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© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE i

NCUA REQUIREMENTS AND GUIDANCE

CUNAREGTRAC

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE ii

TABLE OF CONTENTS

Legal Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

Section 1 — Overview of NCUA’s Regulations and Supervisory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1

Federal Laws, Regulations, and Other Documents that Control Credit Union Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2

The Federal Credit Union Act . . . . . . . . . . . . . . . . . . . . . . 1-2

NCUA regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-11

Interpretive rulings and policy statements . . . . . . . . . . . . 1-14

Letters to credit unions . . . . . . . . . . . . . . . . . . . . . . . . . . 1-15

Regulatory Alerts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-17

NCUA legal opinion letters . . . . . . . . . . . . . . . . . . . . . . . 1-18

Freedom of Information requests . . . . . . . . . . . . . . . . . . . . 1-19

Standard bylaws (applicable only to federal credit unions) . 1-20

Other NCUA publications of particular importance . . . . . . . 1-20

Examination Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-20

Key questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-20

Enforcement Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-26

Letters of Understanding and Agreement (LUAs) . . . . . . . . 1-26

Cease and Desist Orders . . . . . . . . . . . . . . . . . . . . . . . . . 1-27

Removal and Prohibition Orders . . . . . . . . . . . . . . . . . . . 1-28

Civil money penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-28

Conservatorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-29

Order for Special Reserves . . . . . . . . . . . . . . . . . . . . . . . 1-29

Termination of insurance . . . . . . . . . . . . . . . . . . . . . . . . 1-30

Involuntary liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . 1-30

Other laws and federal enforcement responsibilities . . . . . . 1-33

Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-33

Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-33

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE iii

Appendix 1-A — Sample reference page from the National Credit Union Administration website at www.ncua.gov . . . 1-36

Appendix 1-B — Summary of NCUA’s Rules and Regulations . . . . 1-37

Quiz/Study Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-40

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-44

Section 2 — Federal Share Insurance Rules and Coverage . . . . . 2-1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2

Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-5

Are all credit unions covered? . . . . . . . . . . . . . . . . . . . . . . . 2-5

What is the NCUSIF coverage amount? . . . . . . . . . . . . . . . . . 2-5

Is there additional insurance available for accounts over $250,000 . . . . . . . . . . . . . . . . . . . . . . . 2-5

What should you tell your members about share insurance? . 2-6

Are any federal credit unions’ shares not insured? . . . . . . . . 2-7

Are any nonmember accounts insured? . . . . . . . . . . . . . . . . 2-7

Are business and association accounts insured? . . . . . . . . . 2-8

Are government accounts insured? . . . . . . . . . . . . . . . . . . . . 2-8

Are real estate escrow accounts insured? . . . . . . . . . . . . . . . 2-9

Are mortgage servicing accounts insured? . . . . . . . . . . . . . . 2-9

Are “IOLTA” accounts insured? . . . . . . . . . . . . . . . . . . . . . 2-9

What happens to insurance coverage when a member dies? . 2-9

Criteria for Insurability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-9

What does NCUA evaluate to determine the insurability of a credit union? . . . . . . . . . . . . . . . . . . . . 2-10

Liquidity and Contingency Funding . . . . . . . . . . . . . . . . . . . . . . . . 2-12

What steps must your credit union take? . . . . . . . . . . . . . . . 2-12

Prompt Corrective Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-13

What happens when a credit union’s reserves become too low to meet NCUA’s requirements? . . . . . . . . . . . . . . . . . 2-13

How does a credit union calculate its net worth? . . . . . . . . 2-14

How does a credit union report its net worth to NCUA? . . . . 2-14

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE iv

What happens if a credit union is considered “undercapitalized”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-15

What is a net worth restoration plan? . . . . . . . . . . . . . . . . 2-15

What is a reserve account? . . . . . . . . . . . . . . . . . . . . . . . . 2-15

What is a “complex” credit union and a “risk-based net worth?” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-19

Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-19

How must a credit union advertise its share insurance coverage? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-19

Accuracy of advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-20

Excess insurance coverage . . . . . . . . . . . . . . . . . . . . . . . 2-21

Can a credit union use a trade name in its advertisements? . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-21

Effect of Conversions, Mergers, and Acquisitions on Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-22

How can a nonfederally insured credit union convert to NCUSIF insurance? . . . . . . . . . . . . . . . . . . . . . . . . . . 2-22

What happens when two federally insured credit unions merge? . . . . . . . . . . . . . . . . . . . . . . . 2-22

What happens if a federally insured credit union merges with a non-federally insured credit union? . . . . . . . . . . . . . . 2-23

What if a credit union wants to acquire accounts from a nonfederally insured financial institution? . . . . . . . . . . . . 2-23

Can a credit union terminate its NCUSIF insurance . . . . . . . 2-23

Recordkeeping Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-24

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-25

How to Calculate Insurance Coverage for Various Accounts . . . . . . . 2-25

Individual ownership accounts . . . . . . . . . . . . . . . . . . . . . 2-26

Joint accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-28

Revocable trust accounts . . . . . . . . . . . . . . . . . . . . . . . . . 2-30

Irrevocable trust accounts . . . . . . . . . . . . . . . . . . . . . . . . . 2-35

IRA, Keogh, deferred compensation, & pension accounts . . . 2-38

Business and association accounts . . . . . . . . . . . . . . . . . . 2-40

Government accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-41

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE v

Recap of Share Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-42

Appendix 2-A — Loanliner® D1105 — Account Card . . . . . . . . . . 2-45

Quiz/Study Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-48

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-50

Section 3 — Management Issues . . . . . . . . . . . . . . . . . . . . . . . 3-1

Duties of the Federal Credit Union’s Board of Directors . . . . . . . . . . 3-2

Overview of the board of director’s responsibilities . . . . . . . . 3-2

Basic board documents . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2

The fiduciary duties of the board . . . . . . . . . . . . . . . . . . . . 3-3

Federal Credit Union Bylaws and Board Governance . . . . . . . . . . . . 3-6

The importance of the FCUs bylaws . . . . . . . . . . . . . . . . . . 3-6

Membership qualifications . . . . . . . . . . . . . . . . . . . . . . . . . 3-7

Board authority and structure . . . . . . . . . . . . . . . . . . . . . . . 3-8

Monthly board meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8

Maintaining records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-9

Confidentiality requirement . . . . . . . . . . . . . . . . . . . . . . . . . 3-9

Committees of the board . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10

Annual membership meeting and elections . . . . . . . . . . . . . 3-12

Board qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-12

Removal authority of the membership . . . . . . . . . . . . . . . . 3-13

“Report of Officials” . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-14

Protection of the board from liability . . . . . . . . . . . . . . . . . 3-14

Amending the federal bylaws . . . . . . . . . . . . . . . . . . . . . . . 3-15

Questions to consider about FCU boards . . . . . . . . . . . . . . 3-15

Other Management Duties and Decisions . . . . . . . . . . . . . . . . . . . 3-19

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-19

Interest rate risk programs . . . . . . . . . . . . . . . . . . . . . . . . 3-22

Due diligence reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-25

Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-27

Incidental powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-28

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE vi

Record retention (applicable to all federally insured credit unions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-30

Vital records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-30

RegFlex Progam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-31

Serving nonmembers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-32

Employee benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . 3-32

Management interlocks (applicable to all federally insured credit unions) . . . . . . . . . . . . . . . . . . . . . . . . . . 3-33

Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-35

FCU bylaw requirement . . . . . . . . . . . . . . . . . . . . . . . . . 3-35

Section 701 .21 — Loans (applicable to all federally insured credit unions) . . . . . . . . . . . . . . . . . . . . . . . . . . 3-36

