ALEXANDRIA, Va. — NCUA said in a recent legal opinion letter that it has no legal objection to federal credit unions offering rewards checking accounts.

The $109 million Northern Federal Credit Union in New York proposed offering a premium rate share draft product and ATM surcharge refunds with no minimum balance, monthly fee or per draft charges so long as the accountholder agrees to direct deposit or conducting an ACH debit transaction each month; sign on to online banking at least once a month; receive their statement electronically, and conduct 10 or more debit purchases through the account. Those not meeting these requirements in a given month would not receive the rewards for that month. According to NCUA's legal opinion letter (07-0211) a variable rate structure is permissible if founded “on a rational basis.” NCUA Associate General Counsel Sheila Albin wrote in the letter, “Applying that reasoning in this case, we believe the credit union's desire to promote its various automated services and thereby achieve related cost savings is a sufficient rational basis to support the variable rate structure you have proposed.”

However, NCUA pointed out that credit unions cannot contract to pay a particular dividend rate because, unlike a bank paying interest, credit unions pay dividends based on earnings availability. Members should be made aware of this, the agency advised. Additionally, NCUA said the credit union should ensure that it makes all of the appropriate Truth in Savings Act disclosures.

Credit Union Times (See March 21, 2007 issue, page 4) recently reported that $163 million, state-chartered Clearstar Financial Credit Union in Reno, Nev. is offering a similar deal at 6.10%.