WASHINGTON–CUNA told NCUA it is concerned that the agency remains “reluctant” to extend full insurance parity with the FDIC to federally insured credit unions when it comes to interest on lawyer trust accounts, known as IOLATA.
In addition, CUNA said another “key concern” remains that under the proposal share insurance coverage is not being extended to prepaid and stored value cards.
In a comment letter to the agency on its proposed share insurance rule, CUNA noted that a bill currently before Congress, H.R. 3468, specifically addresses interest on lawyer trust accounts to provide pass-through insurance coverage when the attorney administering the IOLTA is a member of the federally insured credit union, regardless of the membership status of the individual beneficiary owners of the account funds. The law also provides pass-through insurance coverage to “other similar escrow accounts,” CUNA noted, further clarifying NCUA’s authority to extend share insurance to the owners of funds in any account established by a member.
“Our key concern is that the proposed rule would not extend share insurance coverage to prepaid and stored value cards,” CUNA said in its letter. “We believe, even in the absence of enactment of the CUSIFPA, NCUA has this authority and should exercise it; we urge the Board to do so in the final rule. NCUA’s past legal reasoning for not providing insurance on IOLTAs is instructive as to the agency’s current position on prepaid and payroll cards. The reasoning is simple but deficient because it confuses ownership of funds with member account status…”
NCUA’s reasoning, CUNA said, surmises that a member agent of a credit union can establish accounts for nonmembers of the credit union. “Unless specifically instructed, NCUA historically would not consider an IOLTA a member account of the person whose membership is required to open the account; thus, insurance could not be extended to clients that are not members,” CUNA said.
CUNA added that not only does the Federal Credit Union Act (Act) not preclude extension of the share insurance, it “frankly supports” the concept, CUNA said.