Trades Give Thumbs Up to NCUA Surety/Guarantor and Maximum Borrowing Cap Proposal

ALEXANDRIA, Va.-CUNA and NAFCU expressed their approval in their respective comment letters of a proposed rule from NCUA regarding credit unions’ ability to enter into surety and guaranty agreements and maximum borrowing limitation waivers for state chartered credit unions. NCUA has proposed that federal credit unions may act as a surety or guarantor on behalf of a member under the incidental powers rule, while permitting federally insured state chartered credit unions to enter into these agreements as allowed by state law. “NAFCU believes allowing credit unions the option of entering into surety and guarantee agreements, when meeting the requirements described, will give credit unions additional flexibility to meet the needs of their members, while ensuring the safety and soundness of the transactions,” NAFCU President and CEO Fred Becker wrote. CUNA also supported the measure with one modification. “We recognize that credit unions, in general, have limited experience with surety and guaranty agreements and that operational challenges may surface as credit unions begin to enter into these arrangements,” CUNA Associate General Counsel Jeff Bloch wrote. “These may include issues such as compliance with applicable licensing and insurance requirements, how the surety or guaranty obligation should be reflected in the credit unions’ books and records, and an understanding of the liability that may be involved.” CUNA suggested that NCUA review the rule thoroughly a year after it becomes effective and include a public comment period at that time. As part of the proposed rule, NCUA also sought comments on allowing state chartered credit unions to apply for waiver from the 50% of paid-in and unimpaired capital and surplus maximum borrowing limitation to whatever the state law permits. Federal credit unions would still have to adhere to the 50% cap as it is written in law. CUNA pointed out that NCUA approval on a “case-by-case basis” would allow the agency to judge each waiver based on the condition of the particular credit union. The trade association also complimented NCUA for including a nonexclusive list of examples describing when a state charter may want to apply for a waiver. NAFCU also said it did not foresee “any additional safety and soundness concerns” stemming from this change. While recognizing it would require a statutory change, CUNA added that it saw no reason why federal credit unions should not receive the same treatment. The organization recommended that this change be considered during the Economic Growth and Regulatory Paperwork Reduction Act review process that all the federal financial regulators are currently performing. [email protected]