NCUA Chairman Debbie Matz said using NCUSIF funds to pay non-members holding prepaid cards from a failed credit union was not permissible and not good policy.

“As we consider this final rule, it's important to keep in mind that the pass-through insurance in this final rule would only take effect in the rare case when a credit union fails – and only if non-members of the failed credit union had placed funds into a covered escrow account that was maintained by a member,” she said. “That's because under the [Insurance Parity Act], the additional pass-through insurance only covers non-members. Members are already covered under (the) NCUA's existing share insurance rules.”

Extending pass-through coverage to prepaid cards, Matz said, would burden credit unions because they would have to track card balances for members and non-members. Additionally, credit unions would have to pay the required 1% deposit into the share insurance fund to cover those balances.

“The balances of non-members' prepaid cards tied to accounts at federally insured credit unions may be very small – perhaps less than a hundred dollars per card,” Matz continued. “However, tracking those non-members' balances could prove to be difficult and costly for many credit unions. And it would bring little benefit in the event a credit union fails.”

The rule will take effect 30 days after it is published in the Federal Register. Matz said the NCUA would distribute guidance on the rule to credit unions before it goes into effect.

The NCUA board also approved a notice and request for comment regarding two regulatory categories: Rules of procedure and safety and soundness. Required by The Economic Growth and Regulatory Paperwork Reduction Act of 1996, the NCUA must review regulations every 10 years to identify those that might be outdated, ineffective, unnecessary or unduly burdensome.

Specific rules included in the two categories under review include involuntary and voluntary liquidations, lending, investment and deposit activities, examinations and appraisals. The comment period will be 90 days.

Matz said the EGRPRA process spurred recent regulatory relief measures, including an increased small credit union asset threshold to $100 million, the automatic field of membership approval for 12 categories of associations and proposed rules to provide further regulator relief for field of membership and member business lending.