ALEXANDRIA, Va.-Federal law preempts the Puerto Rico RetailInstallment Sales and Financing Companies Act (RISFCA) for federalcredit unions, according to a recent legal opinion letter fromNCUA. In Legal Opinion Letter 04-0727, NCUA Associate GeneralCounsel Sheila Albin wrote that it is NCUA's opinion that federallaw preempts the Puerto Rico law “to the extent it purports tolimit or affect the rates, finance charges, terms of repayment andother conditions of loans and lines of credit that FCUs offer totheir members.” While NCUA has reviewed the law but not theimplementing regulations, Albin said they would be unlikely tochange the agency's opinion. NCUA disagrees with Puerto Rico'sOffice of the Commissioner of Financial Institutions, which hasreportedly informally informed the inquiring Puerto Rican law firm,that parts of RISFCA would apply to federally chartered creditunions. “NCUA's position regarding preemption of state law incertain areas of lending, as stated in its lending regulation,derives from the regulatory authority granted to the NCUA Board bythe Federal Credit Union Act (Act),” Albin wrote. “Our view is thatthe NCUA's lending regulation, which states it applies to thepreemption of state law, applies as well to the preemption of thelocal laws of Puerto Rico. The Act expressly permits an FCU tooffer loans and lines of credit to its members, 12 U.S.C. 107(5),and NCUA's lending regulation preempts any state law that wouldlimit or affect lending rates, finance charges, repayment terms orother lending conditions of FCU loans and lines of credit tomembers.” OCFI also told the firm that financial institutionsoperating in Puerto Rico cannot use open-end credit agreements tofinance car purchases. Albin wrote that NCUA's lending regulationspreempts just such restrictions in local laws. “Specifically,NCUA's lending regulation preempts state or local law that purportsto limit or affect: the terms of repayment, including the maturityof loans and lines of credit; the amount, uniformity, and frequencyof payment; and the purpose of the loan or line of credit,” shewrote. However, she noted that this scenario is unusual given therapid loss of value on vehicles over time and federal credit unionsoffering this type of financing “must be alert to the inherentsafety and soundness considerations.” Albin stated, “Finally, whilewe conclude that federal law preempts local law in this case, wewould like to highlight that the Act, NCUA and other federalregulations contain significant consumer protections for all memberloans.” [email protected]