difficult and costly for many credit unions. And itwould bring little benefit in the event a credit union fails.”

The rule will take effect 30 days after it is published in theFederal Register. Matz said the NCUA would distribute guidance onthe rule to credit unions before it goes into effect.

The NCUA board also approved a notice and request for commentregarding two regulatory categories: Rules of procedure and safetyand soundness. Required by The Economic Growth and RegulatoryPaperwork Reduction Act of 1996, the NCUA must review regulationsevery 10 years to identify those that might be outdated,ineffective, unnecessary or unduly burdensome.

Specific rules included in the two categories under reviewinclude involuntary and voluntary liquidations, lending, investmentand deposit activities, examinations and appraisals. The commentperiod will be 90 days.

Matz said the EGRPRA process spurred recent regulatory reliefmeasures, including an increased small credit union asset thresholdto $100 million, the automatic field of membership approval for 12categories of associations and proposed rules to provide furtherregulator relief for field of membership and member businesslending.