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This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
This episode covers Purchase, Sale,
and Pledge of Eligible Obligations.
The following is an audio
version of that document.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming, or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel dot com.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the document.
Summary.
The N C U A Board solicits public
comment on a proposal to streamline
its regulations governing the purchase,
sale, and pledge of eligible obligations.
The Board proposes to remove the
prescriptive lists of items that must be
addressed in the written policies adopted
by a federal credit union, or F C U.
Although F C Us would still be required
to maintain written policies, removing
the mandated items will enable a more
efficient and principles-based approach.
The Board also proposes to remove
detailed requirements regarding
conflicts of interest and compensation.
These regulatory provisions are
unnecessary since F C Us are already
governed by broader conflict of interest
provisions in their bylaws and by the
fiduciary duties of their officials.
Dates.
Comments must be received
by April 27, 2026.
Supplementary Information.
Section one.
Introduction.
A.
Background.
In a final rule published on May
9, 1977, the N C U A established
the regulations currently codified
in 12 C F R section 701.23.
Section 701.23
implements section 107(13) of the Federal
Credit Union Act, or F C U Act, which
authorizes credit unions to purchase,
sell, and pledge eligible obligations to
provide greater flexibility in meeting
member demand and improving liquidity.
A 1981 final rule further enhanced
this flexibility by excluding
adjustable-rate mortgage loans
from certain asset limitations
and clarifying an F C U's right to
enforce due on sale clauses, thereby
promoting safe and sound participation
in the secondary mortgage market.
The regulations have been
periodically amended since then.
Section 701.23
was most recently amended through a
2023 final rule that provided additional
flexibility for federally insured credit
unions, or F I C Us, to use advanced
technologies and opportunities offered
by the financial technology sector.
B.
Legal Authority.
The Board is issuing this
proposed rule pursuant to its
authority under the F C U Act.
Under the F C U Act, the N C U A
is the chartering and supervisory
authority for F C Us and the federal
supervisory authority for F I C Us.
The F C U Act grants the N C U A a
broad mandate to issue regulations
governing both F C Us and F I C Us.
Section 120 of the F C U Act is
a general grant of regulatory
authority and authorizes the Board
to prescribe regulations for the
administration of the F C U Act.
Section 209 of the F C U Act is a plenary
grant of regulatory authority to the
N C U A to issue regulations necessary
or appropriate to carry out its role
as share insurer for all F I C Us.
The F C U Act also includes an express
grant of authority for the Board to
subject federally chartered central,
or corporate, credit unions to
such rules, regulations, and orders
as the Board deems appropriate.
Section two.
Proposed Rule.
Section 701.23
governs the purchase of whole or
partial loans from various sources,
including the eligible obligations
of an F C U's own members, student
loans, and real estate-secured loans.
It establishes requirements for
written policies, board approval,
and limitations on the aggregate
amount of purchased obligations.
While section 107(13) of the F C U Act
requires the Board to prescribe rules
and regulations for the purchase, sale,
and pledge of eligible obligations,
the Board has determined that
several provisions of section 701.23
are not statutorily required and impose
an unnecessary regulatory burden.
The Board is therefore proposing
to amend section 701.23
by revising paragraphs (b)(6), (c),
and (d), and removing paragraph (g).
Paragraph (b)(6) provides that the
purchases of eligible obligations and
notes of liquidating credit unions
must comply with the purchasing F C
U's internal written purchase policies.
The paragraph goes on to mandate a
detailed list of requirements for an F C
U's internal written purchase policies.
These requirements, which cover due
diligence, risk management, underwriting,
portfolio concentration limits, and legal
review, create a rigid, one-size-fits-all
framework that is unduly burdensome,
particularly for smaller F C Us.
The Board believes that an F C
U's board is in the best position
to develop policies that are
appropriately scaled for its activities.
The Board proposes to
revise section 701.23(b)(6)
by removing the prescriptive list
of items that must be addressed
in the F C U's written policies.
Although F C Us would still be required
to maintain written policies, removing
the mandated items would foster a more
efficient, principles-based approach,
allowing boards to exercise their
business judgment while remaining
accountable for safe and sound operations.
The F C U Act requires the Board to
issue rules, but does not require the
Board to mandate a detailed framework
for internal credit union policies.
Paragraph (c) of section 701.23
establishes similarly prescriptive
elements that must be addressed
in an F C U's written policies on
the sale of eligible obligations.
Paragraph (d) does the same for the
required written policy to address
the pledging of eligible obligations.
The Board proposes to also amend these
paragraphs for the same reasons as those
discussed regarding section 701.23(b).
Mandating board approval and specific
written agreement terms for these
transactions codifies what are already
standard and prudent business practices.
Removing these provisions reduces
administrative burden and without
lifting the requirement that F C Us
manage their own operations responsibly,
tailoring their processes to their
specific needs and risk profiles,
and subject to examiner oversight.
The Board also proposes to remove
paragraph (g) of section 701.23,
which establishes a detailed code
of conduct regarding conflicts
of interest and compensation.
The regulation's broad prohibition on
compensation, followed by a narrow list
of exceptions, is inflexible and may
hinder legitimate incentive structures.
F C Us are already governed by
broader conflict of interest
provisions in their bylaws and by the
fiduciary duties of their officials.
The F C U Act does not require
the Board to establish such a
detailed compensation framework.
Removing this paragraph allows
credit union boards to establish
their own reasonable policies,
provided all transactions are
conducted at arm's length and in the
best interest of the credit union.
As a result of the removal of the existing
paragraph (g), current section 701.23(h)
would be redesignated
as section 701.23(g).
The proposed rule would make a
conforming change to the appeals
procedures regulation in 12 C F R part
746 to reflect this redesignation.
Specifically, the current
reference to 701.23(h)
in section 746.201(c)
would be revised to read 701.23(g).
No substantive effect is intended by
this technical conforming amendment.
The Board invites public comments
on the proposed amendments.
The Board specifically requests comment
on whether removing these prescriptive
policy requirements, procedural mandates,
and the expanded authority process could
create safety and soundness concerns or
lead to imprudent risk-taking by F C Us.
This concludes the document.
If your credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and
we thank you for listening.