Monday, June 23, 2014

ABA Comments on NCUA's Associational Common Bond Proposal

ABA on June 20 applauded the National Credit Union Administration’s proposed rule to clamp down on associations formed for the primary purpose of expanding federal credit union membership and offered suggestions to strengthen the proposal.

Under the proposal, the agency will determine whether an association has been formed primarily to expand credit union membership; if so, the FCU will not be able to include it in its field of membership.

The proposed rule will also expand the totality of the circumstances test to include additional criterion regarding corporate separateness between the association and the credit union. The association and the credit union will be required to operate in a way that demonstrates the separate corporate existence of each entity.

However, ABA called for NCUA to strengthen the test of independence between association and credit union. This would include prohibiting an FCU from paying a member’s association dues. Also, the board of the association should not have any credit union employees or officials, or their immediate family members, to ensure independence. NCUA should further strengthen the corporate separateness test by requiring that individuals not be able to join the association and an FCU simultaneously.

The comment letter requested that NCUA reconsider automatic qualification for certain customer-based associations, such as electric cooperatives and homeowner associations, and re-establish geographic limitations on associational membership.

Read the letter.

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