Section 701 .23—Eligible Obligations . . . . . . . . . . . . . . . . 3-37

Section 701 .36 — Fixed assets . . . . . . . . . . . . . . . . . . . . 3-37

Section 703 — Investments . . . . . . . . . . . . . . . . . . . . . . 3-38

Section 712 — Credit Union Service Organizations (CUSOs) 3-38

Section 721 — Incidental powers . . . . . . . . . . . . . . . . . . 3-38

Section 723 — Member business loans . . . . . . . . . . . . . . 3-39

Examiner Questions about Credit Union Management . . . . . . . . . . 3-39

Appendix 3–A — Comparison of October 1999 Bylaw Changes with Previous Standard FCU Bylaws . . . . . . . . . . 3-40

Appendix 3–B — Appendix A to Part 749 — NCUA’s Record Retention Guidelines . . . . . . . . . . . . . . . . 3-55

Appendix 3–C — Questions Examiners Will Have When Reviewing Credit Union Management . . . . . . . . . . 3-57

Quiz/Study Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-59

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-62

Section 4 — Field of Membership Rules . . . . . . . . . . . . . . . . . . 4-1

Overview of NCUA’s Chartering and Field of Membership Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-2

Continuing banker attacks on NCUA’s FOM policies . . . . . . . 4-2

Organization of NCUA’s FOM policy manual . . . . . . . . . . . . 4-3

Types of federal charters . . . . . . . . . . . . . . . . . . . . . . . . . . 4-4

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE vii

Membership Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-4

General requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-4

Serving nonmembers — Section 701 .32 . . . . . . . . . . . . . . 4-5

NCUA’s policy on serving “other persons eligible for credit union membership” . . . . . . . . . . . . . . . . . . . . . . 4-5

Immediate family and household members . . . . . . . . . . . . . 4-6

“Once a Member, Always a Member” . . . . . . . . . . . . . . . . . 4-9

Foreign branching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-10

Expanding a Federal Credit Union’s Field of Membership . . . . . . . 4-11

“SEP” expansions are no longer authorized . . . . . . . . . . . . 4-12

NCUA’s policy on overlaps and exclusionary clauses . . . . . 4-12

Application forms for adding groups (Forms 4015-EZ and 4015) . . . . . . . . . . . . . . . . . . . . . . 4-13

Overview of the field-of-membership expansion rules . . . . . 4-16

Expansions of a single-occupational common-bond federal credit union . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16

Occupational common bond based on trade, industry, or profession (TIP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-18

Expansions of a single-associational common-bond federal credit union . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-19

Expansions of multiple common-bond federal credit unions . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-20

“Reasonable geographic proximity” test . . . . . . . . . . . . . . . 4-21

Five criteria for determining eligibility for adding the group . . 4-22

Voluntary mergers of healthy federal credit unions . . . . . . . 4-23

Expansions of community credit unions . . . . . . . . . . . . . . 4-24

Appeals process for rejected applications . . . . . . . . . . . . . 4-26

Federal Credit Unions Serving Underserved Areas . . . . . . . . . . . . . 4-26

“Low-income status” designation for federal credit unions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-26

Authority for certain federal credit union to serve “underserved areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-27

Converting Types of Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-28

Converting types of federal charters . . . . . . . . . . . . . . . . . 4-28

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE viii

Converting from federal to state charter or from state to federal charter . . . . . . . . . . . . . . . . . . . . . . . . . . 4-29

Appendix 4-A — Application for Field of Membership Amendment NCUA Form 4015-EZ . . . . . . . . . . . 4-31

Appendix 4-B — Application for Field of Membership Amendment NCUA Form 4015 . . . . . . . . . . . . . 4-35

Quiz/Study Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-39

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-42

Section 5 — Supervisory Committee Duties and Responsibilities . 5-1

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2

Organization and operations of the supervisory committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2

Responsibilities of the supervisory committee . . . . . . . . . . . 5-4

Call report accounting responsibilities . . . . . . . . . . . . . . . . 5-5

Summary of responsibilities . . . . . . . . . . . . . . . . . . . . . . . 5-5

Audit Function of the Supervisory Committee . . . . . . . . . . . . . . . . . 5-6

Who must do the audit and the types of audits . . . . . . . . . . 5-6

Compensated auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9

Internal controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9

Review for compliance of regulations . . . . . . . . . . . . . . . . 5-10

Report to the board and membership of the audit results . . 5-11

Follow-up responsibilities . . . . . . . . . . . . . . . . . . . . . . . . 5-11

Failure to perform the required audit . . . . . . . . . . . . . . . . 5-12

Verification of Accounts Function of the Supervisory Committee . . . 5-12

Account verification procedures . . . . . . . . . . . . . . . . . . . . 5-13

Record retention requirement . . . . . . . . . . . . . . . . . . . . . 5-13

Failure to perform the required account verification . . . . . . 5-14

Oversight Responsibilities of the Supervisory Committee . . . . . . . . 5-15

The supervisory committee’s oversight authority over the board of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-15

How should the supervisory committee conduct its oversight of the board of directors? . . . . . . . . . . . . . . . . . . 5-15

Handling Members’ Complaints . . . . . . . . . . . . . . . . . . . . . . . . . 5-16

The Supervisory Committee and the Credit Union Examination . . . . 5-17

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE ix

Sample Work Plan for the Supervisory Committee . . . . . . . . . . . . . 5-17

Appendix 5-A — NCUA Supervisory Committee Guide Final Audit Checklist . . . . . . . . . . . . . . . . . . . . . 5-19

Appendix 5-B — General Supervisory Committee Review by Examiners . . . . . . . . . . . . . . . . . . . . . . . . . . 5-23

Appendix 5-C — NCUA Supervisory Committee Guide Sample Work Plan . . . . . . . . . . . . . . . . . . . . . . 5-25

Quiz/Study Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-28

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-30

Section 6 — Credit Union Service Organizations (CUSOs) . . . . . 6-1

Overview of CUSO Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-2

Loan and investment limitations . . . . . . . . . . . . . . . . . . . . 6-3

Organizational structure of CUSOs . . . . . . . . . . . . . . . . . . . 6-4

Examination of CUSOs . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5

Cautionary note on the application of many other laws . . . . . 6-7

Customer Base and Powers of a CUSO . . . . . . . . . . . . . . . . . . . . . . . 6-7

Customer base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7

Permissible CUSO services . . . . . . . . . . . . . . . . . . . . . . . . 6-8

CUSO services on credit union premises . . . . . . . . . . . . . . . 6-11

Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-12

Recognition of distinct organizations . . . . . . . . . . . . . . . . 6-12

Reimbursement and compensation . . . . . . . . . . . . . . . . . 6-12

Interrelationship of the CUSO Regulations with Other NCUA Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-14

Difference between Section 721 on incidental activities and Section 712 on CUSO operations . . . . . . . . . . . . . . . 6-14

The connection between NCUA’s Regulations on “Credit Union Service Contracts” (Section 701 .26) and the CUSO regulations . . . . . . . . . . . . . . . . . . . . . . . . 6-14

Review of CUSO Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-14

Appendix 6-A — CUSO Checklist . . . . . . . . . . . . . . . . . . . . . . . . 6-16

Quiz/Study Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-18

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-20

© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE x

PREFACE

Legal Review

The RegTraC books are designed to provide general information regard-ing regulations affecting credit unions . They are not intended to substitute for legal advice based upon specific facts in any individual case, and credit unions with regulatory concerns are advised to consult with attorneys or specialists to obtain advice directed to their specific circumstances .

With respect to the content of the RegTraC books, neither Credit Union National Association (CUNA) nor its employees — nor any of its affiliates or their respective employees — make any express or implied warranty or assume any legal liability or responsibility for the accuracy, completeness, merchant-ability, fitness for a particular purpose or usefulness of any information . Neither do these books constitute an endorse-ment, recommendation or warranty of any product, service or provider men-tioned herein . The views and opinions of the authors do not necessarily reflect those of CUNA . The books shall not be used for advertising or product endorse-ment purposes . To the maximum extent permitted by law, CUNA shall not be liable for any damages whatsoever aris-ing out of the use, or inability to use, the books .

