RICHMOND, Va. -
The Virginia Treasury Department is reviewing the NCUA ruling, a legal opinion that states federally chartered credit unions need not comply with state laws on dormant accounts, as long as they comply with federal rules.
Christopher Anuswith, president of Guardian FCU, said his and more than a dozen other credit unions have been notified by the state that their practice of waiving dormant account fees and/or paying back-interest on reactivated dormant accounts violates the state's laws on escheat, which requires that accounts be declared dormant after a year of inaction and be turned over to the state after five years.
"We're a military credit union, so our guys are somewhat mobile and they change addresses a lot," said Anuswith, whose credit union, serving the Coast Guard along the Eastern Seaboard, makes a concerted effort to reunite members with their funds.
The Policy At Guardian FCU
The policy at Guardian FCU is after an account lies dormant for one year it is assessed a $5 fee. "If you come back, we refund the fee," Anuswith said. "The state says we can't do that."
At issue is fees refunded between 1994 to 2004. That's when the state's Division of Unclaimed Property, a unit of the Virginia Treasury Department, began an audit of the credit union.
But state officials cried foul at the Portsmouth-based credit union's practice of waiving the dormant account fee, a figure in excess of $75,000 over a 10-year period. Numerous other credit unions were also cited by the state, one with a dispute "over six figures," according to Anuswith.
"We've always tried to reunite the members with their money," he said. "If we can reunite the members with their money and refund the fees, then what's the foul?"
In its legal opinion letter, NCUA said the Federal CU Act grants federal credit unions exclusive authority to determine terms, rates and conditions for member share accounts except as limited by the NCUA Board.
"A federal credit union may, consistent with this section, parts 707 and 740 of this subchapter, other federal law, and its contractual obligations, determine the types of fees or charges and other matters affecting the opening, maintaining and closing of a share, share draft or share certificate account. State laws regulating such activities are not applicable to federal credit unions," said NCUA.
The federal regulator added that a state does not have authority to regulate a federal credit union's account operation until an account achieves unclaimed property status, which is five years in Virginia.
Once unclaimed property status is reached, the state does not acquire any authority to reach back and affect an FCU's action's before an account's abandonment.
In addition, NCUA notes that the practice followed by Guardian FCU and other Virginia credit unions is pro-consumer.
"Though not required for our preemption analysis, we observe the practice of reversing inactive or dormant account fees, and paying the dividends associated with these amounts, returns funds to members and avoids escheatment of the funds to the state," the legal ruling stated.
"Conversely, the state's provision penalizes members who revive an account relationship instead of allowing the funds to escheat to the state. Therefore, we view the state's provision as being less beneficial and providing less protection to consumers than federal law."
The NCUA preemption ruling comes during a time of growing friction between federally chartered institutions and state regulators, many of whom are seeking to apply state predatory lending laws to national banks.
But the federal regulators were given the upper hand just last month when the Supreme Court ruled that nationally chartered banks are preempted from state laws and regulations when they come in conflict with those administered by federal regulators.
Calls Not Returned
Officials with the Virginia Treasury Department did not return phone calls.
Reginald Jones, a Richmond lawyer representing the Virginia CU League in the dispute, said if the NCUA legal ruling is allowed to stand it will raise another dispute on the issue of parity.
That's because the federal preemption ruling will let the federally chartered credit unions off the hook, with respect to the dormant accounts law, but not the state charters.
That would leave Virginia's 40 state-chartered credit unions still bound by the escheat law.
"If it's going to be a preemption for federal charters then we have to get the same deal for state charters," Jones said.
