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OGC Legal Opinion 16-0604
Classification of MBLs
The question posed to NCUA was whether once a MBL was paid down below $50,000.00 it still counted toward the statutory MBL cap of 1.75% net worth. NCUA answered that once a single closed-end MBL is paid down below the $50,000.00 threshold, it no longer needs to be classified as an MBL and counted toward the statutory MBL limit.
In 2002, NCUA’s Office of General Counsel issued an opinion (OGC Legal Opinion 02-0384) that when calculating whether a commercial loan met the statutory MBL definition for purposes of calculating the limit, credit unions should aggregate then outstanding balances of a member’s commercial loans. If that aggregate balance was less than $50,000.00, the loan was not an MBL for purposes of calculating the cap.
The 2002 opinion and the 2003 preamble generally clarified a FICU’s MBL reporting requirements once the aggregate of the total business purpose loans to a member fell below $50,000. A similar analysis applies when a member has a single closed-end MBL and the outstanding balance of that loan falls below $50,000. Under this scenario, when a member has a single closed-end MBL, which he or she has paid down below the $50,000 threshold, then the loan is no longer classified as an MBL, and the FICU need not count it toward its statutory MBL limit.
OGC Legal Opinion 15-1124
NCUA was asked if a federal credit union (FCU) has the authority to place a member’s funds, which have been initially deposited in the FCU, in a deposit account at a depository institution account that is insured by the Federal Deposit Insurance Corporation (FDIC) and to serve as custodian for that FDIC-insured account.
NCUA opined that a FCU does have the authority to do so subject to certain conditions. According to NCUA, an FCU is authorized to engage in activities that are “incidental” to its business. An incidental activity is one that is necessary or requisite to enable an FCU to effectively carry out the business for which it is incorporated. An activity is considered an “incidental activity” if:
- It is convenient or useful in carrying out the mission/business of the credit union consistent with the Federal Credit Union Act (FCUA);
- It is the functional equivalent or logical outgrowth of activities that are part of the mission or business of the credit union; and
- It involves risks similar in nature to those already assumed as part of the business of credit unions.
NCUA noted that an FCU may, as a function of its incidental power, act in a ministerial capacity to place funds initially held in a member’s account at the FCU into an account at an FDIC-insured depository institution provided the FCU is doing so at the instruction of the member and follows the instructions specified below:
- Member’s funds to be placed in FDIC insured institution are first deposited into a share account at the FCU;
- Funds placed in the FDIC-insured account are done so in accordance with the member’s written direction;
- FCU performs all related custodial services consistent with the principles of sound custodial administration;
- FCU informs the member (in writing) that only funds remaining in the credit union account will be eligible for share insurance coverage;
- FCU performs functions that are exclusively ministerial and custodial; and
- FCU does not provide any investment advice, take any discretionary action or perform any services that would require it to act as a broker-dealer or any other entity requiring registration.
Field of Membership
NCUA was asked if a federal credit union (FCU) could have a field of membership (FOM) consisting of “persons who are 50 years of age or older residing in a specific state.” Based of those limited facts, NCUA responded “No” stating that the group’s commonality of age and residency alone is not enough to establish a permissible FOM under NCUA’s regulations. However, NCUA noted that if the group were also to share other commonalities in addition to age and residency, then it is possible that those additional commonalities could be sufficient to satisfy the associational common bond provisions of NCUA’s regulations.
Network Credit Unions
NCUA issued Legal Opinion 16-0227 to address the question of whether the “Network Credit Union” model was permissible under the Federal Credit Union Act (FCUA). Citing a 1999 Letter to Credit Unions (LTCU 99-CU-17) NCUA opined the Network Credit Union concept was permissible.
The “Network Credit Union” scenario presented to NCUA was as follows:
- Two FCUs choose to merge;
- The “merged” (non-surviving) FCU would become subsumed by the “continuing” (surviving) FCU, but the merged FCU would continue to operate and serve its former members under the name of “merged FCU’s name, a division of continuing FCU”;
- The continuing FCU would appoint an advisory committee comprised of officials of the merged FCU to serve in an advisory role; and
- The continuing FCU would reserve one seat on its nominating committee for a representative of the merged FCU.
In finding the Network Credit Union concept permissible, NCUA focused on three technical aspects of the scenario:
- Continuing use of the merged FCU’s name – NCUA notes that its rules and and the FCUA permit credit unions to operate using more than one name, and explicitly allows identifying a portion of a credit union as a “branch, unit, or division.”
- The advisory committee – The FCUA provides FCUs flexibility in managing their affairs and creating committees to manage themselves
- Merged FCU representative on nominating committee – Credit unions have the right to establish policies and procedures for nominating committees.
NASCUS Note: NCUA’s letter speaks to the permissibility of the Network Credit Union model for federal credit unions in terms of federal chartering and governance laws. Federally insured state-chartered credit unions (FISCUs) would look to state law for the primary permissibility answer. However, for FISCUs, the portion of the legal opinion that references NCUA’s 1999 LTCU is very important. The 1999 letter discusses views of the permissibility of a single credit union (which is ultimately what results in the Network Credit Union model) using various different names and operating branches as “divisions” of the credit union, in terms of compliance/permissibility with respect to NCUA’s advertising rules. Those rules, codified in Part 740 of NCUA’s rules do apply to FISCUs by incorporation §741.211. In short, these provisions require credit unions to ensure in their advertising, which would be read to include the name they put on the branch) to ensure the public is not mislead into believing that they were dealing with different credit unions. At issue of course is understanding that under the Network Credit Union model the insurance coverage would treat the the different divisions as a single entity (which legal they would be) and aggregate insurance coverage to the $250,000.00 limit across all divisions.