ABA Urges NCUA to Withdraw ‘Ill-Advised’ Non-Member Deposit Proposal

The American Bankers Association yesterday urged the National Credit Union Administration to withdraw a proposed rule that would allow federal credit unions to have up to 50% of their deposits come from other credit unions and government entities, up from a 20% cap today.

Under the proposal, FCUs could take insured deposits of up to half of their paid-in and unimpaired capital and surplus, less the public unit and non-member shares. Public units include the federal government, states and territories, counties and municipalities and tribal entities. Under the proposal, designated low-income FCUs—which account for 57% of all FCUs, according to current NCUA figures—would be able to accept deposits from any non-member up to the 50% level.

In a comment letter to the credit union regulator, ABA called into question the need for the cap to be raised, given rising fraud levels at credit unions and recent events—including the taxi medallion scandal—that have raised doubts about the NCUA’s ability to effectively regulate the institutions it oversees.

“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,” ABA said.