Material contained in the books is protected by copyright law . No part of any copyrighted materials may be repro-duced or distributed without the prior written permission of the owner .

If you have further questions, please contact CUNA at 800-356-9655, ext . 4249, or e-mail [email protected].

Acknowledgments

In developing this certification pro-gram, comments and ideas were solic-ited from an extensive number of expe-rienced league and credit union people throughout the U .S . This network of credit union-oriented reviewers provided a wealth of information that produced this manual . True to credit union phi-losophy, the reviewers volunteered their efforts . Their work was time-consuming and tremendously helpful . The authors and publisher of this book wish to acknowledge their contributions with great appreciation .

Contributors include:

• Andrea Stritzke, PolicyWorks

• Jeff Andersen, PolicyWorks

• Jennifer Anderson-Kapke, PolicyWorks

• Jeremy Smith, PolicyWorks

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© 2018 CUNA NCUA REQUIREMENTS AND GUIDANCE 1-1

SECTION 1 – OVERVIEW OF NCUA’S REGULATIONS

AND SUPERVISORY AUTHORITY


Credit unions are subject to many federal laws and regulations that are discussed throughout the RegTraC books. This book focuses on the laws, regulations, policies, and procedures required by the National Credit Union Administration (NCUA), although a few of the regulations are discussed in detail in other books, as appropriate. All of NCUA’s regulations apply to federal credit unions. Selected regulations apply also to federally insured, state-chartered credit unions (FISCUs).

In order to track down the particular provisions of laws, regulations, or agency policies and understand the compli-ance requirements, it is very important to have an overall understanding of the different NCUA documents governing credit union operations. This section provides on overview.

Federal Laws, Regulations, and Other Documents That Control Credit Union Operations

The Federal Credit Union Act

The importance of the Federal Credit Union Act

NCUA’s authority to issue regulations is established by the Federal Credit Union (FCU) Act, the compilation of federal laws that specifically apply to credit unions. The FCU Act was first passed by Congress in 1934 and has

been amended a number of times since then. The FCU Act is defined in the pre-amble as “An Act to establish a Federal Credit Union System, to establish a fur-ther market for securities of the United States and to make more available to people of small means credit for provi-dent purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States.” In order to change the language of the Act and to become law, both the U.S. House of Representatives and the U.S. Senate must pass identical bills, and the president must then sign the legislation to make it a public law.

To appreciate the importance Congress and the president have to the operations of credit unions, consider some of the significant amendments to the FCU Act in the past 30 years:

• March 1970 — Creation of the “National Credit Union Administration” as an independent agency run by an administrator, replac-ing the Bureau of Federal Credit Unions, which was under the U.S. Department of Health, Education, and Welfare.

• October 1970 — Creation of federal share insurance.

• November 1978 — Creation of the three-member NCUA board to run the agency and establishment of the “National Credit Union Central Liquidity Facility.”

Section 1 – Overview of NCUA’s Regulations and Supervisory Authority

NOTE:

This section applies to all federally insured credit unions.

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SECTION 1 – OVERVIEW OF NCUA’S REGULATIONS AND SUPERVISORY AUTHORITY

• March 1980 — Increase of the (then)12% interest-rate limit that could be charged by FCUs on loans, increase of share insurance from $40,000 to $100,000, and phasing out the cap on dividend rates.

• August 1989 — Increase in NCUA’s enforcement powers and the penal-ties that can be imposed on federally insured credit unions experiencing problems.

• August 1998 — Restoration of NCUA’s authority to allow multiple-group fields of membership.

• May 2009 – Creation of a “Temporary Corporate Credit Union Stabilization Fund.” (A “corporate credit union” is a credit union that only provides services to other credit unions, not to consumers.)

The August 1998 amendments to the FCU Act are known as the “Credit Union Membership Access Act” (CUMAA). Credit unions became the most active they had ever been in the legislative process in 1997 and 1998 in order to persuade Congress to pass H.R. 1151 (the bill number given by the House of Representatives when the credit union bill was first introduced). The purpose of H.R. 1151 was to reverse the 1998 U.S. Supreme Court ruling that stated NCUA lacked the authority under the Federal Credit Union Act to allow multiple groups to be served by the same federal credit union.

Persuading Congress to pass a sim-ple bill is rarely an easy process, and CUMAA is an example of Congress trying to address competing interests, in this case the banking industry vs. the credit

union movement. What started as a two-page bill ended up upon passage as a law dozens of pages in length. Section 5 of this book addresses CUMAA and NCUA’s field-of-membership policies in depth.

The structure of the Federal Credit Union Act

The FCU Act is part of the massive United States Code of all the federal laws that cover taxation, environmental protection, bankruptcy, consumer dis-closures, criminal laws, and the like. Title 12 of the U.S. Code covers all the federal banking laws; the FCU Act starts at 12 USC 1751 and runs through 12 USC 1795. NCUA publishes an 80-page booklet, “The Federal Credit Union Act,” which contains the full FCU Act with an index. The Act is also found on NCUA’s website. See Appendix 1-A of this sec-tion for information on finding NCUA Resources.

Almost every key provision affecting the operations of credit unions in the FCU Act is explained and elaborated upon by the NCUA board. The FCU Act gives the NCUA board authority to issue regulations, bylaws, and guidelines to implement the provisions of the law. Therefore, it is not essential that credit unions become intimately familiar with the language of the Federal Credit Union Act. However, you should have a general understanding of what is contained in the federal law in order to understand where NCUA may, and may not, have flexibility to allow a particular service.

The FCU Act is divided into three parts (called “titles”). In addition to the U.S. Code citations described above, the FCU Act is also sequentially numbered.



You will get a feel for the parallel cita-tions in the numbered references below.

Title I – General Provisions

(Sections 1752-1772 of the U.S. Code and Sections 101-131 of the Federal Credit Union Act)

This part of the FCU Act covers a wide range of provisions, establishing the duties and powers of the NCUA and, in general terms, the powers of federal credit unions (FCUs) as well as restric-tions on their operations. Title I covers:

• The organization and powers of the three-member NCUA board. Board members are nominated by the presi-dent, subject to confirmation by the U.S. Senate. The president designates one as chairperson. Each board mem-ber serves for a six-year term and can-not be reappointed. No more than two members of the board can be from the same political party.

• The organization of a federal credit union as a corporation.

• The authority of NCUA to assess each FCU an annual operating fee to cover the costs of running the agency.

• The authority of NCUA to supervise and examine FCUs.

• The powers of an FCU — a very important list which is summarized in figure 1.1.

• Limitations on member business loans.

• The requirement that NCUA issue FCU bylaws.

• Field-of-membership authority and

limitations.

• The requirement that every FCU hold a membership meeting at least annually.

• The requirement that the FCU be man-aged by a board of directors, a supervi-sory committee, and, where the bylaws so provide, a credit committee.

• The requirement that the board of directors select board officers, as specified in the FCU’s bylaws, with the limitation that only one member of the board of directors can be compensated as an officer of the board.

• Powers and duties of the FCU’s board of directors.

• Powers and duties of the credit committee, if provided for in the FCU’s bylaws.

• Powers and duties of the supervisory committee.

• The authority to pay dividends after providing for required reserves.

• The expulsion of members.

• Accounts of minors.

• The powers of NCUA to:

4 Issue regulations to carry out the law.

4 Issue regulations to govern corpo-rate credit union operations.

4 Handle involuntary and voluntary FCU liquidations.

4 Require FCUs to keep books and records as the agency specifies.

4 Require FCUs to carry fidelity bond coverage.

• The authority of FCUs to hold Treasury Department tax and loan accounts.



• The tax exemption of FCUs.

• The possible allotment of space in fed-eral buildings for FCUs requiring that 95% of the members served by the FCU office be federal employees, fed-eral retirees, or their families.

