NCUA Board Seeks to Enhance Non-Member Deposits Posted by AVCU on 2:20 PM

On Thursday of this week the National Credit Union Administration Board approved a proposed rule that would allow federal credit unions to accept non-member deposits for up to 50% of the institution’s unimpaired capital and surplus, and eliminate a current waiver-request process. Under current regulations, credit unions are limited to a maximum of 20% or $3 million, whichever is greater.

Participating credit unions would have to craft a detailed plan for using non-member shares and borrowings if combined non-member shares and borrowings exceed 70% of paid-in, uninsured capital and surplus.

While the rule would apply to all federal credit unions and is intended to provide additional flexibility for even the largest, Larry Fazio, director of the Office of Examinations and Insurance, said it would most benefit small credit unions since they are more likely to have higher net worth levels relative to total assets when compared with their larger counterparts.

While the rule gives small credit unions “the opportunity to grow and achieve economies of scale,” it is intended to provide flexibility to CUs of all sizes in terms of optimizing their funding structures, he added.

All three board members approved the proposal, which will be open for comment for 60 days once published in the federal register. Harper emphasized his interest in hearing feedback from credit unions and not just trade associations, along with state-level supervisors in order to better understand the limits in place for state-chartered CUs.

Bankers are already protesting the proposal. The measure goes against the cooperative nature of credit unions where resources for loans come from an institution’s members who share a common bond, Ken Clayton, head of the American Bankers Association’s office of legislative affair, said in a statement after the meeting:

“This proposal from NCUA is deeply troubling. It would allow credit unions to take even more deposits from outside their traditional membership base, further accelerating their growth at a time when NCUA is already struggling to oversee the industry and putting taxpayers at risk.  This week’s reporting on NCUA’s supervisory failures in New York’s taxi medallion business only further calls into question why this regulator would now propose to allow credit unions to accept more non-member and municipal deposits.”

Clayton was referring to two stories in the New York Times earlier this week that highlighted abusive practices by credit unions and other lenders in making risky loans to consumers looking to buy taxi medallions in New York City.