<p>ALEXANDRIA, Va.-The NCUA Board voted last week to issue for comment minor substantive and technical corrections to the Prompt Corrective Action (PCA) rule after approximately 18 months of dealing with the statutorily imposed regulation. The board also considered four community charter conversions and approved a final rule on Allowance for Loan/Lease Losses (ALLL) Methodology. The proposed changes made to the PCA rule were considered positive for credit unions by both CUNA and NAFCU representatives. "NCUA is trying to think out of the box," CUNA Associate General Counsel Mary Dunn said. CUNA's Examination and Supervision Subcommittee, chaired by South Carolina Credit Union League President John Franklin, wrote a letter to each NCUA Board member the day before the May 16 meeting suggesting changes to the agency's prompt corrective action (PCA) regulations, some of which the board adopted. In inviting public comment on the issue, NCUA wrote in the Board Action Memorandum, "In addressing the proposed revisions, we urge commenters to recognize that, while given substantial discretion in certain areas of PCA, NCUA lacks the authority to override or expand by regulation the requirements, limitations, and definition that CUMAA expressly prescribed.For example, NCUA lacks the statutory authority to expand CUMAA's express, limited definition of `net worth' for PCA purposes. This rulemaking will not address comments advocating modifications to part 702 that exceed the scope of NCUA's statutory authority." This could mean secondary, or `alternative,' forms of capital will not be considered in this rulemaking, said some observers. Some of the amendments the NCUA Board included in the proposed PCA regulation would allow credit unions to apply for a risk mitigation credit before they actually fail to meet their risk based net worth requirements, permitting credit unions with net worth ratios of less than 7% to set aside an average of 0.1% per quarter rather than 0.1% each quarter; provide credit unions a 14-day window to request a decrease in earnings retention from NCUA; add an alternative component for loans sold with recourse; and provide for a "safe harbor" approval of a net worth restoration plan if a credit union falls only slightly below 6% capital (as required to be adequately capitalized), as well as several technical clarifications and definitions, like effective date of net worth classification and dividend. The comment period is for 60 days following publication in the Federal Register. When the PCA rule was originally passed, NCUA put together a PCA Oversight Task Force, a working group made up of NCUA staff and state regulators to review at least one year of the regulation's implementation and make modifications based on that evaluation. Also at the board meeting, four community charters were granted. The board first tackled a request from GHS Federal Credit Union of New York with nearly $65 million in assets. NCUA Board Member Deborah Matz voted against the GHS conversion because, after requesting more information from the credit union, she said, "I still do not believe it's anything that approaches an adequate marketing plan." The conversion was approved 2-1. The credit union, chartered in 1940, currently has 21,000 members and was applying to serve an area with almost 304,000 residents of Broome, Tioga, and Chenango County, New York. GHS, which serves mainly a rural community, features an interactive Web site and has sufficient resources to serve the expanded field of membership, according to the Board Action Memorandum. Sunmark Federal Credit Union ($236 million in assets) was also granted a community charter to serve Albany, Rensselaer, Saratoga, and Schenectady Counties in New York at the May NCUA Board meeting. The credit union, founded in 1937, demonstrated a well-defined community by the fact that the area is referred to as the state's `Capital Region,' and the residents clearly interact and share common interests. Additionally, NCUA Chairman Dennis Dollar pointed out that 95% of residents in the Capital Region also work there. The four-county area has a population of almost 800,000. Dollar also emphasized that the marketing budget would increase by more than $100,000. The NCUA Board also unanimously approved a community charter conversion for Advanced Financial Services Federal Credit Union of New Providence, New Jersey. The credit union is expanding to counterbalance the economically hard hit Lucent Technologies, the employees of which represent 50% of the field of membership. Lucent reduced staff by 29,000 in 2001 and reported a loss of $4.7 billion. For the first quarter of 2002, the company reported losses totaling $495 million. As of year-end 2001, the credit union had a penetration ratio of 80.4%, with 16,079 members of a potential 20,000 persons. Finally, the board also approved the conversion of CSRA Federal Credit Union in Georgia from an occupational to a community-based field of membership. The credit union currently has $41 million in assets and a penetration ratio of 40%. The areas CSRA applied to serve – Columbia, Richmond, and McDuffie Counties – have an aggregate population of 310,294. The last item on the agenda was the adoption of the ALLL Methodologies and Documentation for Federally Insured Credit Unions. With this IRPS, NCUA was following suit with the other federal financial institutions regulators and the Securities Exchange Commission. Dollar said that some commenters "missed the point completely" when they complained of "undue burden." He explained that the guidelines were meant to help credit unions so they would not have to take the time and resources to figure out the ALLL Methodology and Documentation requirements on their own. All board decisions were unanimous unless otherwise noted. [email protected]</p>