NCUA Preempts State Law on Dormant Accounts

ALEXANDRIA, Va. - NCUA ruled last week that federal credit unions are bound by its rules and regulations regarding dormant accounts, and not by those imposed by the state of Virginia. In a new legal opinion issued to the Virginia Department of the Treasury, NCUA said that its rules will allow federally chartered credit unions operating in Virginia to continue the practice of retroactively waiving account fees or reinstating dividends previously unpaid because an account is dormant.

"State laws regulating such activities are not applicable to federal credit unions," said NCUA in preempting the Virginia bid. In this instance, notes NCUA, federal preemption of state law is beneficial to consumers because it allows federal credit unions to go back and reverse dormant account fees or pay dividends in arrears.

The NCUA ruling was dated April 11, just six days before the U.S. Supreme Court reinforced the federal preemption of state banking laws for nationally (federally) chartered institutions. The Federal CU Act, said NCUA, grants federal credit unions exclusive authority to determine terms, rates and conditions for members deposits as limited by the NCUA Board. NCUA in recent years has also preempted state laws on predatory lending, finance charges and others with regard to federally chartered credit unions.