Credit Unions Endorse Plan to Boost Nonmember Shares

Increasing the percentage of government and nonmember shares credit unions may accept would provide them with additional liquidity that could allow them to better serve their members, credit unions told the NCUA recently.

“The increased ability to hold additional public unit or nonmember deposits provides a credit union with a reasonable funding source,” Melissa Tyrrell, compliance manager at Belco Community Credit Union in Harrisburg, Pa., said, in a comment letter submitted to the agency.

The agency is proposing to increase the percentage of nonmember and “public unit” shares from 20% to 50%.

However, representatives of the banking industry said increasing the percentage of nonmember and government deposits would further blur the lines between banks and credit unions.

The NCUA rules currently limit the amount of shares to 20% of all shares, or $3 million, whichever is greater. NCUA regional directors have the power to waive the rule.

“The credit union industry has undergone significant changes in the intervening 31 years since this limit was adopted, including credit unions’ growing need for additional sources of funding to serve their members,” the NCUA said, in proposing to increase the percentage to 50%.

Thomas Neumann, president/CEO of the First Source Federal Credit Union in New Hartford, N.Y., said the new rule would provide his low-income credit union with additional liquidity needed to provide financial services to the underserved.

“We maintain that the purpose of credit unions should continue to be to serve the needs of their member-owners,” Luke Martone, CUNA’s director of advocacy and counsel said. But he added, “We believe it is important that credit unions have the ability to accept nonmember deposits as a source of funding.”

Credit unions are well-equipped to plan for a sudden withdrawal of nonmember shares, said Andrew Morris, NAFCU’s senior director for research and policy said. He added that the NCUA once cited that possibility as a reason for imposing restrictions on nonmember funds.

Banking groups were much more skeptical of the idea.

The NCUA has become an advocate, rather than a regulator, Christopher Cole, vice president and senior regulatory counsel at the Independent Community Bankers of America.

“This action, combined with other recent actions to delay the imposition of risk-based capital rules and to quadruple the commercial real estate appraisal exemption, shows how much of an advocate the agency has become for the credit union industry,” he said.

ABA Executive Vice President of Legislative Affairs and Chief Counsel Kenneth Clayton said the NCUA has conducted “incomplete and faulty analysis” in dismissing concerns about the new proposal.

He said that fraud at credit unions has increased, while the NCUA’s supervision remains “substandard.”