Fragile: Handle with care CUNA and the OTR debate

WASHINGTON-While NAFCU and NASCUS had staked out their claims in the overhead transfer rate debate, CUNA’s position, representing both state chartered, federally-insured and federal chartered credit unions, called for more delicate handling. CUNA Associate General Counsel Mary Dunn said, “[The overhead transfer rate issue] is driving a wedge between state and federal-credit unions at the exact time when we need to work together.” She noted that the support of a united credit union front would be necessary for the Renaissance Commission proposals after they receive approval from the CUNA Board. But instead of the “rancor” that could have emerged from CUNA’s subcommittees regarding the overhead transfer rate issue, the groups worked out a position they believe to be fair and equitable. Dunn explained that CUNA’s subcommittees agreed, “It is far better to focus on the process rather than the actual numbers.The real issue is equity and the dividend.” CUNA’s resolution on the overhead transfer rate, which still needs board approval to become official, emphasizes three key points. NCUA must determine in writing that it has only included “legitimate, substantiated `insurance-related’ costs” and that the agency does not exceed its authority in setting the rate, according to the proposed resolution. The level of the overhead transfer rate must be set at a “fair, equitable, and efficient” level for all involved, including the agency, the National Credit Union Share Insurance Fund (NCUSIF), and the credit unions. Finally, the resolution directs the NCUA Board to explain its analysis every year to credit unions and seek comments from the credit union community for at least 60 days before setting the overhead transfer rate. The resolution has received a stamp of approval from CUNA’s Examination and Supervision, the Federal Credit Union, and the State Affairs subcommittees. Dunn said that it is particularly significant that the CUNA Federal Credit Union Subcommittee approved of the resolution. “We feel that this is a huge improvement. The federal credit union leaders really stepped up to the plate,” she said. Debate of the issue began in October last year, when the NCUA Board approved an increase in the NCUSIF overhead transfer rate from the 50% to 66.72% for 2001. At the same time, the board approved a one-time, independent, outside study in 2001 for use in considering the 2002 transfer rate. The results are pending The overhead transfer rate refers to the level of funding NCUA takes from the insurance fund to pay for expenses related to administering the fund. NCUA raised the funding level after consulting examiners and regional and central office employees, the results of which averaged out to 66.72% in insurance related duties. The reason the overhead transfer rate decision has sparked such controversy is the way NCUA funding is structured. Federal credit unions pay an operating fee to the agency for the burden of regulating them. All federally insured credit unions pay 1% into the insurance fund. At the end of the year, if the NCUSIF exceeds the ratio of equity minus unreserved contingent liabilities divided by insured shares, a dividend is paid out to contributing credit unions. The more money NCUA takes out of the NCUSIF, the less money credit unions get back if there is a dividend. It is advantageous to federal credit unions to have a higher overhead transfer rate, but it has a negative impact on state chartered, federally-insured credit unions. NAFCU and NASCUS have taken their respective sides, while CUNA must be careful in representing both sides, said Dunn. [email protected]