Illinois Credit Union League
P.O. Box 3107
Naperville, Illinois 60566-7107
630 983-3400

October 1, 2003

Ms. Becky Baker,
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428

Re: Regulatory Publication and Review Under EGRPRA

Dear Ms. Baker:

We are pleased to respond on behalf of our member credit unions to the first stage of the National Credit Union Administration ("NCUA") Board's request for comments to identify NCUA regulatory requirements that are outdated, unnecessary or unduly burdensome, as mandated by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA"). NCUA is requesting comment on two categories of regulatory requirements-applications and reporting, and powers and activities. NCUA has indicated that it will request comment on an additional eight categories of regulatory requirements in the future.

The Illinois Credit Union League represents over 400 federal credit unions and federally insured state chartered credit unions in Illinois.

GENERAL

Statutory Issues

A substantial number (if not a majority) of regulatory impediments result from provisions of the Federal Credit Union Act (e.g., overreaching field of membership limits and requirements). Since credit unions, the Leagues and CUNA are attempting to redress these impediments through our federal legislative initiatives, those statutory issues are not addressed in our comment letter.

Bylaws

A substantial amount of NCUA regulatory requirements are contained in the standard bylaws. Any amendment other than the options contained in the standard bylaws must be approved by NCUA. The 1998 revision to the standard bylaws reduced some outdated regulatory requirements. The inclusion of some the previous "standard bylaw amendments" as options in the 1998 standard bylaws increased the likelihood that credit unions would be aware of the options available to them.

However, the decision by NCUA to cease publication of the many standard bylaw amendments that were not included in the 1998 bylaws and to declare that such amendments would have to be approved on a case by case basis effectively resulted in substantial reduction in regulatory flexibility.

It does not appear that NCUA has included the bylaws in the categories it plans to review under EGRPRA. We encourage NCUA to add standard bylaws and the removal of the formerly available standard bylaw amendments to the regulatory categories that will be made available for comment under EGRPRA.

APPLICATIONS AND REPORTING

Fees Paid by Federal Credit Unions

The operating fee paid by federal credit unions is impacted by the determination of the overhead transfer rate from NCUSIF to NCUA based on a determination by NCUA of the administrative and overhead expenses NCUA incurs with respect to NCUSIF-related functions. The amount of the overhead transfer has resulted in federal credit union operating fees that are often substantially less than the fees paid by state chartered credit unions to state regulators.

Although NCUA has become somewhat more forthcoming on its method of determining the transfer rate, we believe more transparency with respect to NCUA's analysis is needed in order to ensure that the rate determination process is equitable for all parties NCUA, NCUSIF, federal credit unions and federally insured state chartered credit unions.

POWERS AND ACTIVITIES

Loans to Members

The language of §701.21 (a) states that the provisions of §701.21 "may be used by state chartered credit unions with respect to alternative mortgage transactions in accordance with 12 U.S.C. 3801 et seq." Section 701.21 should be amended to provide additional authority and guidance regarding such loans similar to that offered by other federal financial institution regulatory agencies.

NCUA should also review the preemption language of §701.21(b) to determine whether it sufficiently addresses issues raised in court cases challenging state laws.

Statutory Lien

The requirements with respect to the statutory lien on shares contained in §701.39 unduly limit federal credit unions. The purpose of the statutory lien is to provide the equivalent of the equitable right of set-off. The right of set-off enables a creditor to set off its liabilities to a borrower (i.e., the borrower's deposits) against the liabilities of the borrower to the creditor if the borrower is in default. Since, for statutory purposes, share accounts are considered equity rather than liabilities, a court might refuse to allow the set off by a credit unions on the grounds that the share deposit is not a liability of the credit union to the borrower.

To our knowledge, other financial institutions are not required to provide prior written notice to their customers or borrowers of the right of set off. The notice provisions of §701.39 unduly restrict credit unions in their attempt to exercise the equivalent of right of set off and should be deleted from the Rule.

Limit on Nonmember Shares held by Low-Income Designated Credit Unions

NCUA should remove the 20%-of-total-shares limit on deposits by nonmembers in credit unions serving predominantly low-income credit unions. The limit substantially restricts philanthropic and corporate investment needed by low-income and minority credit unions. The limit was adopted prior to the enactment of the Prompt Corrective Action (PCA) requirements. The limits on unfettered growth imposed by the 20% limit on nonmember shares has been addressed in a much more substantial fashion by PCA.

Charitable Contributions

Section 701.25 provides general authority for federal credit unions to contribute to IRC §501(c)(3) organizations operating primarily to promote and develop credit unions. However, the Rule limits contributions to other not-for-profit recipients to entities located in or conducting activities in a community in which the credit union has a place of business.

A credit union may have a substantial number of members in one or more communities that do not have an office of the credit union. The NCUA should remove the "place-of-business" restriction and allow the board of directors of the credit union to determine where contributions should be made based on location of members and subject to the provisions of §701.25(b).

We appreciate the opportunity to provide our comments on NCUA's regulatory requirements with respect to applications and reporting, and powers and activities. We will be happy to respond to any questions regarding these comments or otherwise discuss our concerns with agency staff.

Very truly yours,

ILLINOIS CREDIT UNION LEAGUE

By: Cornelius J. O'Mahoney
Senior Technical Specialist