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There comes a point in every major controversy when it is time to finally make a tough decision to resolve it. The Overhead Transfer Rate (OTR) is an annual process that has been controversial ever since it became a method for dipping into the NCUSIF. However, since the OTR was increased last year from 50% to 67.2% the outcry has taken on a new intensity. Based on lesser but continual increases over past years, it appears that dozens of task forces, committee meetings, and studies have obviously meant nothing. Nevertheless, everyone and their brother is now conducting some kind of “independent” study. In its simplest definition, the OTR is the means by which the NCUA obtains (transfers) additional operational funding from the insurance fund. NCUA continually justifies it on the basis that an ever larger percentage of its operating costs are incurred because of work it does related to the insurance fund. The amount of expenses that are earmarked “insurance related” is at NCUA’s discretion. State charters feel OTR has become a blatant state charter subsidy of NCUA as well as for FCUs. They claim that among other things, it adversely affects their dividend, and that it represents a lack of NCUA accountability. They also point to a bloated NCUA budget that they say no longer has any relationship to what NCUA does and the dwindling number of FCUs that it regulates. Setting the current rate at 67.2% was the straw that broke the camel’s (not to be confused with CAMEL) back. Worse, according to NCUA insiders, former NCUA Chairman Norm D’Amours was actually disappointed in the 67.2% rate. He wanted it to be 100%. Lame duck board member Yolanda Wheat also reportedly wanted a number higher than 67.2%. Dennis Dollar, at that time a board member and now chairman, explained that he made the vote unanimous as a trade-off to get an independent study of the OTR. That study, by a national accounting firm, has now been done. It concluded that the OTR procedures in place are just fine. There is no problem. It reached no conclusions on the percentages or actual dollars transferred. This report reminds me of the old accounting joke: “How do our statements look?” Reply: “How do you want them to look?” Meanwhile, several other studies are reaching decidedly different conclusions. They challenge the OTR basics, the fairness issue, and even question whether NCUA has the authority to do what they are doing. The credit union troops are growing increasingly incensed by all of this. Just look at the up-to-the-minute news coverage in Credit Union Times to say nothing about the letters to the editor, and opinion pieces demanding a change. A growing number of CU folks are becoming increasingly upset. Isn’t it time to put this controversy to rest and make the only decision that makes any sense? Isn’t it time to completely split the NCUSIF away from NCUA? There are many reasons why this needs to be done, but fairness, equity, honesty, efficiency, and purpose are at the top of the long list of reasons which have been well-articulated for years. Naturally there are a couple of reasons not to do a split that are regularly trotted out by opponents. For example, they argue that such a move wouldn’t end the current battle between federal and state chartered credit unions (when the OTR rate goes up, the FCU operating fee goes down), but rather cause a new set of problems for credit unions. These new problems, they say, wouldn’t outweigh the increasing discontent between NCUA and federally insured state chartered credit unions, state regulators, and the various credit union trade groups that represent them. More specifically, they cite as the biggest objection to splitting apart NCUA and NCUSIF that such a move may put credit unions at risk of having their insurance fund swept into the FDIC. First of all, it already is at risk. How difficult would it be for politicians to decide at any time that all depository insurance funds should be under one umbrella? Not making an admittedly difficult decision because something might happen may be politically smart, but it is totally lacking in common sense. Think about it. After a split, a slimmed down NCUA would strictly regulate federally chartered credit unions as it did before there was an NCUSIF. FCUs would pay a fee, presumably much lower, to NCUA covering this regulatory oversight. That fee would only cover NCUA operating expenses, which should also go down substantially without the insurance related overhead. With NCUA and NCUSIF separated, state charters would continue be regulated by various state regulatory agencies and continue to pay a fee to their individual state regulators to cover those regulatory expenses. Now we come to insurance coverage. All federal credit unions would be a part of an expanded NCUSIF. It would have a completely separate board, staff, and mission. For efficiency purposes, it probably would coordinate its efforts with all those of state and federal regulators. Federal charters would pay a set and realistic fee to NCUSIF for insurance coverage. State charters could decide to obtain insurance coverage from NCUSIF, or in some states, obtain private coverage. Those state chartered credit unions that choose NCUSIF would also pay a set and realistic fee for this coverage. Their fee schedule would be identical to the fee schedule of federally chartered credit unions. Any monies not needed to maintain required fund minimums and monies earned on NCUSIF investments, would be returned to all state charters and federal charters under coverage according to the exact same formula. In other words, after a split, federal charters would have their regulator and state charters would have their regulators. Both would be on equal footing in regard to their relationship with NCUSIF. Can it be that simple? What am I missing? Doesn’t biting the bullet make the most sense of all? Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman

Credit Union Times

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