ALEXANDRIA, Va. — NCUA said in a recent legal opinion letterthat it has no legal objection to federal credit unions offeringrewards checking accounts.

The $109 million Northern Federal Credit Union in New Yorkproposed offering a premium rate share draft product and ATMsurcharge refunds with no minimum balance, monthly fee or per draftcharges so long as the accountholder agrees to direct deposit orconducting an ACH debit transaction each month; sign on to onlinebanking at least once a month; receive their statementelectronically, and conduct 10 or more debit purchases through theaccount. Those not meeting these requirements in a given monthwould not receive the rewards for that month. According to NCUA'slegal opinion letter (07-0211) a variable rate structure ispermissible if founded “on a rational basis.” NCUA AssociateGeneral Counsel Sheila Albin wrote in the letter, “Applying thatreasoning in this case, we believe the credit union's desire topromote its various automated services and thereby achieve relatedcost savings is a sufficient rational basis to support the variablerate structure you have proposed.”

However, NCUA pointed out that credit unions cannot contract topay a particular dividend rate because, unlike a bank payinginterest, credit unions pay dividends based on earningsavailability. Members should be made aware of this, the agencyadvised. Additionally, NCUA said the credit union should ensurethat it makes all of the appropriate Truth in Savings Actdisclosures.

Credit Union Times (See March 21, 2007 issue, page 4) recentlyreported that $163 million, state-chartered Clearstar FinancialCredit Union in Reno, Nev. is offering a similar deal at 6.10%.