• The procedures to be followed to con-vert from a federal to a state-chartered credit union or from a state-chartered to a federal credit union.

• The NCUA board’s authority to man-age the Community Development Revolving Loan Fund for credit unions.

• The possible forfeiture of the credit union’s charter for money-laundering offenses.

The most important part of Title I of the Federal Credit Union Act affect-ing the day-to-day operations of federal credit unions is the list of specific pow-ers in Section 1757. These powers are summarized in figure 1.1 and form the basis of many of NCUA’s regulations.

Title II – Share Insurance

(Sections 1781-1790 of the U.S. Code and Sections 201-216 of the Federal Credit Union Act)

This part of the Federal Credit Union Act covers share insurance and NCUA’s enforcement powers. The structure of this title is very disorganized because Congress over the years has added provi-sions without adding new subtitles. Even experienced credit union lawyers find it challenging to locate particular provi-sions in Title II. Share insurance require-ments are explained in depth in section 2 of this book. This title includes:

• The conditions that state-chartered credit unions must meet to qualify for federal share insurance. Share insur-ance coverage has been permanently increased to $250,000.

• The administration by NCUA of the National Credit Union Share Insurance Fund (NCUSIF) including insurance premium charges.

• The administration of the Temporary Corporate Credit Union Stabilization Fund.

• The power of NCUA to examine all fed-erally insured credit unions.

• Criminal and civil penalties for viola-tion of laws concerning the safety and soundness of federally insured credit unions.

• Authority for all federally insured cred-it unions to offer share draft accounts, the only membership service that the FCU Act specifically authorizes for state-chartered credit unions.

• Authority for NCUA to require the involuntary merger of an insured credit union in danger of insolvency.

• A range of enforcement powers that NCUA can use against federally insured credit unions and “institution-affiliated parties” including issuance of cease-and-desist orders, removal or suspension from office, and civil money penalties.

• Requirements for enforcement of the Bank Secrecy Act’s currency transac-tions reporting provisions.

• NCUA’s authority to serve as the con-servator or liquidating agent of an



Figure 1.1

Summary of the Powers Assigned a Federal Credit Union by the Federal Credit Union Act

Note: State-chartered credit unions have to look to their state laws and regulations to deter-mine their authorized powers. In most cases, the authorized powers are similar to those enu-merated below. With the exception of share draft authority, the FCU Act does not grant pow-ers to state-chartered credit unions.Federal credit unions are authorized by law to exercise the following powers:

• To make contracts, to sue and be sued, and to use a corporate seal.

• To purchase, hold, and dispose of property necessary or incidental to its operations.

• To make loans to its members, subject to extensive limitations on types, maturities, interest, and the like (including the FCU usury ceiling, currently set by the NCUA Board at 18%).

• To receive funds from members, other credit unions, government agencies — or in the case of designated credit unions serving low-income areas — nonmembers; and to hold funds in share accounts, share certificates, or share draft accounts.

• To invest its funds, but only in investments itemized in the Act.

• To make deposits in federally insured banks with certain exceptions for credit unions operating overseas.

• To borrow from any sources, up to 50% of paid-in capital and unimpaired surplus (including the FCU usury ceiling, currently set by the NCUA Board at 18%)

• To levy late charges for late loan payments.

• To impress and enforce a lien against a member’s account to the extent of any loan made, often referred to as the “statutory lien.”

• To sell travelers checks and money orders, and other money transfer instruments, to cash checks and money orders, to provide check-cashing services, and to provide wire tranfer services to members and to other people who are within the field of membership.

• To purchase, sell, or pledge eligible obligations of members and to purchase from liquidating credit unions notes of members, up to an aggregate of 5% of unimpaired capital and surplus.

• To sell credit union assets or purchase another credit union’s assets or liabilities.



insured credit union experiencing seri-ous problems including procedures for the payment of insured deposits.

• Special assistance from the NCUSIF, often called “208 assistance” in ref-erence to the statutory provision that authorizes NCUA to make loans to, purchase assets from, or establish accounts in, insured credit unions experiencing difficulty.

• Authority of insured credit unions to serve as depositaries of public money and fiscal agents of the U.S. govern-ment.

• Authority of NCUA to disapprove of any directors, committee members, and senior executive officers of newly char-tered, federally insured credit unions and insured credit unions experiencing problems, as determined by the most recent examination.

• Protection to employees of federally insured credit unions from discharge or employment discrimination for pro-viding information to NCUA or to the U.S. Justice Department “regarding any possible violation of any law or regulation by the credit union or any

director, officer, or employee of the credit union.”

• “Prompt corrective action.”

Title III — Central Liquidity Facility

(Section 1795 of the U.S. Code and Sections 301-312 of the Federal Credit Union Act)

This part of the Federal Credit Union Act created the Central Liquidity Facility (CLF) in 1978, which is administered by the NCUA board. The CLF was the “Maytag repairman” of the credit union movement for much of its 30-year exis-tence. It was established to address the economic conditions of the 1970s when credit unions were so loaned-up that they were borrowing funds in order to address member loan demands. Until 2008, the CLF has had relatively few requests for its services since its incep-tion, primarily because of the changing economic environment, but also because of the development of the corporate credit union system. With the economic challenge facing all financial institutions in 2008, the CLF’s access to govern-ment borrowing was greatly expanded to help provide support to credit unions

• To invest in mortgage-backed securities.

• To provide technical assistance to credit unions in Poland and Hungary.

• To exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated, often referred to as the “incidental powers clause.”

Virtually all of these are subject to additional clarification and/or limitations by regulations issued by the NCUA Board.



and their members.Membership in the CLF is voluntary

and open to all credit unions. Credit unions may access the CLF either through direct membership or through an agent member. Agent membership is available only to corporate credit unions. When a corporate credit union becomes an agent member, its member credit unions also gain CLF access.

The CLF is authorized to lend money to natural-person credit unions for the following types of liquidity needs:

• Short-term adjustment credit, to assist in meeting temporary requirements for funds.

• Seasonal credit, to assist in meeting seasonal needs for funds arising from expected patterns of movement in deposits and loans.

• Protracted adjustment credit, for unusual or emergency circumstances of a longer-term nature resulting from national, regional, or local difficulties.

The CLF may not lend to a credit union for the purpose of expanding the credit union’s portfolio. The CLF may also lend to the National Credit Union Share Insurance Fund (NCUSIF) or private credit union insurance funds. NCUA regulations require that the CLF take a first-priority security interest in specific assets of the credit union with a net book value at least equal to 110% of the amount owed to the CLF. Some spe-cific programs were launched by the CLF at the end of 2008 to provide additional liquidity assistance and aid to struggling homeowners.

The CLF’s lending activities are funded by its capital and, if necessary,

borrowing. All liabilities NCUA incurs on behalf of the CLF are backed by the full faith and credit of the U.S. Further infor-mation about current CLF activities can be found on NCUA’s website.

Important provisions in the Federal Credit Union Act not addressed elsewhere in this book

Q. Does a state-chartered credit union receive any specific authority to offer membership services from the Federal Credit Union Act even if its state law does not authorize the credit union to exercise that power?

A. In virtually all cases, the state-chartered credit union has to look to state law to have the authority to exercise specific powers. The one conspicuous exception to this general statement is share-draft authority. In an unusual move (in 1980), when Congress authorized share draft accounts, it included the authority in Title II of the FCU Act which applies to all insured credit unions.

Q. What if the Federal Credit Union Act is silent about whether a federal credit union can offer a specific ser-vice? Is the federal credit union free to do so? Can NCUA authorize the service?

A. As a general rule, an FCU cannot offer a service not specifically authorized by the law. However, the “incidental powers” clause (the last power listed in figure 1.1) is an extremely important inclusion of authority for the federal credit union to provide other products and services that might not expressly be authorized in the law. The “manage-ment” section of this book provides infor-



mation about NCUA’s interpretation of what constitutes “incidental activities” beyond other authorized services speci-fied in the Federal Credit Union Act and NCUA’s regulations.

