NCUA Board Chairman Debbie Matz said she solicited 11 law firms around the nation to review the legality of establishing a two-tier risk-based net worth standard for the credit union industry and eventually settled on Paul Hastings LLP.

“Under current principles of applicable law and existing case law, a court of appropriate jurisdiction, in a litigated matter or proceeding, could conclude that NCUA's statutory authority permits the NCUA to establish the proposed two-tier RBNW requirement set forth in the Proposed Rule,” the legal opinion said.

NCUA Board Member Mark McWatters voted against the revised risk-based capital proposal, arguing that the Hastings legal opinion was not a strong enough justification for the NCUA's legal authority to implement a two-tier risk-based net worth system.

“As a practicing attorney, I have served on the legal opinions committee of large cross-border law firms and note that a 'could' opinion represents a relatively modest standard of assurance. In the obscure, arcane and highly technical and nuanced world of legal opinions, key words such as 'could,' 'would,' 'should,' and 'more likely than not' truly matter,” McWatters said.

He continued, “The recipient of a legal opinion prefers to know that a court 'will' or 'should' or, at a minimum, 'more likely than not will' uphold the legal actions of the recipient. An opinion letter merely noting that a court 'could' uphold the actions of the recipient, although not entirely unhelpful, offers limited comfort to the recipient.”

CUNA obtained a legal opinion from Venable LLP which concluded that the NCUA Board lacks the statutory authority to establish a minimum 10.5 percent risk-based net worth requirement for a complex credit union to be classified as “well capitalized.”

“Were NCUA so ill-advised as to adopt in its Final Rule the proposed dual-based capital standard approach that simply ignores the language of multiple parts of the statutory structure that Congress actually adopted, that provision would be highly vulnerable to being overturned as unlawful by a reviewing court,” the opinion said.

A CUNA spokesperson said “no comment” when CU Times asked for the cost of the legal opinion. The trade group also did not comment on the legal services paid by the NCUA.

“Securing a strong opinion supporting CUNA's case led to a substantial improvement in the rule by the well-capitalized requirement being lowered and the risk weights changing,” CUNA President/CEO Jim Nussle wrote in a letter to CUNA's Board of Directors.