NCUA: Simplification of Share Insurance Rules

WASHINGTON, Oct. 25 -- The National Credit Union Administration has issued a proposed rule (12 CFR Part 745), published in the Federal Register on Oct. 25, 2023, entitled "Simplification of Share Insurance Rules."

The proposed rule was issued by Melane Conyers-Ausbrooks, Secretary of the Board.

COMMENT DEADLINE: December 26, 2023

Here are excerpts:

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SUMMARY:

The NCUA Board (Board) is seeking comment on proposed amendments to its regulations governing share insurance coverage. The proposed rule would address the following items: simplify the share insurance regulations by establishing a "trust accounts" category that would provide for coverage of funds of both revocable trusts and irrevocable trusts deposited at federally insured credit unions (FICUs); provide consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender; and provide more flexibility for the NCUA to consider various records in determining share insurance coverage in liquidations.

DATES:

Comments must be received on or before December 26, 2023.

ADDRESSES:

You may submit written comments by any of the following methods (Please send comments by one method only):

- Federal eRulemaking Portal: https://www.regulations.gov. The docket number for this proposed rule is NCUA-2023-0082. Follow the instructions for submitting comments.

- Mail: Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314.

- Hand Delivery/Courier: Same as mail address.

Public inspection: All public comments are available on the Federal eRulemaking Portal at https:// www.regulations.gov as submitted, except when impossible for technical reasons. Public comments will not be edited to remove any identifying or contact information. If you are unable to access public comments on the internet, you may contact the NCUA for alternative access by calling (703) 518-6540 or emailing [email protected].

FOR FURTHER INFORMATION CONTACT:

Thomas Zells, Senior Staff Attorney, Office of General Counsel, at (703) 518-6540 or by mail at National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. General Background and Legal Authority

A. General Background

B. Legal Authority

II. Simplification of Share Insurance Trust Rules

A. Policy Objectives

B. Background and Need for Rulemaking

1. Evolution of Insurance Coverage of Funds Held in Trust Accounts

2. Current Rules for Coverage of Funds Held in Trust Accounts

3. Need for Further Rulemaking

C. Description of Proposed Rule

D. Examples Demonstrating Coverage Under Current and Proposed Rules

E. Request for Comment

III. Amendments to Mortgage Servicing Account Rule

A. Policy Objectives

B. Background and Need for Rulemaking

C. Description of Proposed Rule

D. Request for Comment

IV. Recordkeeping Requirements

A. Policy Objectives

B. Background and Need for Rulemaking

C. Description of Proposed Rule

D. Request for Comment

V. Regulatory Procedures

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Executive Order 13132 on Federalism

D. Assessment of Federal Regulations and Policies on Families

I. General Background and Legal Authority

A. General Background

The NCUA is an independent Federal agency that insures funds maintained in accounts of members or those otherwise eligible to maintain insured accounts (member accounts) at FICUs, protects the members who own credit unions, and charters and regulates Federal credit unions (FCUs). The NCUA protects the safety and soundness of the credit union system by identifying, monitoring, and reducing risks to the National Credit Union Share Insurance Fund (Share Insurance Fund). Backed by the full faith and credit of the United States, the Share Insurance Fund provides Federal share insurance to millions of account holders in all FCUs and the majority of state-chartered credit unions.

Under the Federal Credit Union Act (FCU Act), the NCUA is responsible for paying share insurance to any member, or to any person with funds lawfully held in a member account, in the event of a FICU's failure up to the standard maximum share insurance amount (SMSIA), which is currently set at $250,000.[1] The FCU Act states the determination of the net amount of share insurance paid "shall be in accordance with such regulations as the Board may prescribe" and requires that, "in determining the amount payable to any member, there shall be added together all accounts in the credit union maintained by that member for that member's own benefit, either in the member's own name or in the names of others."[2] However, the FCU Act also specifically authorizes the Board to "define, with such classifications and exceptions as it may prescribe, the extent of the share insurance coverage provided for member accounts, including member accounts in the name of a minor, in trust, or in joint tenancy."[3]

The NCUA has implemented these requirements by issuing regulations recognizing particular categories of accounts, such as single ownership accounts, joint ownership accounts, revocable trust accounts, and irrevocable trust accounts.[4] If an account meets the requirements for a particular category, the account is insured up to the $250,000 limit separately from shares held by the member in a different account category at the same FICU. For example, provided all requirements are met, shares in the single ownership category will be separately insured from shares in the joint ownership category held by the same member at the same FICU.

The NCUA's share insurance categories have been defined through both statute and regulation. Certain categories, such as the accounts held by government depositors[5] and certain retirement accounts, including individual retirement accounts, have been expressly defined by Congress.[6] Other categories, such as joint accounts[7] and corporate accounts,[8] have been based on statutory interpretation and recognized through regulations issued in 12 CFR part 745 pursuant to the NCUA's rulemaking authority. In addition to defining the insurance categories, the share insurance regulations in part 745 provide the criteria used to determine insurance coverage for shares in each category.

It is also worth noting that the FCU Act provides a definition of the term "member account." The NCUA insures "member accounts" at all FICUs.[9] Importantly, the term "member account" is not limited to those persons enumerated in the credit union's field of membership who have become members. It also permits certain nonmembers, such as other nonmember credit unions, nonmember public units and political subdivisions, and, in the case of low-income designated credit unions, deposits of nonmembers generally. In other words, the NCUA provides share insurance coverage to members and those otherwise eligible to maintain insured accounts at FICUs.

As discussed in more detail below, the proposed amendments reflect the Board's aim to: (1) provide FICUs, FICU employees, and those with member accounts at FICUs, with a rule that is easier to understand; (2) provide parity with changes adopted by the FDIC in January 2022; and (3) facilitate the prompt payment of share insurance in accordance with the FCU Act, among other objectives.

B. Legal Authority

The Board has issued this proposed rule pursuant to its authority under the FCU Act. Under the FCU Act, the NCUA is the chartering and supervisory authority for FCUs and the Federal supervisory authority for FICUs.[10] The FCU Act grants the NCUA a broad mandate to issue regulations governing both FCUs and FICUs. Section 120 of the FCU Act is a general grant of regulatory authority and authorizes the Board to prescribe rules and regulations for the administration of the FCU Act.[11] Section 207 of the FCU Act is a specific grant of authority over share insurance coverage, conservatorships, and liquidations.[12] Section 209 of the FCU Act is a plenary grant of regulatory authority to the NCUA to issue rules and regulations necessary or appropriate to carry out its role as share insurer for all FICUs.[13] Accordingly, the FCU Act grants the Board broad rulemaking authority to ensure that the credit union industry and the Share Insurance Fund remain safe and sound.

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[FR Doc. 2023-23481 Filed 10-24-23; 8:45 am]

BILLING CODE 7535-01-P

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The document was published in the Federal Register: https://www.federalregister.gov/documents/2023/10/25/2023-23481/simplification-of-share-insurance-rules

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