ALEXANDRIA, Va.––The NCUA board has voted 3-0 to put out for 60-day comment a proposal to simplify share insurance requirements.
The rule specifically aims to address misunderstandings around trust accounts, with agency staff telling the board during its meeting that over the last four years it has fielded more than 6,500-related questions.
According to NCUA staff presenting to the board, the proposed rule would:
- Simplify the NCUA’s share insurance regulations by establishing a single “trust accounts” category that would provide for coverage of funds of both revocable and irrevocable trusts deposited at federally insured credit unions in the accounts of members or those otherwise eligible to maintain insured accounts
- Provide consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender
- Apply more flexible recordkeeping requirements to explicitly allow the NCUA to look to records held in the normal course of business that are maintained by parties other than a federally insured credit union and its members.
Under the proposal, the proposed changes take effect on April 1, 2024, the same date the FDIC’s changes go into effect, but NCUA said credit unions will be given an extended period of time to get into compliance.
Staff said the NCUA proposal is “substantially similar” to the FDIC approach.
Harper: A ‘Cornerstone’ of the System
NCUA Chairman Todd Harper called “deposit insurance at federally insured credit unions and banks the cornerstone that secures the foundation of our nation’s vibrant credit union and banking systems.”
He said that was especially evident during the collapse of Silicon Valley Bank, Signature Bank, and First Republic earlier in the year, with Harper noting that between March 13-30, website traffic to Share Insurance Fund information on NCUA.gov and MyCreditUnion.gov increased 24% and 77%, respectively.
“…The NCUA’s Consumer Assistance Center and Office of Credit Union Resources and Expansion received more than 6,300 calls from credit union members and consumers who had questions about share insurance coverage,” Harper said.
In order to maintain what he called a “vital fortification” of the financial system, he said the federal insurance coverage provided by the National Credit Union Share Insurance Fund and the FDIC’s Deposit Insurance Fund should “align to the greatest extent possible.”
In response to a question from Harper, staff said the NCUA changes will not affect state laws related to trusts.
Overall, Harper said the new rule will be easier for the NCUA and federally insured credit unions to verify insured shares at credit unions under this proposal.
Hauptman: ‘Clear Regulation is Better Regulation’
NCUA Vice Chairman Kyle S. Hauptman, who also noted how the bank failures have flooded NCUA’s phones with questions on the topic, said the “sheer volume of questions suggests the rules need to be simplified.”
“I believe that clear regulation is better regulation. Language that is confusing or lacking in clarity is subject to misinterpretation by regulated entities and consumers,” said Hauptman. “Trust is lost in the confusion, and, ultimately, the consumer may suffer.”
Additional Specifics
Hauptman praised the fact the rule has been tailored to reflect how credit unions are different from banks, and further simplifies several complex issues, including:
- The proposed rule takes the rules for coverage for revocable and irrevocable trusts – which are different – and replaces them with one rule.
- The proposed rule clarifies coverage amounts. “A member’s trust accounts will be insured for up to $250,000 per trust beneficiary – with up to five beneficiaries – regardless of whether the trust is revocable or irrevocable,” he stated. “And this is regardless of contingencies or the allocation of funds among beneficiaries. This would provide for deposit insurance coverage of up to $1,250,000 per member, per insured credit union, for trust accounts.”
- The proposed rule is intended to facilitate faster deposit insurance determinations and payouts.
Hood: Trust Accounts Bring ‘Complexities’
NCUA Board Member Rodney Hood, who reminded he was part of the board when it raised the deposit insurance cap to $250,000 per account from $100,000, also praised the decision to clarify the NCUSIF coverages.
“But as we've learned through today's briefing, trust accounts introduce complexities and factors like the nature of the trust and whether it's revocable or irrevocable,” he said, adding he will be “keenly” watching the comments the agency receives.