Michigan Credit Union League

October 1, 2003

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

RE: NCUA Review of the First Two Categories of Regulations as Required by the Economic Growth and Regulatory Paperwork Reduction Act

Dear Ms. Baker,

The Michigan Credit Union League (MCUL) appreciates the opportunity to provide comments to the National Credit Union Administration (NCUA) concerning NCUA's review of the first two categories of regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). The MCUL is a trade association representing over 90% of state and federally chartered credit unions in the state of Michigan. This comment letter was drafted in consultation with the MCUL Regulatory Issues Subcommittee, which is comprised of Michigan credit union staff and officials.

The MCUL appreciates NCUA efforts to carefully review all of its regulations, consider comments received, and pass along any comments on statutory restrictions to Congress. The MCUL supports this public review and comment process, and offers specific suggestions on the first two categories of regulations herein.

Category 1: Applications and Reporting

Field of membership/chartering process (IRPS 03-1)

Interpretive Ruling and Policy Statement 03-1, which contains the majority of the Agency's rules governing field of membership (FOM) for federal credit unions (FCUs), should be changed to include the following suggestions:

• A FCU can currently add select groups to its FOM if the groups are in reasonable proximity to any ATM that is wholly-owned by the credit union. The MCUL encourages NCUA to remove the "wholly-owned" requirement from this provision, as it currently (1) puts small credit unions that may not be able to afford to purchase an ATM at a distinct disadvantage, (2) hinders credit unions that have joined an ATM network in the spirit of cooperation, and (3) does not appear to have any logical justification, given the fact that most full-service ATMs are able to provide similar levels of member service, regardless of the credit union's ownership interest (if any) in the ATM itself.

• Currently, a FCU must establish a physical presence in an underserved area within a certain time period after adding such an underserved area to its FOM. The MCUL encourages NCUA to allow FCUs to serve underserved areas based on an ATM in the underserved area, and to remove the requirement to establish a facility in the area. FCUs should not be restrained from adding underserved areas to their FOMs by requiring them to establish a physical presence.

• The MCUL also encourages NCUA to consider allowing FCUs to add select groups regardless of the location of any physical service centers or ATMs. With the onset of online banking, many credit unions are capable of providing a high level of member service, without requiring the member to ever use an ATM or enter a service center location.

• The MCUL encourages NCUA to expand the trade, industry, or profession FOM concept to multiple group credit unions. Currently, only single group credit unions are allowed to have FOMs based on a trade, industry, or profession.

• The MCUL encourages NCUA to allow FCUs converting to community charters to continue serving their existing FOMs post-conversion, instead of only allowing them to continue serving their members of record.

• The MCUL encourages NCUA to allow FCU boards of directors to determine their own FOMs, subject to safety and soundness reviews by NCUA. For example, a FCU board would be allowed to submit a proposed FOM change to NCUA, and, if NCUA did not object within 30 days, the proposed FOM would become effective on the 31st day.

Conversion of Insured Credit Unions to Mutual Savings Banks (12CFR Section 708a)

It appears that NCUA plans to issue proposed changes to Section 741.7 of the Agency's rules and regulations later this year, in order to enhance the disclosures credit unions must provide to members before converting to mutual savings banks. Chairman Dollar is reportedly concerned that credit union members may not be fully informed of the fact that a credit union could conceivably convert to a stockholder-based institution within two years of conversion. The MCUL encourages NCUA to issue this proposal, and will revisit the issue at that time.

Change in Official/Senior Executive Officer of New/Troubled Credit Unions (12 CFR Section 701.14)

While the MCUL understands the necessity of NCUA Rule Section 701.14 governing a change in an official or senior executive officer of a newly chartered or troubled credit union, the MCUL believes it is overly burdensome and invasive as it currently stands. The MCUL encourages NCUA to consider reviewing this regulation in an effort to simplify it.

Miscellaneous

The MCUL encourages NCUA to include information on the determination of the overhead transfer rate for all federally-insured credit unions in its regulations, in order for the rate determination process to be more transparent.

The MCUL encourages NCUA to allow credit unions converting from state to federal charter to retain any unauthorized investments (i.e., investments that were allowed under state law, but not allowed for FCUs) for a certain period of time, rather than forcing converting CUs to immediately divest of any such investments. Immediate divestiture may not always be in the interests of safety and soundness for converting CUs.

Category 2: Powers and Activities

Loans to Members and Lines of Credit to Members (12CFR 701.21)

The MCUL encourages NCUA to consider making changes to Rules Section 701.21, as follows:

• Simplify the rate language found in 701.21(c)(7) to a single paragraph, which would state the current rate effective as of a particular date, and would include a provision explaining that the rate is periodically reassessed by NCUA.

• Consolidate the loan maturity rules and exceptions into one area of the regulation.

• Clarify in the regulation that a credit union's board may delegate the setting of loan rates and terms to the credit union's management.

• Remove the overdraft policy rules from this regulation, and insert them into the share draft regulation (or other appropriate location). The MCUL is concerned that the inclusion of the overdraft policy rules in a lending rule may lend to the arguments of some that overdraft protection policies should fall under Regulation Z.

• Raise the limitation on loans to officials requiring board approval to $50,000. The MCUL does not believe this limitation has been raised for many years, and believes that $50,000 may be a more appropriate limit.

Maximum Borrowing (12CFR Section 741.2)

Currently, Section 741.2 of the NCUA Rules limits a federally-insured credit union from borrowing an aggregate amount from any source in excess of 50% of its paid-in and unimpaired capital and surplus. The MCUL believes that 50% may be an arbitrary limitation, and encourages NCUA to allow all RegFlex-eligible credit unions to exceed this cap. The MCUL also encourages NCUA to consider removing the limitation completely, and instead examine each credit unions borrowing amount individually for safety and soundness.

Investment and Deposit Activities (12CFR Part 703)

It is our understanding that NCUA believes the FCU Act prohibits FCUs from investing in corporate bonds. However, the MCUL continues to encourage NCUA to explore options in which FCUs would be allowed to invest in investment grade corporate bonds.

Fixed Assets (12CFR Section 701.36)

Currently, the fixed asset limitation for FCUs found in Section 701.36 of the NCUA Rules limits FCU ownership of land, buildings, furniture, fixtures, and equipment to 5% of shares and retained earnings. However, because these investments are aggregated when determining whether the FCU has exceeded the limitation, it is currently extremely difficult for a FCU to build a new service center, for example, or invest in an up-to-date computer system. The MCUL encourages NCUA to consider modifying the definition of fixed assets to only include land and buildings. In addition, the MCUL has heard reports of NCUA requiring copies of blueprints from FCUs seeking waivers from the 5% limitation. The MCUL believes blueprints may not be helpful in aiding NCUA in the waiver determination, and encourages NCUA to consider simplifying the waiver application process.

Miscellaneous

The MCUL encourages NCUA to pursue a law change to allow FCUs to accept deposits as well as shares.

Conclusion

The MCUL appreciates NCUA's efforts to conduct a thorough review of regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act. We look forward to providing you with additional comments as this process moves forward.

Sincerely,
Vice President,
Legal and Regulatory Affairs