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Hello, this is Samantha Shares.

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This episode covers N C U A's proposed
rule on Suretyship and Guaranty;

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Segregated Deposit and Collateral.

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The following is an audio
version of that document.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
forty years of National Credit

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Union Administration experience.

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We assist our clients with N C
U A so they save time and money.

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If you are worried about a recent,
upcoming, or in process N C U A

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examination, reach out to learn how they
can assist at Mark Treichel dot com.

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Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

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And now the proposal.

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The N C U A Board, referred to as the
Board, seeks comment on a proposed rule

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to remove the segregated deposit and
collateral requirements when a federally

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insured credit union, referred to as a
F I C U, acts as a surety and guarantor.

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Removing this regulation will provide
F I C U s with greater flexibility to

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design products that meet member needs.

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F I C U s would remain subject to
the other requirements regarding

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surety and guaranty agreements.

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Federal credit unions may only engage in
activities that are expressly authorized

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either by statute or within the federal
credit union’s incidental powers.

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The Federal Credit Union Act explicitly
grants federal credit unions the

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power to, among other activities,
make loans to members and to provide

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letters of credit on behalf of members.

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The accompanying incidental powers
provision states that each federal credit

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union may exercise such incidental powers
as shall be necessary or requisite to

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enable it to carry on effectively the
business for which it is incorporated.

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The Federal Credit Union Act defines
the business for which each federal

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credit union is incorporated as
promoting thrift among its members

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and creating a source of credit for
provident or productive purposes.

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Section seven zero one point two zero,
established in two thousand four,

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recognizes the ability of federal credit
unions to enter into suretyship and

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guaranty agreements for their members as
an incidental power, providing additional

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flexibility to meet member needs.

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For example, the regulation allows federal
credit unions to become one party in a

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three way lending relationship, where
the federal credit union agrees to take

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responsibility for repayment if the member
is unable to meet the lending obligation.

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Section seven zero one point two zero
defines these arrangements and, to

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promote safety and soundness, requires
that the federal credit union’s

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obligation be for a fixed amount and
duration, that the federal credit union’s

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performance of the agreement creates
an authorized loan that complies with

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the applicable lending regulations,
and that it obtains a segregated

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deposit from the member sufficient
to cover the potential liability.

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As provided in section seven four
one point two two one of the N C U

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A regulations, these requirements
also apply to federally insured state

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credit unions that are authorized
under state law to enter into

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suretyship and guaranty agreements.

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The rule was amended in two
thousand nineteen as part of a

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regulatory reform initiative to
reduce burden and improve clarity by

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updating internal cross references.

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The Board has the legal authority to
issue this proposed rule pursuant to

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its plenary rulemaking authority under
the Federal Credit Union Act and its

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specific rulemaking authority under
the various acts the Board administers.

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Under the Federal Credit Union Act, the
N C U A is the chartering and supervisory

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authority for federal credit unions
and the federal supervisory authority

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for federally insured credit unions.

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The Federal Credit Union Act grants the N
C U A a broad mandate to issue regulations

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governing both federal credit unions
and all federally insured credit unions.

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Section one two zero of the Federal
Credit Union Act is a general grant

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of regulatory authority and authorizes
the Board to prescribe rules and

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regulations for the administration
of the Federal Credit Union Act.

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Section two zero seven of the Federal
Credit Union Act is a specific grant of

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authority over share insurance coverage,
conservatorships, and liquidations.

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Section two zero nine of the Federal
Credit Union Act is a plenary grant

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of regulatory authority to the
Board to issue rules and regulations

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necessary or appropriate to carry
out its role as share insurer for

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all federally insured credit unions.

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Accordingly, the Federal Credit
Union Act grants the Board broad

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rulemaking authority to ensure
that the credit union industry and

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the National Credit Union Share
Insurance Fund remain safe and sound.

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As part of its deregulatory initiative,
the Board proposes to remove paragraphs

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c three and d of section seven zero one
point two zero, which impose segregated

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deposit and collateral requirements
when federally insured credit unions

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act as a surety and guarantor.

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Under these provisions, depending
on the nature of the collateral,

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a federal credit union must have
a perfected security interest in

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collateral equal to one hundred or one
hundred ten percent of the obligation.

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The one hundred percent collateral
category includes cash, obligations

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of the United States or its agencies,
obligations fully guaranteed by the United

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States or its agencies as to principal
and interest, and notes, drafts, bills

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of exchange, and bankers’ acceptances
that are eligible for rediscount or

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purchase by a Federal Reserve Bank.

