The NCUA should pay interest to credit unions that make prepayments of their corporate credit union rescue assessments that is "slightly less'' than what the agency is paying in interest to the Treasury Department, CUNA President/CEO Bill Cheney suggested in a letter he sent Monday to NCUA Board members.
Cheney wrote that he was making the suggestion because NCUA officials had expressed concern that if they paid interest on the prepayments it would violate rules established by the Federal Credit Union Act and the Internal Revenue Code as to what constitutes a gift.
He wrote that the approach he outlined would "be permissible, consistent with the FCU Act and the IRS's definition.''
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Cheney also recommended that the agency pay interest by giving participating credit unions an additional credit for future payments.
He added that the approach that he is suggesting "would contribute significantly to reducing the free-rider problem created by the perceived opportunity cost of the program, particularly in the out years when interest rates may not be at the abnormally low levels they are today."
On Wednesday, the NCUA Board is holding a special meeting to discuss whether to implement its proposed plan to allow credit unions to prepay part of the assessment to finance the rescue of the corporate credit union system.
Under the proposal, which the agency unveiled last month, credit unions could prepay between $10,000 and 36 basis points of insured shared toward their assessments to pay the costs of the rescue of corporate credit unions.
Credit unions wouldn't earn any interest and the total collected in prepayments would have to be at least $300 million for the program to take effect.
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