Joint-Ownership Share Accounts Final Rule
At its February meeting last week, the National Credit Union Administration (NCUA) Board approved a final rule that provides federally insured credit unions (FICUs) with more flexibility in determining when a share account can be insured separately as a joint account.
Under the current rules, section 745.8(a) of NCUA’s rules and regulations permits FICUs to insure qualifying joint accounts separately from individual accounts. “Qualifying joint account” has a specific meaning under the current rule: “A joint account is a qualifying joint account if each of the co-owners has personally signed a membership or account signature card and has a right of withdrawal on the same basis as the other co-owners.” As noted in the preamble to the final rule, the consequence of an account not being a qualifying joint account is that a co-owner’s interest in that nonqualifying account is treated as an individual account and aggregated with the co-owner’s other individual accounts and insured up to the standard maximum share insurance amount, $250,000.
The final rule mirrors a change made by the FDIC for federally insured depository institutions and is intended to “better facilitate the prompt payment of share insurance in the event of a FICU’s failure by explicitly providing alternative methods that the NCUA could use to determine the owners of joint accounts, consistent with the NCUA’s statutory authority.” NCUA noted that neither the Federal Credit Union Act or NCUA’s rules and regulations defines what constitutes a membership card or an account signature card. NCUA explained that it has permitted FICUs to comply with the current qualifying joint account requirements “through various forms of documentation used in their account opening processes.”
The final rule facilitates the prompt payment of share insurance for qualifying joint accounts by permitting FICUs to satisfy the signed membership or account signature card requirement with “information contained in the account records of the federally insured credit union establishing co-ownership of the share account, including, but not limited to, evidence that the institution has issued a mechanism for accessing the account to each co-owner or evidence of usage of the share account by each owner.”
In the preamble, NCUA emphasizes that the final rule only affects how an FICU can satisfy the signed membership or account signature requirement needed to establish that an account is a qualifying joint account to be insured as a joint account under section 745.8. It has no effect on what an FICU would need to have to document an enforceable contract under state law with respect to joint ownership of an account. The effect of the final rule is maybe best summed up in NCUA’s own words: “The final rule does not eliminate the need for FICUs to obtain signatures when opening an account, it merely allows the NCUA to use alternative evidence in a FICU’s account records to find the signature card requirement for coverage as a qualifying joint account satisfied even if signed membership or account signature cards are absent from a liquidated FICU’s records.”
The final rule will be effective 30 days after it is published in the Federal Register.