ALEXANDRIA, Va. — While new powers for federal credit unions were reaffirmed at NCUA's February Board meeting, federal credit unions were also reminded of their restrictions. During the Feb. 15 meeting, the NCUA Board unanimously approved a final rule–following up on an October interim final rule–permitting federal credit unions to provide wire transfer, check cashing, and certain other services to nonmembers within their fields of membership and extending the general loan maturity rate from 12 to 15 years. The expansion of powers was made possible by the Financial Services Regulatory Relief Act signed into law Oct. 13. NCUA's interim final rule became effective Oct. 20 and had a 60-day comment period.
The final rule is nearly identical to the interim rule, which permits federal credit unions to cash or sell checks, money orders and other similar money transfer instruments. Some commenters suggested NCUA clarify whether credit unions could charge a fee for these services, but the agency determined that the use of the word "sell" in the law and the rule implies a fee is permitted though not required. Additionally, some asked for a definition of electronic funds transfers, but NCUA pointed out that is included in the EFT Act. Finally, the agency warned credit unions that they still must comply with Bank Secrecy Act, Anti-Money Laundering, and other rules.
NCUA Vice Chairman Rodney Hood expressed his excitement about the new credit union powers to serve the underserved. He stirred chuckles by asking, "Is it possible to say one is enthusiastic about a final rule?"
In another unanimous move, the agency denied the appeal of Delaware Federal Credit Union for a statewide community field of membership. NCUA has a specific policy of not approving entire states for community charters, but even without that, Special Counsel Hattie Ulan said the credit union did not meet the interaction or common interest requirements, largely due to the cultural differences of the urban northern region and rural southern area divided by the Delaware Canal. She noted that the credit union has nearly 100 select employee groups and could continue the multi-SEG route or adopt more underserved areas or a smaller community. The same credit union was denied the same charter in 2000.
The NCUA Board also approved 3-0 a report to be delivered to Congress on various aspects of deposit insurance required by the Deposit Insurance Reform Conforming Amendments Act. Congress asked NCUA and the FDIC to look into: 1) the feasibility of a voluntary excess deposit insurance fund; 2) the feasibility of increasing coverage for municipal accounts; and 3) the feasibility of privatizing all deposit insurance.
According to NCUA, "Excess deposit insurance has been available from private insurers for some time, but the demand for this product among federally insured institutions has been low." There would also be pricing and cost distribution concerns with which to contend.
The agency took no position on increasing municipal deposit insurance coverage, seeing both pros and cons to the idea.
The agency also stated, "The federal government should be the provider of primary deposit insurance in the United States. The lessons learned from failures of private deposit insurance schemes should not be forgotten."
NCUA made two recommendations for comparability with the FDIC. First, NCUA said it should have comparable standards with the FDIC for charging insurance premiums if the NCUSIF equity ratio falls below 1.35% to bring the fund back up to that level. "Obviously the agency is trying to make it consistent with the FDIC and that's not a bad thing but there are differences between the two funds," NAFCU Chief Economist Tun Wai noted. He added that NCUA could really already do this by not declaring a dividend.
Additionally, NCUA pushed for its risk-based prompt corrective action plan as a tool to better insulate the NCUSIF. NCUA Board Member Gigi Hyland commented that it makes sense and "gives a well thought out rationale."
Finally, the board received the quarterly insurance fund report that showed its gross income higher than budgeted at $266.2 million versus 2005′s $175.7 million and insurance loss expenses under $3 million. Operating expenses and insurance losses came in below budget, leaving net income at $181.6 million, well over the budgeted $136.8 million. The net income for 2006 was more than double that of 2005.
NCUA Chairman JoAnn Johnson highlights that credit unions are healthy, the insurance fund is making wise investments, and shows good stewardship of the fund.
The equity ratio ended the year at 1.31%, above the normal operating fund, so the chairman also asked Chief Financial Officer Dennis Winans for an estimate of any dividend credit unions would receive. He said it should come out at nearly 2% for all federally insured credit unions, which will be announced at the March NCUA Board meeting. –scooke@cutimes.com
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