The NCUA Board unanimously approved a final rule addressing Interest on Lawyer Trust Accounts (IOLTAs) at its final meeting of 2015, and while credit unions were happy with many of the amendments to the rule, they had hoped for more.
NCUA Chairman Debbie Matz noted that the agency pushed to get this rule through less than a year after President Obama signed the Insurance Parity Act into law, allowing for pass-through insurance coverage for lawyer's trust accounts and similar escrow accounts.
Previously, such coverage was only available in cases where both the attorney and his or her client were members of the insured credit union. The new rule allows coverage for accounts so long as the attorney or person administering the escrow account is a member, regardless of the client's membership status.
Both CUNA and NAFCU applauded the agency's swift action on the IOLTA rule, but they were disappointed with the narrow definition NCUA used with regard to what other accounts could have been covered.
"NAFCU and our members appreciate the agency's efforts to incorporate the 'Credit Union Share Insurance Fund Parity Act' into its rules and regulations," said NAFCU CEO Dan Berger. "However, we believe the agency could have done more in adopting a more flexible definition of 'other similar escrow accounts.'"
CUNA CEO Jim Nussle agreed. "We have little doubt that the law gives NCUA the authority to extend insurance coverage to pre-paid accounts, and we are very disappointed that NCUA has not exercised that authority at this time," he said. "While we appreciate recent actions on business lending and field of membership aimed at removing from regulation requirements that are not in law, this final rule is an example of the agency unnecessarily impeding access to credit unions by making it more difficult for them to offer products and services to their members."
But Matz insisted the new rule is necessarily narrow. "As we consider this final rule, it's important to keep in mind that the pass-through insurance in this final rule would only take effect in the rare case when a credit union fails—and only if non-members of the failed credit union had placed funds into a covered escrow account that was maintained by a member," she said. "That's because under the new law, the additional pass-through insurance only covers non-members. Members are already covered under NCUA's existing share insurance rules. So, the key question before us today is whether this rule should extend insurance coverage to non-members in certain situations."
Matz noted that a number of comments filed on the rule suggested that non-members holding pre-paid cards from a failed CU should be paid out as well as members—a suggestion the agency did not adopt.
"I'm concerned that healthy credit unions could pay a price for such a policy—because to make the commenters' idea work, all credit unions would first have to take on a new burden: tracking the balances of covered pre-paid cards held by non-members, as well as members," she said. "And then credit unions with traceable pre-paid card balances would have to pay the statutory 1% deposit to cover those non-members' balances in the Share Insurance Fund."
Separately, NCUA is seeking comment on rules of procedure and safety and soundness as part of the agency's compliance with the Economic Growth and Regulatory Paperwork Reducation Act of 1996 (EGRPRA), which requires all of the federal financial regulators to review regulations every 10 years with an eye out for rules that might be outdated, ineffective, unnecessary or unduly burdensome.
In her statement, Matz pointed to some of the changes NCUA has made from previous rounds of EGRPRA reviews, including:
- Raising the definition of "small credit union" for the purposes of identifying CUs eligible for regulatory flexibility.
- Adding 12 categories of associations that can be automatically added to qualifying federal credit unions' fields of membership.
- Amending secondary capital rules for low-income credit unions to be more attractive to investors.
In this fourth and final EGRPRA review, NCUA will be looking at rules related to involuntary and voluntary liquidations, lending, investment and deposit activities, examinations and appraisals, and more.