Q. From what taxes are credit unions exempt by federal law?

A. Here is some guidance on how to deter-mine what federal, state and local taxes (that may or may not actually be called “taxes”) are ones that a federal credit union has to pay. State chartered credit unions have to look to their own state laws to determine their tax liabilities for state and local taxes.

The Federal Credit Union Act contains a specific provision covering the taxation of federal credit unions (12 USC §1768, Section 122 of the Federal Credit Union Act). The section states:

The federal credit unions organized hereunder, their property, their fran-chises, capital, reserves, surpluses, and other funds, and their income shall be exempt from all taxation now or here-after imposed by the United States or by any State, Territorial, or local taxing authority; except that any real property and any tangible personal property of such federal credit unions shall be sub-ject to Federal, State, Territorial, and local taxation to the same extent as other similar property is taxed.

Real property taxes: Federal credit unions are subject to real estate taxes on property that they own to the same extent as other businesses.

Tangible personal property taxes: Federal credit unions are subject to the same taxes as other businesses pay on tangible personal property taxes.

Tangible personal property taxes, per-haps referred to as “ad valorem” taxes in some states, are based on the value of property owned by the taxpayer. How does the federal credit union determine what is “tangible personal property”? State law defines the property that is subject to taxation – it might include vehicles, furniture, fixtures, perhaps leased equipment, etc.

Sales taxes: The U.S. Supreme Court ruled in 1937 that federal instrumen-talities, which include federal credit unions, are not subject to state and local sales taxes where the “legal incidence” of owing the tax falls on the purchasing federal instrumentality. (NCUA legal opinion letter 94-0716, July 19, 1994 to the State of Virginia addresses this issue.)

Complications: Things get a little more complicated in determining taxa-tion after these three rules. A federal credit union may get monthly utility bills with things called “taxes” and “fees.” The federal credit union must pay some of these assessments, but is exempt from others. This obviously raises dis-putes, and a local attorney should assist the federal credit union in analyzing what are and are not exempt tax items. Often, there are state regulatory rulings or court decisions that help the lawyer determine how to categorize a “tax.”

As a general analysis, a state or local tax that is imposed directly on a consumer or business is a tax the FCU is exempt from—unless, of course, it is a tax on real estate or personal property that the federal credit union owns. In legalese, federal credit unions are exempt from taxes where the “legal incidence” for actually paying the tax would fall on the

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federal credit union itself. For instance, a federal credit union is exempt from sales tax that is charged to other busi-nesses for the purchase of office sup-plies, this is the analysis the Supreme Court used to exclude federal instrumen-talities from sales taxes.

However, a tax (which may be called a “fee”) which is levied on some other entity—such as the electric company—that the entity decides to pass on to its users is not a tax the federal credit union is exempt from paying. Because of restrictions that limit utility compa-nies from simply raising rates, often it is easier for the company just to pass-through the expense on the bill as a line item, often with the word “tax” included so that people will be unhappy with the taxing authority, not the company. This distinction is exactly why a credit union will need the assistance of counsel in determining the difference, since regula-tory rulings and court cases in your state may determine the application of a par-ticular tax to federal credit unions.

Hotel taxes: One often asked ques-tion is whether federal credit union employees and volunteers have to pay the various state and local government taxes that hotels are required to charge for overnight stays. The answer is “no,” federal credit unions do not have to pay these taxes as long as the hotel receives direct payment from the federal credit union (such as by a credit card issued in the federal credit union’s name where the credit union, not the employee, is billed). The mere fact that the employee or volunteer will be reimbursed by the federal credit union is not adequate in order to obtain the exemption from state and local hotel taxes. This rule parallels

the rule applicable to federal govern-ment employees who travel. There are a few states and cities that have spe-cifically exempted federal government employees from paying taxes, regard-less of how billing occurs, which would therefore exempt federal credit union employees and volunteers as well.

NCUA has on its website a “Tax Exemption Letter” that federal credit unions can use to help explain this issue to hotels, as well as a 1993 legal opin-ion letter (No. 93-0708) on this issue. Nevertheless, this exemption continues to be disputed by some hotels, espe-cially due to the fact that if the hotel exempts an organization in error, the hotel is still liable for paying the taxes owed. NCUA has made clear (see, for instance, Legal Opinion Letter No. 97-0511) that it typically does not get involved in disputes about whether state and local taxes are payable by a federal credit union.

Federal income taxes: Federal credit unions are exempt from federal income taxes as “federal instrumentalities.” (See Section 501(c)(1) of the Internal Revenue Code for those organizations that include a tax-exemption specifically in their enabling act, which is stated in the Federal Credit Union Act and quoted above). State chartered credit unions are specifically exempt from federal income taxes under Section 501(c)(14) of the Code.

UBIT: Unlike federal credit unions, state chartered credit unions are sub-ject to the federal “unrelated business income tax” (UBIT) provisions in Section 511-514 of the Code, because only federal instrumentalities are exempt from UBIT. Until recently, the Internal

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Revenue Service only audited an occa-sional state chartered credit union for possible UBIT liability. But in 2007 the IRS began issuing numerous tax adviso-ries stating that credit unions owe UBIT on income from a number of products and services, particularly involving the sales of insurance. Two credit union lawsuits challenging the IRS position on a number of products and services were filed in 2008. In one lawsuit, a Wisconsin jury ruled for the credit union, and the IRS did not appeal. The second lawsuit is underway in Colorado.

State chartered credit unions are required to file with the IRS annually the Form 990, an annual information return for tax-exempt organizations. Federal credit unions are not required to file 990 forms. A few state regulators filed “a group 990 form” on behalf of their state-chartered credit unions.

Federal excise taxes: Whether a federal credit union has to pay a federal excise tax will depend on the “legal inci-dence” analysis. There is an old 1973 Internal Revenue Ruling, Rev. Rul. 73-431 (one of the few official analy-ses of this issue), that rules that federal credit unions are not subject to federal telephone usage excise taxes, where the obligation to pay falls on the person or business having the telephone. The rul-ing differentiates between the federal excise tax imposed on communications services under Section 4251 of the Internal Revenue Code—which the IRS says federal credit unions are exempt from paying—and other federal excise taxes imposed on retailers and manufac-turers which may be passed on to subse-quent purchasers.

Moreover, that 1973 IRS ruling spe-

cifically states that federal credit unions are not exempt from the “taxes” or “fees” imposed under the Airport and Airway Revenue Act of 1970, on such things as fuel surcharges and airport fees because they are not considered to be taxes but rather “are generally viewed as user charges properly applicable.”

Q. Does the United States Government stand behind the National Credit Union Share Insurance Fund (NCUSIF)?

A. Although Congress has said so on a number of occasions over the years, in 2006 the law was changed to make it very clear that the federal government stands behind bank deposit insurance and credit union share insurance. The official sign required by NCUA explic-itly states not only that funds in federally insured credit unions are insured to at least $250,000, but also that the funds are backed by the full faith and credit of the U.S. government. (Congress had temporarily raised federal insurance cov-erage from $100,000 to $250,000 in 2007, and made the increase permanent in mid-2010.)

NCUA Regulations

While it is generally unnecessary for credit unions to ponder the statutory language found in the Federal Credit Union Act, it is essential that credit unions understand NCUA’s regulations in order to understand what they are authorized —and not authorized—to do. In addition, FCUs need to understand the requirements of several interpretive rulings (such as the field-of-membership requirements) and the FCU bylaws.

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These regulations, policies, and proce-dures are the focus of this book.

NCUA is an independent agency of the executive branch of the U.S. gov-ernment. The Federal Credit Union Act gives the NCUA board broad authority to issue regulations and other guidance to direct the operations of federal credit unions and to assure the safe and sound operations of federally insured credit unions. When addressing issues that will have a substantial impact on credit union operations, NCUA will issue a reg-ulation to govern the particular topic.

