NAFCU Sees Positives, Raises Concerns for NCUA’s Proposed Share Insurance Rules

In October, the NCUA Board approved a proposed rule aimed at simplifying the agency’s share insurance regulations by establishing a “trust accounts” category to provide Share Insurance Fund coverage of funds in revocable and irrevocable trusts deposited at federally insured credit unions in the accounts of members or those otherwise eligible to maintain insured accounts.

In a five-page letter to the NCUA on Tuesday, NAFCU’s Senior Regulatory Affairs Counsel James Akin wrote in support of the proposed amendments and added some concerns he’d like the agency to address.

During the October meeting, NCUA Chairman Todd Harper said, “Deposit insurance at federally insured credit unions and banks is the cornerstone that secures the foundation of our nation’s vibrant credit union and banking systems. The confidence created by knowing savings are protected by the full faith and credit of the United States allows consumers to rest easy, knowing their hard-earned nest eggs up to the current limit of $250,000 will be safe even during periods of financial and economic stress.”

According to the NCUA, the proposed rule would provide:

• Consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender.
• More flexible recordkeeping requirements to explicitly allow the NCUA to look to records held in the normal course of business that are maintained by parties other than federally insured credit unions and their members.

In his letter, Akin approved of aligning the NCUA’s proposed changes to current regulations enacted by the FDIC, but he urged the agency to implement these changes in a phased approach and provide support for credit unions.

“Despite these benefits, NAFCU believes that there may be instances where accountholders lack the necessary information to calculate share insurance coverage under the new rule,” Akin wrote. “This could occur in complex trust structures or when there are changes in beneficiaries. Accountholders might not always have immediate access to updated details, making it challenging to determine the number of eligible beneficiaries, particularly in trusts involving multiple generations or those set up for estate planning. Regarding the impact on other types of trusts not described in the proposal, the rule might not fully address trusts like charitable remainder trusts or special needs trusts. These have unique characteristics that could affect insurance coverage calculations. Furthermore, trusts operating under state-specific laws or provisions might have aspects not contemplated in the rule, necessitating a broader consideration.”

Concerning the proposed amendments to regulations regarding mortgage servicing accounts (MSAs), Akin encouraged the NCUA to support consistent share insurance treatment of MSAs. He noted that the amendment “simplifies the insurance coverage determination for MSAs, making it easier for credit unions to understand and apply the rules. The inclusion of funds paid by mortgagors for taxes and insurance premiums in the insurance coverage further clarifies the extent of protection available under these accounts.” He urged the NCUA to provide additional clarity, “enabling credit unions to manage MSAs more efficiently and with greater confidence in their compliance efforts.”

According to the NCUA, he proposed changes to the trust account and mortgage servicing account provisions in the NCUA’s Share Insurance Fund regulations would align with changes the FDIC previously adopted that take effect on April 1, 2024.