ABA slams non-member deposit proposal for federal credit unions

Dive Brief:

The American Bankers Association is urging the National Credit Union Administration to withdraw a proposal that would allow federal credit unions (FCUs) to have up to half of their deposits come from other credit unions and government entities. The current cap for non-member deposits at federal credit unions is 20%.
The NCUA said the proposal is in response to credit unions' growing need for additional sources of funding to serve their members.
The ABA questioned the need for the new cap, while criticizing the NCUA's track record of oversight.

Dive Insight:

The Federal Credit Union Act permits an FCU to receive payment on shares from non-members under certain circumstances. An FCU that predominantly serves low-income members may receive payment on shares from any source regardless of membership.

Under the NCUA's proposal, FCUs would be required to adopt a written plan outlining the intended use of the shares and forward a copy of the plan to the NCUA's regional director before accepting any public unit or non-member shares in excess of 20%.

The ABA called the proposal "ill-advised," in a comment letter to the NCUA, and questioned the need for the cap to be raised.

"Rising fraud levels at credit unions and recent events — including the taxi medallion scandal" raise doubts about the NCUA's ability to regulate the institutions it oversees, the trade association said.

Banks and loosely regulated private lenders wrote risky loans for taxi drivers purchasing taxi medallions, a New York Times investigation found. The lenders encouraged frequent refinancing, resulting in the drivers taking on debt they couldn't afford.

Two-thirds of the drivers said their loans were issued by credit unions or institutions that were eventually taken over by the NCUA, an investigation by the city found.

New York City Mayor Bill de Blasio criticized the NCUA after his investigation found many credit unions and the NCUA were reluctant to provide relief on the loans.

"Such an ill-advised proposal, both individually and when put in context with NCUA's failure to implement robust risk-based capital rules, the agency's weakening of membership and business lending restrictions, and NCUA's ongoing and well-documented supervisory problems, raise serious questions over the wisdom of NCUA's sustained actions to enhance the credit union charter at the expense of prudent regulation," the ABA said in its letter.