The list of NCUA regulations

Appendix 1-B provides a list of all NCUA regulations. This chart includes the citations to the specific regulations, which are found in NCUA’s manual enti-tled Rules and Regulations. The manual and periodic updates are provided to all federally insured credit unions. The complete Rules and Regulations manual is also found on NCUA’s website.

As you can see from Appendix 1-B, all NCUA regulations are numbered in the “700” series. This is because they are found in the massive Code of Federal Regulations (CFR) at 12 CFR §700 through §795. The rest of Part 12 of the Code covers all other federal bank-ing regulations. Regulation Z (Truth In Lending), for instance, is found at 12 CFR §226, under the Federal Reserve Board’s regulations. The “§” symbol means “section.”

This chart also notes by a check mark (4) which regulations apply not only to federally chartered credit unions, but also to state-chartered credit unions that are federally insured (FISCUs). NCUA has broad authority to decide which

areas of credit union operations have such a significant impact on the safety and soundness of the credit union that the regulation should apply to state-chartered credit unions as a condition of maintaining federal share insurance.

How a regulation is adopted

The “Administrative Procedures Act” covers most aspects of the procedures that the NCUA—and all federal agen-cies—must follow to adopt a final regu-lation. Federal agencies are also gov-erned by the Regulatory Flexibility Act, the Paperwork Reduction Act, and the Government in the Sunshine Act. The requirements of all these laws are incor-porated into procedures found in Section 791 of NCUA’s regulations.

Generally, the procedures for develop-ing a regulation are these:

• The agency staff will develop a pro-posal in consultation with individual NCUA Board members. Proposed regulations are most often generated because of a change in the law, a safe-ty and soundness concern, or a need to clarify an existing agency directive.

• The NCUA Board is required to publish an agenda announcing that the board will be considering a proposed regula-tion.

• The board must consider at a public meeting (an “open” meeting) whether it will propose a regulation for public comment. If a majority of the NCUA Board (that is, two members) agrees to seek public comments, the proposed regulation will be published in the Federal Register, the official govern-ment publication of all proposed and

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final regulations issued by all federal agencies.

• Proposed regulations are to be issued for a minimum of 30 days for what is generally referred to as the “notice and comment period.” Typically, proposed regulations are open for comment between 30 days and 120 days.

• NCUA staff then reviews the written comments received and usually within a few months after the end of the comment period, proposes in another open meeting a final regulation for the NCUA Board to consider.

• The board can accept, reject, or amend the staff proposal. In order for a regulation to be finalized, it must be approved by the majority of the NCUA Board. If it is approved, it will be published as a final regulation in the Federal Register.

• NCUA is required by law to give an effective date of at least 30 days after publication in the Register, giv-ing credit unions an opportunity to hear about the change. NCUA can, and often does, give a longer period between when the NCUA Board approves a new regulation and when credit unions must comply with it, especially if the regulation will require changes in procedures, forms, or train-ing. A period shorter than 30 days is allowed when: (1) the regulation grants an exemption or relieves a restriction; (2) the rule is an “Interpretive Ruling or Policy Statement” (IRPS discussed below); or (3) when the NCUA Board finds “good cause” to have an effec-tive date earlier than thirty days.

The NCUA Board has authority to issue regulations immediately without any comment period (called “interim final regulations”) if it feels the notice and public procedures are “impracti-cable, unnecessary, or contrary to the public interest.” Two examples of when NCUA has issued “interim final regula-tions” are the member business loan (MBL) regulations issued in September 1998 to comply with Congressionally mandated changes as a result of the passage of CUMAA the month before, and the Truth In Savings amendments issued in December 1998, which were also changes to conform to statutory amendments.

These two regulations became final regulations on the date they were pub-lished in the Federal Register, contrary to normal practice, which means that credit unions had to immediately comply with them. However, as required with “interim final regulations,” NCUA solic-ited public comments after the effective dates of the two regulations. The agency did make some changes in the MBL rules before issuing a final regulation in June 1999 in response to issues raised by credit unions and their trade associa-tions in their written comments, but the agency found no reason to amend the TISA interim regulation when it became a final regulation in July 1999.

Occasionally, NCUA may issue an “advance notice of proposed rulemak-ing” (ANPR) to request comment on an issue prior to writing a proposed regula-tion. This process allows NCUA or any federal agency to gather the public’s thoughts and opinions on how it might address a complex or major issue. For instance, in early 2009 in response to



the problems of corporate credit unions (which provide wholesale services to credit unions, not consumers), NCUA announced it was evaluating and recon-sidering the role of corporates in the credit union system. NCUA sought com-ments for 60 days on what services and functions corporates should be permit-ted in the future. NCUA released in the fall of 2009 a formal proposed regula-tion amending Section 704, which are the regulations governing corporates’ capital, permissible services, lending, governance, and so forth. NCUA final-ized corporate regulatory amendments in the fall of 2010, then issued some addi-tional revisions in 2011 to its corporate regulations. This shows that regulatory revisions are an on-going process.

CUNA and your state credit union league closely monitor what the NCUA board and staff are considering. CUNA files comments on everything that the agency proposes, and relies on input from CUNA committees, leagues, and individual credit unions to formulate an association position. The reality is, few credit unions are heard from during the proposed regulation stage, which means that sometimes NCUA fails to under-stand the operational impact a particu-lar proposal will have on credit unions. More credit unions, especially those with designated compliance specialists, need to take the time to review and comment on proposed regulations.

Interpretive rulings and policy statements

The NCUA Board may issue an Interpretive Ruling and Policy Statement (IRPS) to provide the agency’s interpre-

tation of what the Federal Credit Union Act means on a particular subject. Not all IRPSs are published in the Federal Register for public comment before being finalized. Generally, it is within NCUA’s discretion whether to first request comment on an IRPS. However, a public comment period has been the common practice in recent years. In these cases, the IRPS will be published as a proposal in the Federal Register, just as would be done for a proposed regulation.

An IRPS may apply only to federal credit unions or to all federally insured credit unions, depending on the subject matter. Credit unions are expected to comply and follow the guidance provided in the IRPS, but the IRPS may not be as comprehensive as a formal regulation, leaving some questions unanswered.

NCUA has published dozens of IRPSs since the first one was published in 1979. The IRPS number indicates the year of issuance, and the suffix indicates the order of the IRPS issued during that year. NCUA lists on its website which ones are currently in effect and which ones are withdrawn. A few of the ones “withdrawn” were converted into regu-lations, such as the ones on charitable contributions (became § 701.25 of NCUA’s regulations) and statutory liens (became §701.39).

IRPSs over time have been issued to serve as commentary to explain a law, to address a particular area of concern such as investment practices, or to be a joint policy statement from all the fed-eral banking agencies. IRPSs that do continue to be in force include:

• IRPS 11-2, New requirements and processes for chartering Corporate



Credit Unions

• IRPS 11-1, NCUA’s Supervisory Review Committee to handle certain appeals form credit unions (updated earlier IRPSs)

• IRPS 10-1, Field of membership change on the criteria to determine a federal community credit union

• IRPS 08-1, Guidance Regarding Prohi-bitions Imposed by Section 205(d) of the Federal Credit Union Act (prohibit-ing anyone who has been convicted of any criminal offense involving dishon-esty or breach of trust from being an institution-affiliated party – employee, volunteer, etc.– of an insured credit union without the written consent of NCUA).

• IRPS 08-2, Chartering and Field of Membership manual modifications to update and clarify the process of approving federal credit union service to “underserved areas.”

• IRPS 06-1, Field of Membership Change.

• IRPS 03-3, Qualified Financial Contracts.

• IRPS 03-1, Chartering and Field of Membership Manual.

• IRPS 02-3, Allowance for Loan and Lease Losses.

• IRPS 98-2, Supervisory Policy State-ment on Investment Securities and End-User Derivative Activities, April 16, 1998.

