December 13, 2019

Compliance Blog outlines NCUA expansion on public unit and nonmember share limits

Compliance BlogNAFCU Regulatory Compliance Counsel Reginald Watson breaks down the final rule that introduces an increase to the amount of public unit and nonmember shares that federally insured credit unions (FICUs) may accept. The final rule, which was adopted during the agency’s October board meeting, is set to take effect Jan. 29, 2020.

“In addition, the final rule expands the applicability of the rule to all FICUs, retains the alternative $3 million limit, eliminates the procedures for obtaining a waiver from the appropriate regional director, and establishes new due diligence requirements for large borrowings,” Watson writes.

Watson highlights the impacts expected from each change. The decision to expand the limit is based in part on a finding from NCUA’s Regulatory Reform Task Force, which states that public unit and nonmember shares are “the functional equivalent of borrowings” and, therefore, warrant a higher level of authority. Watson suggests that the change provides FICUs with additional flexibility since the basis for the calculation now includes undivided earnings.

The decision to retain the $3 million alternative limit was made after the NCUA sought comments on potential elimination. In a letter to the NCUA in July, NAFCU supported the decision to keep the alternative dollar amount and recommended the agency consider increasing it to $5 million.

The letter, written by NAFCU Senior Counsel for Research and Policy Andrew Morris, also expresses that the current 20 percent limit on public unit and nonmember shares did not accurately reflect changes within the credit union industry.

While the final rule eliminates the procedures under the current rule to seek a waiver, a new requirement mandates certain due diligence procedures for large borrowings. Written plans - required if public unit and nonmember shares taken with borrowings exceed 70 percent of paid-in and unimpaired capital and surplus – demonstrate prudent risk management.

NCUA believes these amendments will impact credit unions by providing FICUs with greater flexibility in their sources of funding, especially for smaller CUs.

For more on the final rule, read Watson’s blog.