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ALEXANDRIA, Va.-Federal law preempts the Puerto Rico Retail Installment Sales and Financing Companies Act (RISFCA) for federal credit unions, according to a recent legal opinion letter from NCUA. In Legal Opinion Letter 04-0727, NCUA Associate General Counsel Sheila Albin wrote that it is NCUA’s opinion that federal law preempts the Puerto Rico law “to the extent it purports to limit or affect the rates, finance charges, terms of repayment and other conditions of loans and lines of credit that FCUs offer to their members.” While NCUA has reviewed the law but not the implementing regulations, Albin said they would be unlikely to change the agency’s opinion. NCUA disagrees with Puerto Rico’s Office of the Commissioner of Financial Institutions, which has reportedly informally informed the inquiring Puerto Rican law firm, that parts of RISFCA would apply to federally chartered credit unions. “NCUA’s position regarding preemption of state law in certain areas of lending, as stated in its lending regulation, derives from the regulatory authority granted to the NCUA Board by the Federal Credit Union Act (Act),” Albin wrote. “Our view is that the NCUA’s lending regulation, which states it applies to the preemption of state law, applies as well to the preemption of the local laws of Puerto Rico. The Act expressly permits an FCU to offer loans and lines of credit to its members, 12 U.S.C. 107(5), and NCUA’s lending regulation preempts any state law that would limit or affect lending rates, finance charges, repayment terms or other lending conditions of FCU loans and lines of credit to members.” OCFI also told the firm that financial institutions operating in Puerto Rico cannot use open-end credit agreements to finance car purchases. Albin wrote that NCUA’s lending regulations preempts just such restrictions in local laws. “Specifically, NCUA’s lending regulation preempts state or local law that purports to limit or affect: the terms of repayment, including the maturity of loans and lines of credit; the amount, uniformity, and frequency of payment; and the purpose of the loan or line of credit,” she wrote. However, she noted that this scenario is unusual given the rapid loss of value on vehicles over time and federal credit unions offering this type of financing “must be alert to the inherent safety and soundness considerations.” Albin stated, “Finally, while we conclude that federal law preempts local law in this case, we would like to highlight that the Act, NCUA and other federal regulations contain significant consumer protections for all member loans.” [email protected]

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