• IRPS 87-1, Guidelines for Compliance with Federal Bank Bribery Law, October 1987.

• IRPS 83-1, Truth-in-Lending Enforcement Guidelines and

Restitution Review Procedures, February 1983.

• IRPS 82-4, State Unclaimed Property Laws, June 1982.

• IRPS 81-3, State-Chartered Federally Insured Credit Unions as “Most Favored Lenders,” April 1981.

A full list of NCUA interpretive rulings can be found on the agency’s website (www.ncua.gov).

Letters to Credit UnionsThe NCUA Board issues “Letters to

Credit Unions” on a wide range of sub-jects in order to: (1) provide clarifying information about a specific regula-tion; (2) express concern about how credit unions are complying with certain developments; (3) issue warnings; or (4) announce changes in accounting rules, operating fee assessments, or examination procedures. Letter to Credit Unions No. 12-CU-01 on the agency’s “Supervisory Focus” is a good example of useful information—it explains the expectations examiners will have in 2012 on how credit unions are managing inter-est rate, liquidity and concentration risks.

Letters may be addressed specifically to federal credit unions or to all feder-ally insured credit unions, depending on the topic. Up until 1996, Letters were numbered consecutively. Since 1996, Letters have been numbered similarly to IRPSs, starting with the year, followed by either “FCU” or “CU,” and then a sequential number.

Below is a list of the topics that NCUA covered in Letters to Credit Unions in 2011 and through January 2013.

https://www.ncua.gov/regulation-supervision/Pages/policy-compliance/communications/letters-to-credit-unions/2012/01.aspxhttps://www.ncua.gov/regulation-supervision/Pages/policy-compliance/communications/letters-to-credit-unions/2012/01.aspx



Recent Letters to Credit Unions13-CU-01 Supervisory Focus for 201312-CU-14 Scheduled Expiration of the

Temporary Corporate Credit Union Share Guarantee and Unlimited Insurance on Noninterest-Bearing Transaction Accounts

12-CU-13 Projected 2013 NCUSIF Premium and Corporate Stabilization Fund Assessment Range

12-CU-12 Changes Planned for Upcoming Call Reports

12-CU-11 Interest Rate Risk Policy and Program Frequently Asked Questions

12-CU-10 Changes to Central Liquidity Facility Access and Emergency Liquidity Proposed Rule

12-CU-09 2012 Corporate Stabilization Fund Assessment

12-CU-08 State of the Credit Union Industry

12-CU-07 Mortgage Servicing Practices Impacting Military Homeowners

12-CU-06 Update of Transitioning U.S. Central Bridge Corporate Federal Credit Union Automated Clearing House (ACH) Services

12-CU-05 Interest Rate Risk Policy and Program Requirements

12-CU-04 NCUA Grants Available for Low-Income Credit Unions

12-CU-03 Temporary Corporate Credit Union Share Guarantee Expires December 31, 2012

12-CU-02 Transitioning U.S. Central Bridge Federal Credit Union Automated Clearing House (ACH) Services

12-CU-01 Supervisory Focus for 201211-CU-17 NCUA Office of Consumer

Protection11-CU- 16 State of the Credit Union

Industry11-CU-15 Changes to U.S. Savings Bond

Sales11-CU-14 Temporary Corporate Credit

Union Stabilization Fund Assessment

11-CU-13 Emergency Financial Services for Disaster Victims

11-CU-12 Disclosing CAMEL Ratings to Federally Insured State Credit Unions

11-CU-11 Impact of U.S. Debt Downgrade11-CU-10 Federal Reserve Bank Excess

Balance Accounts Fact Sheet 11-CU-09 Online Member Authentication

Guidance, Compliance Required by January 2012

11-CU-08 Voluntary Prepayment of Assessments Program

11-CU-07 State of the Credit Union Industry

11-CU-06 Technical Assistance Initiatives 11-CU-05 Planning and Preparedness for a

Potential Government Shutdown 11-CU-04 Financial Education and

Financial Literacy Initiative 11-CU-03 State of the Credit Union

Industry 11-CU-02 Call Report Modifications 11-CU-01 Residential Mortgage

Foreclosure Concerns

Letters to Federal Credit Unions13-FCU-01 Operating Fee Schedule for

201312-FCU-04 Permissible Interest Rate

Ceiling12-FCU-03 Small Credit Union

Examination Program12-FCU-02 Multi-Featured Open-End

Lending (MFOEL)

http://www.ncua.gov/Resources/CUs/Pages/LTFCU2013.aspx



12-FCU-01 Operating Fee Scale Reduced for FY 2012

12-FCU-01 Operating Fee Scale Reduced for FY 2012

11-FCU-04 Permissible Interest Rate Ceiling

11-FCU-03 Community Charter Conversions and Expansions

11-FCU-02 Duties of Federal Credit Union Boards of Directors

11-FCU-01 Operating Fee Schedule for FY 2011

All of NCUA’s Letters to Credit Unions back to 1975 are found on the agency’s website under “The Resource Connection for Credit Unions.” A very helpful addition is that the website list includes a column telling you if the let-ter is “active” (still current, accurate, and relevant), “inactive” (outdated, but useful from an historical or reference perspective), or “cancelled.”

Regulatory Alerts

Since 1996, NCUA has been issuing “Regulatory Alerts” to advise all federal-ly insured credit unions about regulatory changes by other federal agencies that affect credit union compliance require-ments, and to publish joint advisories that NCUA has developed with other federal banking agencies about emerg-ing problems. Similar to the number-ing of IRPSs, the Regulatory Alerts are numbered by year and then sequentially. Since 1996 NCUA has issued about 100 Regulatory Alerts. All of the Alerts since 1996 can be found on NCUA’s website under “Reference Information.” To give you an idea of the types of topics covered, the Alerts issued in 2011 and through January 2013 were:

Regulatory Alerts13-RA-02 Submission of 2012 Home

Mortgage Disclosure Act (HMDA) Data

13-RA-01 Home Mortgage Disclosure Act (HMDA) Data Collection Requirements for Calendar Year 2013

12-RA-04 CFPB’s New Remittance Transfers Rule

12-RA-03 New Flexibility in Loan Originator Compensation Rules and Pension Plan Payments


12-RA-01 Submission of 2011 Home Mortgage Disclosure Act (HMDA) Data

12-RA-03 New Flexibility in Loan Originator Compensation Rules and Pension Plan Payments


12-RA-01 Submission of 2011 Home Mortgage Disclosure Act (HMDA) Data

11-RA-04 Garnishment of Accounts Containing Federal Benefits Payments

11-RA-03 Security Incidents Prevention and Detection


11-RA-01 Submission of 2010 Home Mortgage Disclosure Act (HMDA) Data for Credit Unions Over $39 Million in Assets

http://www.ncua.gov/Legal/Regs/Pages/RA2013.aspx



NCUA legal opinion letters

NCUA’s Office of General Counsel issues “legal opinion letters”(LOL). These opinion letters are in response to specific written inquiries from credit unions, lawyers, trade associations, and other interested parties. You may occasionally hear these letters referred to as “private opinion letters” or POLs. Unlike all the other NCUA compliance documents already discussed, NCUA’s legal opinion letters are not distributed to credit unions. When the answer is sent to the person making the inquiry, the opinion letter is posted on NCUA’s website under “Latest Headlines.” Legal opinion letters going back to the early 1990s are found under “The Reference Connection for Credit Unions” on NCUA’s website and are readily search-able by topic. CUNA summarizes the opinion letters in the association’s “Comp Blog” and many other credit union publications also publicize the most interesting opinion letters. Legal opinion letters are numbered by year issued and then generally by month.

