WASHINGTON-The U.S. General Accounting Office found during arecent study that some privately insured credit unions are not"adequately" disclosing their private insurance status, a discoverythat could heat up the private insurance debate all over again."Some privately insured credit unions GAO visited did notadequately disclose that these institutions were not federallyinsured; as a result, depositors at these institutions may not befully informed that their deposits are not federally insured," theGAO report read. In surprise visits by GAO to 57 privately insuredcredit unions in Alabama, California, Illinois, Indiana, and Ohio,37% (21) did not have required notices posted. Maryland, Nevada,and Idaho also have privately insured credit unions. WashingtonState, Montana, New Mexico, Oklahoma, Louisiana, Pennsylvania, NewJersey, New Hampshire, and Colorado permit private insurance, butare not home to any privately-insured credit unions. One of NAFCU'sarguments against allowing credit unions to carry private insurancewas public ignorance of the difference between federal and privateinsurance and the implications that failure of the private insurercould have for federal insurance. American Share Insurance, thesole remaining private deposit insurer for credit unions, said thatit did everything it could to educate its member credit unionsabout the disclosure requirements under the Federal DepositInsurance Corporation Improvement Act of 1991. Debate over statechartered credit unions' option for private insurance flared uplast year when multi-billion dollar Patelco Credit Union convertedto private insurance, by far the largest insurance conversion ever.In fact, Patelco was one of the credit unions interviewed for GAO'sstudy, according to Patelco Senior Vice President Anita Macias."It's really about disclosure and the impact on consumers. We're incomplete compliance and that's why we thought [enforcement ofSection 43] was fine," Macias said. She added that Patelco prints afull disclosure on everything from newsletters to receipts towindow and door stickers to its Web site. Faith Community UnitedCredit Union is another privately insured credit union that wouldbe affected by the enforcement of the law. When asked if the $8million community development credit union is in compliance, CEORita L. Haynes said, "Yes it is as far as we're aware. ASI sends usthe information and we send it out to our members." She added thatshe concurred with the GAO report that Section 43 should beenforced and the Federal Trade Commission is the agency to do it.The law requires that privately insured credit unions to tell themember on nearly every piece of paper they ever print that theinstitution is privately insured and no government will repay anyfunds lost (See sidebar for specifics on FDICIA disclosurerequirements). However, where Section 43 of FDICIA gets tricky isthat the FTC is charged with enforcing these disclosures, yetCongress has negated its own decree by refusing to fund itsenforcement since it was signed into law. The FTC lobbied hard notto have to enforce Section 43. Twelve years ago, the agency claimedthey lacked the manpower, expertise, and authority to ensure creditunions made these disclosures. The FTC made the same arguments toGAO during its recent study. "The GAO Report concludes that ifCongress made some technical changes to Section 4 of the FederalDeposit Insurance Act.and lifted the appropriations ban, there isno reason why the FTC could not enforce it," FTC wrote in a letterto GAO upon the conclusion of the study. "We respectfully disagreewith the GAO Report's conclusions and recommendations." The FTCdeclined to comment beyond the letter. The agency also noted ininterviews with GAO that it does not have jurisdiction overnonprofits or expertise in depository institutions. However, GAOsuggested that "a less extreme interpretation" of the disclosuresthan the one the FTC presented would be more appropriate. GAOconcluded that with some minor tweaking and clarification to thelaw, FTC's legitimate concerns should be addressed. "Althoughinstitutions lacking federal insurance are chartered and regulatedby the states, protecting consumers from confusion about theinsurance of their deposits is consistent with the FTC's consumerprotection mission. Congress also determined that the federalagency specifically charged with protecting consumers againstmisleading or deceptive information practices-FTC-should ensurethat the federal interest in proper disclosure is maintained."Though no federal regulator seemed ideal, FTC caused the leastconflict. GAO also looked at NCUA and FDIC as potential candidatesto enforce the law. NCUA and FDIC both argued that they had nointerest in non-federally insured institutions. Additionally theagencies said it could create confusion by "closely associating"private and federal insurance. Finally, NCUA pointed out thatregulating its competition for insuring credit unions would createa clear conflict of interest. GAO recommended implementing Section43 with FTC at the helm. The federal auditors suggested thatCongress give FTC the authority to consult with FDIC and NCUA onthe disclosure requirements; to coordinate with state regulators ofnon-federally insured credit unions to assist in enforcement of thedisclosures; and to impose sanctions for violations of thedisclosure requirements, among other things. Mixed Reactions Whilethe FTC may not have been happy about the findings of GAO's study,NCUA said it just confirms what the agency has been saying allalong. "I am extremely pleased with the results of the GAO study onenforcement of the consumer protection provisions of FDICIA. Asalways, the GAO did an extremely thorough study and analysis, andtheir recommendations are consistent with NCUA's long statedposition that the consumer protection provisions of FDICIA shouldcertainly be enforced, but any attempt to impose that enforcementrole on NCUA would be a potential conflict for the agency andinconsistent with our role in a dual chartering system as thesafety and soundness regulator of federal credit unions and asinsurer of all federally-insured credit unions," the statementread. Chairman Dollar added that he hoped Congress would makesufficient appropriations for the FTC to carry out the job. He alsostated on a somewhat related issue that Congress should giveFTC-not NCUA-authority over privately insured credit unions lookingto join the Federal Home Loan Bank System as proposed in H.R. 1375,the Financial Services Regulatory Relief bill. The GAO acknowledgedthat NCUA and state regulators have created requirements similar tothose in Section 43, which offer "some assurances" that parts ofsection 43 of FDICIA are being complied with, but they are not thesame. On the other hand, ASI is scrambling to reinforce itseducation efforts. Upon hearing that the GAO was initiating itsstudy, the company took the initiative to create new disclosurematerials for its member credit unions. They were to be mailed outlast week, according to ASI President and CEO Dennis Adams. Thesematerials, which include a summary of the relevant portion ofFDICIA, a Q&A, window and door stickers, counter stands, andother items, are available free of charge to ASI member creditunions. GAO's study found that some previous window stickers fromASI were not in compliance. "I'm not surprised that there isn'ttotal compliance. It's been 12 years since the law was passed,"Adams said. That was the last time ASI made a mass effort toeducate its member credit unions, he explained. Adams added thatevery credit union that has joined since that time has beenprovided with free disclosure materials. "I was disappointed to seethe high level of noncompliance," he admitted, "but I think it canbe easily resolved.Somebody needs to educate." Adams said hebelieves that every privately insured credit union that intends tocomply with the law should be able to within a year. In January,ASI made the formal decision to include the disclosures in its examreport. If a problem is noted, Adams said he expects the creditunion to take corrective measures. However, ASI has no realenforcement mechanism as a regulator would. He said that ASI couldadd a compliance requirement to credit unions' risk eligibility,but he has not decided yet whether to take the issue to ASI's boardof directors. ASI was found to be in full compliance with itsduties regarding its audits CUNA, NAFCU, and NASCUS were allinterviewed for the study and came out in support of FTCenforcement of the Section 43 requirements. Only NAFCU was opposedto private deposit insurance altogether, but supported itsenforcement while they are in existence. "We believe this is animportant consumer issue and now hope that Congress will instructFTC to begin enforcing a law that has gone unenforced since 1991,"NAFCU President and CEO Fred Becker said. NASCUS Acting Presidentand CEO Mary Martha Fortney said the group was pleased that GAOrecommended that state regulators play a partnership role inenforcement. "It's appropriate. Why? Because they're theinstitutions chartered in the state," she [email protected]