ALEXANDRIA, Va.-The somewhat lengthy and substantial July NCUA Board meeting covered quite a few big issues for credit unions including the budget and a money saving, flexible examination schedule, but undoubtedly the most noteworthy topic was the new incidental powers regulation. Not only did the final rule have credit unions and their trade associations jumping for joy, it has the bankers piping hot. While the new reg does not offer credit unions much broader authorities than they already possess, it does clarify many of them and permits credit unions to apply for and add on new ones as necessary. The incidental powers regulation does allow credit unions to derive unlimited compensation from their activities, which they were limited to cost reimbursement. In anticipation of attacks from the bankers’ side, NCUA was very deliberative in the wording of their regulation, particularly the preamble, which spells out exactly how they arrived at their decisions. NCUA basically relied on the “convenient and useful” test developed under Nationsbank of North Carolina v. Variable Annuity Life Insurance Co. (VALIC), 513 U.S. 251 (1995). However, American Bankers Association (ABA) Senior Economist Keith Leggett told Credit Union Times that he feels NCUA’s entire premise is faulty because banks and credit unions were not intended to have the same incidental powers. “From our standpoint at ABA, we disagree with NCUA’s interpretation,” he explained. But, the bankers’ problems are not with what is in the regulation as much as what will be considered an incidental power in the future, primarily regarding investment services. Leggett stressed that credit unions have a lot of these services performed through Credit Union Service Organizations (CUSOs) now because of a need to “maintain corporate separateness.” He expressed concern over the increased risk to the National Credit Union Share Insurance Fund (NCUSIF), which, in the case of failure, he feels consumers would not distinguish between credit unions and banks. Leggett added that the other concern ABA had was from the competitive standpoint. “You have a tax-exempt credit union offering the same services as a bank,” he pointed out. Taxation has always been the main sticking point between credit unions and banks. He also noted that ABA had no problem with credit unions obtaining income from these activities, and asked, otherwise, why would they do it? Although the new rule certainly adds incentive, credit unions have been offering the services through their incidental powers for a long time without compensation. Three banking trade associations wrote comment letters to NCUA opposing the final rule. NCUA’s criteria for determining what counts as an incidental power is also similar to the Office of the Comptroller of the Currency’s three-pronged test. The agency first determines whether the activity is useful and convenient to the business of credit unions. Then, NCUA must decide whether the activity is the functional equivalent or logical outgrowth of credit union business. The final prong is whether the risk involved is similar to those already assumed as the business of a credit union. The activity must meet all three criteria. To make the rule more flexible for future activities, broad categories with illustrative, but not exhaustive examples are provided. Federal and federally-insured credit unions also have the option of seeking a legal opinion from NCUA’s Office of General Counsel to determine the appropriateness of an activity. Categories for the incidental powers include: * Certification Services. These include notary services, electronic signature authentication, signature guarantees, and certification of share drafts. * Correspondent Services. Correspondent services may include receiving share and loan payments, disbursing share withdrawals and loan proceeds, cashing share drafts, casing and selling money orders, processing loans, and performing other back office operations or member services for another credit union. However, a federal credit union cannot manage another credit union. * Electronic Financial Services. Federal credit unions may offer through electronic means and facilities any activity, function, product or service they are otherwise permitted to offer. Federal credit unions may also provide Internet access and account aggregation to its members. This provision also covers automated teller machines. * Excess Capacity. Leasing excess office space, sharing employees, or using data processing systems to process information for third parties are included in this part. However, NCUA placed two conditions on the provision: (1) the federal credit union established the service or made the investment with the good faith intent of serving its members; and (2) the federal credit union reasonably anticipates that the excess capacity will be taken up by the future expansion of services to its members. * Financial Counseling Services. Financial Counseling includes estate planning, income tax preparation and filing, investment and retirement counseling, and budget counseling. Federal credit unions cannot serve as a broker, dealer, or investment advisor. * Finder Activities. This provision allows a federal credit union to introduce outside vendors with its members for the negotiation and consummation of transactions. The institution may also provide information to members about products and services of third parties. Federal credit unions can place vendor advertisements in account statements, newsletters, or as a link to the vendor’s Web site on the federal credit union’s home page. * Loan-related Products. Debt cancellation, debt suspension, and waiver products are all covered under this section. NCUA touts these as useful tools for the credit union to better manage risk of nonpayment due to financial hardship. This includes leases and letters of credit. * Marketing. Federal credit unions are permitted to market and advertise in any legal manner, including marketing for membership as well as products and services to members. * Monetary Instruments. Travelers checks, money orders, and other similar instruments, as well as maintaining deposits in foreign financial institutions to facilitate member transactions, are covered under this category. * Operational Programs. Operational programs are programs created by the federal credit union to establish or deliver products and services that enhance member serve and promote safety and soundness. * Stored Value Products. These products represent a member’s prepayment for a merchant’s goods or services, similar to bill payment. *Trustee or Custodial Services. The portion includes maintaining individual retirement accounts (IRAs), education saving accounts, and other savings opportunities for modest savers. The NCUA Board is also considering adding medical savings accounts. [email protected]

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