Any question can be asked to NCUA and most will be answered, such as, is a particular service authorized? Is the credit union properly interpreting an NCUA regulation? Can the credit union board conduct its business in a certain way? Some of these letters come into the NCUA’s regional offices, some to the NCUA Board members, but most are addressed directly to the NCUA general counsel’s office, the department within NCUA that answers inquiries regard-ing interpretations of the Federal Credit Union Act and the agency’s implement-ing regulations and policies. NCUA does

not give interpretations of other federal laws, even though credit unions must comply with those laws.

While these legal opinions do not have the effect of regulations, they represent the NCUA staff’s interpretation of the law and regulations. The letters are often helpful in further clarifying an existing regulation. Although we are not aware of any lawsuit relying upon an NCUA interpretation from a legal opinion letter, certainly a court would defer to an NCUA Legal Opinion Letter, allowing a credit union to rely upon a statement in the let-ter to undertake a service.

Credit unions and their trade associa-tions have taken issue with a number of letters issued by the NCUA general counsel’s office over the years. Some legal opinion letters are highly con-troversial because they are contrary to longstanding practices of credit unions of which NCUA legal staff may not be aware at the time the letter is issued. Remember, the inquiries are not subject to public notice and comments before they are answered. In fact, oftentimes only the letter writer knows that the inquiry has been made. Occasionally, the agency will reverse an opinion letter in subsequent months. Sometimes sev-eral years elapse between similar inqui-ries, and the agency’s legal staff gives a different answer to the second inquiry.

Also sometimes it may take some time and a new regulation to reverse an opinion letter. The classic example is the 1989 opinion letter asserting that spouse travel reimbursement for federal credit union board members is imper-missible compensation. It took until 1992 to reverse that opinion, and the NCUA board had to issue a new regu-

https://compliancecommunity.cuna.org/compliancecommunity/home?ssopc=1



lation amending its existing rules on board compensation in order to achieve a reversal. A July 1997 opinion letter (97-0508), stating it is impermissible to honor share drafts on overdrawn accounts without a loan agreement was contrary to many credit unions’ practic-es, and some examiners began to write credit unions up in their examination reports for violating the opinion letter. CUNA lobbied NCUA to reverse its inter-pretation and in 2000 NCUA issued a regulation to allow FCUs to honor share drafts without a loan agreement, if the credit union adopts a written policy.

Two controversial letters released in 1999 address the permissibility of imaging as a record storage method (99-0443) and the requirement of paying dividends to a member who has caused a loss to the credit union (99-0448). The letter on imaging, fortunately uses the words “recommends” and “consult local counsel,” which gives a credit union flexibility in using business judg-ment on how to store and retrieve paper documents. The 1999 letter on paying dividends is NCUA’s legal interpreta-tion that the Truth In Savings Act and NCUA regulations require the payment of dividends on the account of a mem-ber who has caused a loss to the credit union. This letter differs from a 1991 opinion letter answering the same ques-tion because the TISA regulation was adopted in 1993.

These letters show that there is some judgment involved in how much weight credit unions need to give individual opinion letters. Also, remember that most credit unions will not know about the letter unless they monitor NCUA’s website, or an examiner cites the letter

to a credit union with a practice contrary to the staff opinion letter. It is very use-ful for credit union compliance staff to check NCUA’s website regularly to see what new information has been released.

CUNA strongly advises anyone who is considering writing to NCUA for its opin-ion on how a regulation works, whether a service is allowed, or whether the credit union is operating in conformance with NCUA’s expectations, to first contact your league, CUNA, or an outside attor-ney to discuss if the question is one that should be posed to the agency.

Freedom of Information requests

The Freedom of Information Act (FOIA) is a federal law that allows any person to obtain records of a federal agency. The agency may only withhold records that are exempt from disclosure under the law, such as examination reports, employee personnel records, and confidential business information. NCUA’s response to an FOIA request often appear as an opinion letter, which is why FOIA is mentioned here. Section 792 of NCUA’s regulations govern the procedures for requesting information under this law.

NCUA has a publication titled A Handbook for Obtaining Information from NCUA (which is found on NCUA’s web site www.ncua.gov). All FOIA requests have to be in writing and addressed to NCUA’s Office of General Counsel. Generally, NCUA says that it should not take more than 20 business days for a response. There can be a search and compilation fee; the fee schedule is also posted on the agency’s website.

http://www.ncua.gov/Legal/OpinionLetters/OL1999-0443.pdfhttp://www.ncua.gov/Legal/OpinionLetters/OL1999-0443.pdfhttp://www.ncua.gov/Legal/OpinionLetters/OL1999-0448.pdfhttp://www.ncua.gov/Pages/default.aspx



Standard bylaws (applicable only to federal credit unions)

NCUA issues standard bylaws for fed-eral credit unions. Credit unions have some flexibility in choosing among bylaws provisions published by the agency before 1999, in 1999, in 2006, or in 2007. A federal credit union can request that the agency approve a nonconforming bylaw provision. The federal credit union bylaws are discussed in Section 3 of this book. State-chartered credit unions must look to their state requirements.

Other NCUA publications of particular importance

In addition to the NCUA publications already listed, there are three more that credit unions should be aware of:

Accounting Manual for Federal Credit Unions—The Accounting Manual, pub-lished in 1997, contains some useful infor-mation beyond strictly accounting practic-es. In 2002 the agency rewrote the manual to apply only to federal credit unions with assets under $10 million. Credit unions with $10 million or more in assets are required to follow generally accepted accounting principles (GAAP). NCUA occa-sionally issues Accounting Bulletins that are targeted to small credit unions, but may contain important information such as NCUA’s position on accounting for the impairment to the NCUSIF in early 2009.

The NCUA Examiner’s Guide — This is the document that examiners work from in assessing the financial condition of feder-ally insured credit unions. It is extremely useful in allowing credit unions to prepare

for examinations. NCUA introduced a risk-focused examination program in 2002 and made major revisions in the Examiner’s Guide. The Examiner’s Guide and NCUA’s “AIRES” examination questionnaires are found on NCUA’s website at www.ncua.gov. “AIRES” stands for “Automated Integrated Regulatory Examination Software.”

Supervisory Committee Guide for Federal Credit Unions — Although the title suggests this would only be useful to FCUs, this detailed guide by NCUA instructs all super-visory committees on how to carry out their audit and verification responsibilities. The guide was last updated in 1999. Additional worksheets for the guide are found on NCUA’s website. See section 5 of this book for an explanation of the supervisory com-mittee requirements.

Examination Authority

Key questions

Q. What is NCUA’s authority to examine federal credit unions?

A. Section 1784 of the Federal Credit Union Act specifically authorizes NCUA to examine credit unions. Today NCUA typically examines all federally chartered credit unions every 12 months.

Q. What is NCUA’s authority to examine federally insured, state-chartered credit unions (FISCUs)?

A. Title II of the Federal Credit Union Act authorizes NCUA to insure the member accounts of state-chartered credit unions to the same degree as it does for federal credit unions and subjects insured credit unions to NCUA’s examination author-

http://www.ncua.gov/Legal/GuidesEtc/Pages/Accounting-Manual.aspxhttp://www.ncua.gov/Legal/GuidesEtc/Pages/Accounting-Manual.aspxhttp://www.ncua.gov/Legal/GuidesEtc/Pages/Examiners-Guide.aspxhttp://www.ncua.gov/DataApps/Pages/AIRES.aspxhttp://www.ncua.gov/DataApps/Pages/AIRES.aspxhttp://www.ncua.gov/Pages/default.aspxhttp://www.ncua.gov/Pages/default.aspxwww.ncua.gov/Legal/GuidesEtc/GuidesManuals/Supcomm.pdfwww.ncua.gov/Legal/GuidesEtc/GuidesManuals/Supcomm.pdfhttp://www.ncua.gov



ity contained in 12 USC §1784. Section 741 of NCUA’s regulations also address-es this access, and any state-chartered credit union seeking federal insurance at some point will have completed NCUA’s “Application and Agreement for Insurance of Accounts,” which includes a provision specificall