May 20, 2013
Mary Rupp
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314–3428
RE: Proposed Rule on Ownership of Fixed Assets
Dear Ms. Rupp:
On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I am writing you regarding the National Credit Union Administration’s (NCUA) proposed rule on the NCUA’s rules on federal credit union (FCU) ownership of fixed assets. See 78 Fed. Reg. 17136 (March 20, 2013). The proposed rule would amend Section 701.36 of the NCUA’s rules and regulations by replacing current language with plain language, adding an introductory section to define the scope of the section, reorganizing the existing definitions and adding definitions of “partially occupy” and “unimproved land or unimproved real property,” and clarifying the process of obtaining waivers from the NCUA.
NAFCU generally supports the proposed changes. We agree with the NCUA that use of plain language would help credit unions better understand the regulations. We also welcome the addition of the scope section, the proposed new definitions, and the clarification for how to obtain a waiver.
In regards to the definition of “partially occupy,” while we do support defining the term, we urge the agency to remove the proposed third prong of the definition. That prong requires that the partial occupation is “sufficient to show that the federal credit union will fully occupy the premises within a reasonable time.” NAFCU does not believe that such requirement is necessary. The definition, as well as the provisions in Section 701.36 that address partial occupation, should be tailored to provide a credit union adequate flexibility to determine the use of its premises.
Further, NAFCU would like to take this opportunity to address a key aspect of Section 701.36 – the limitation on the ability to invest in fixed assets by federal credit unions with $1,000,000 or more in assets. Under the rule, the aggregate of all of a FCU’s investments in fixed assets is limited to 5 percent of its shares and retained earnings, unless the NCUA grants the FCU a waiver.
As we have stated in the past, the cap is wholly arbitrary. NAFCU strongly urges the agency to entirely remove the cap, greatly increase it, or change the regulatory scheme to provide flexibility for credit unions. Credit unions should be granted ample flexibility to determine whether investing in particular fixed assets is in the best interest of their members. Investments in fixed assets are made to improve services to members, including making such services more accessible and readily available. As services are more accessible, the safety and soundness concerns that the cap seeks to address would decrease because the credit union will likely experience increased shares and retained earnings, lowering the percentage of the credit union’s investment in fixed assets. Simply put, the ground upon which the one-size-fits-all limit of 5 percent is based is not justifiable and cannot adequately be mitigated by an uncertain outcome of a waiver request to obtain an increased limit.
Further and importantly, NAFCU notes that eliminating the investment cap would address the lack of parity in this field between federal credit unions and state-chartered credit unions. As Section 701.36 applies only to federal credit unions, the investment limitation only applies to federal credit unions. We strongly urge the NCUA to take action to provide for parity.
NAFCU appreciates the opportunity to share our thoughts on the proposed rule. Should you have any questions or require additional information please call me at (703) 842-2268.
Sincerely,
Tessema Tefferi
Senior Regulatory Affairs Counsel