Growing CU Losses Force New NCUA Assessment

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ALEXANDRIA, Va.-NCUA said last week that projected losses for the National CU Share Insurance Fund surged to a record $1.2 billion at the end of August, forcing the agency to assess a 12.4 basis points, or $933 million, premium, in order to replenish the fund's diminishing reserves.

The premium approved last week, combined with a 13.4 BP, or $1.1-billion, charge assessed for the corporate credit union bailout in July, is expected to drive as many as 855 credit unions into the red for 2010, according to NCUA. "The premium is absolutely necessary to replenish the Share Insurance Fund," said NCUA Chairman Debbie Matz. "It will also protect federally insured credit unions."

This year's charges, which now total $2 billion, are sure to raise a debate within the credit union movement as the amount exceeds any projections of federal income taxes credit union would pay if the tax exemption were repealed. The credit union movement has eschewed asking for any federal assistance to pay the growing costs of the corporate bailout and NCUSIF losses in order to maintain a position of paying its own way-without a taxpayer bailout.

This year's charges, coming after dual charges totaling $1.1 billion last year, are widely expected to be supplemented with additional assessments next year too, according to NCUA. The agency could choose to not charge an assessment next year, if the economy and the condition of credit unions improves, but "that is not what we expect," said Melinda Love, chief examiner for NCUA.

There are three driving forces for today's premium charge, according to Love. They are the growing losses among credit unions, lower earnings on the insurance fund's $9-billion portfolio of government securities and share/deposit growth among credit unions, which is diluting the reserves for the fund.

The invoices for the premium will be mailed in October and payment will be due back by the end of November.

Matz said the NCUA Board will meet in a special open meeting Sept. 24 to vote on a new corporate regulation and to discuss a resolution plan for some $50 billion in toxic securities held by the corporates. 

New Payday Loan Rule Passed
Separately, the NCUA Board also passed a new rule that will ease restrictions on payday loans, allowing credit unions to charge up to 28% interest, or 1000 basis points more than the current 18% interest cap, and will enact a limit on application fees to a one-time $20 charge.

The new payday loan rule, which will apply to programs offered by all federally chartered credit unions, will apply to short-term loans of less than $1,000; participants must be members of the credit union for at least one month, and credit unions may not require the member to participate in payroll deduction.

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