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CUs could pre-pay assessment under NCUA plan
ALEXANDRIA, Va. (5/20/11)--Responding to the comments of many credit unions nationwide, the National Credit Union Administration (NCUA) Thursday released a proposal that would allow most credit unions to voluntarily prepay a portion of their future Corporate Credit Union Stabilization Fund assessments. The Credit Union National Association (CUNA) said it acknowledges that the NCUA has tried to find a different approach to address an issue of importance to credit unions, even though, based on credit unions’ reactions, the plan may need more work before final adoption. If credit unions participate in the plan as outlined, the corporate credit union stabilization fund assessments would be reduced for 2011 and 2012. NCUA staff said today that without a prepayment plan, the assessment for this year’s corporate stabilization fund will hypothetically be around 25 basis points (bp) and around 13 bp for 2012. “Spreading the cost of assessments is an issue of importance to credit unions and one we have raised often with the agency. We will need to learn more about what the full impact of this proposal will be on our member credit unions, and we will be working with them to determine that,” CUNA President/CEO Bill Cheney said Thursday. Under the proposed plan credit unions could prepay corporate stabilization assessments on a voluntary basis of up to 36 bp of insured shares this year. The minimum amount that a credit could advance would be $10,000, meaning that credit unions with less than about $3 million in assets would not be able to prepay assessments. The prepayments, once made, would be held as part of an “account” from which assessments for 2013, 2014 and subsequent years could be withdrawn. The prepayments would be counted as an asset purchase, and not expenses, for accounting purposes, and would not be expensed until used to cover assessments in 2013 and beyond. The NCUA has released the proposal for public comment, and the agency has said that it would only move forward with the plan if it receives commitments from credit unions that equal a minimum of $300 million. The board did not vote on the proposal during Thursday’s meeting. Any prepayments are expected to be made this year. According to CUNA, the structure of the proposal means that participation by any credit union would essentially involve granting the corporate stabilization fund an interest free loan for a few years. At current interest rates, there would not be substantial opportunity costs, but rates could be higher next year and in later years, CUNA said. CUNA has estimated that voluntary payments by all eligible credit unions at the maximum payment amount could reduce the amount of corporate stabilization-related assessments charged in 2011 from 25 bp to 10 bp. Corporate assessments charged in 2012 could theoretically drop to 10 bp from the currently planned 13 bp if maximum advance payments are made. CUNA is urging all eligible credit unions to consider the benefits of the prepayment program and to suggest revisions as appropriate. “We urge all credit unions to participate in the coming information and education events about the program, so that they can develop their own thoughtful views to share with NCUA by June 20, the end of the comment period,” Cheney said, He added, “In the meantime, we appreciate that NCUA has been listening to stakeholders and has taken up a creative approach, like this, to help credit unions deal with the costs of these assessments.” The relatively short comment period is necessary, the agency has indicated, because it will need to adopt a program by late June for any voluntary payments to impact its 2011 assessments. CUNA will be providing more analysis on the proposal to credit unions shortly. An NCUA webinar is planned for next week. Watch for more details in Monday's News Now. For the full NCUA proposal, use the resource link.
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