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The one hundred ten percent
collateral category includes real

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estate and marketable securities.

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Section seven four one point two two one
of the N C U A regulations applies these

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requirements to federally insured state
credit unions that are authorized under

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state law to act as a surety or guarantor.

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The Board is now of the view that removing
these segregated deposit and collateral

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requirements will provide federally
insured credit unions the flexibility to

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design products that meet member needs.

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These proposed changes are intended to
simplify the regulatory framework and

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reduce unnecessary compliance burdens.

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It is not always necessary to
have a segregated deposit that

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fully covers the liability.

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For example, current regulations require
a federally insured credit union acting

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as a surety or guarantor to create an
authorized loan that complies with the

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applicable N C U A lending regulations.

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The N C U A’s commercial lending
regulations adopted in two thousand

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sixteen include collateral requirements
that reflect a broad principles based

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regulatory approach for federally
insured credit unions engaged in

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member business lending activities.

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These principles are predicated on the
Board’s expectation that credit unions

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will maintain prudent risk management
practices and sufficient capital to

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mitigate the risks associated with
their commercial lending activities.

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Maintaining this additional requirement
for a segregated deposit associated

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with suretyship or guaranty agreements
adds complexity to these transactions.

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Federally insured credit unions are
best positioned to determine the

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amount and types of collateral they are
willing to accept to cover the risk.

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The Board invites comment on all
aspects of this proposed rule.

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The Providing Accountability Through
Transparency Act of two thousand twenty

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three requires that a notice of proposed
rulemaking include the internet address

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of a summary of not more than one
hundred words in length of a proposed

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rule, in plain language, that shall
be posted on the internet website

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commonly known as regulations dot gov.

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The Act applies to notices
of proposed rulemaking.

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In summary, the Board seeks comment on
a proposed rule to remove the segregated

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deposit and collateral requirements
when a federally insured credit

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union acts as a surety and guarantor.

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Removing this regulation will
give federally insured credit

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unions the flexibility to design
products that meet member needs.

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Federally insured credit unions would
remain subject to the other requirements

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regarding surety and guaranty agreements.

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Pursuant to Executive Order twelve
eight six six, as amended, a

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determination must be made whether
a regulatory action is significant

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and therefore subject to review by
the Office of Management and Budget.

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This proposed rule was drafted
and reviewed in accordance with

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applicable executive orders.

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The Office of Management and Budget has
determined that this proposed rule is

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not a significant regulatory action.

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This proposed rule will reduce a
burden by removing the segregated

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deposit and collateral requirements
for federally insured credit union

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suretyship and guaranty arrangements.

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The Regulatory Flexibility Act generally
requires an agency to conduct a regulatory

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flexibility analysis unless the agency
certifies that the rule will not have

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a significant economic impact on a
substantial number of small entities.

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For purposes of this analysis,
the N C U A considers small credit

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unions to be those having under one
hundred million dollars in assets.

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The Board fully considered the potential
economic impacts of the regulatory

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amendments on small credit unions.

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To the extent that the proposed rule
would have any economic impacts,

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they will be deregulatory in nature.

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Accordingly, the N C U A certifies
the proposed rule would not have

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a significant economic impact on a
substantial number of small credit unions.

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The Paperwork Reduction Act of nineteen
ninety five generally provides that

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an agency may not conduct or sponsor
a collection of information unless it

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displays a currently valid Office of
Management and Budget control number.

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The N C U A has determined that the
changes addressed in this notice do not

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create a new information collection or
revise an existing information collection.

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The N C U A has determined
that this proposed rule would

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not affect family well being.

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The proposed rule relates to the
collateral requirements for federally

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insured credit unions to enter into
surety and guaranty agreements,

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and any effect on family well
being is expected to be indirect.

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For the reasons stated in the preamble,
the N C U A Board proposes to amend Title

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twelve of the Code of Federal Regulations,
part seven zero one, as follows.

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Part seven zero one, Organization and
Operation of Federal Credit Unions.

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The authority citation for part seven
zero one continues to read as follows.

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Authority, twelve United States Code
sections one seven five two, one

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seven five five, one seven five six,
one seven five seven, one seven five

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eight, one seven five nine, one seven
six one a, one seven six one b, one

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seven six six, one seven six seven, one
seven eight two, one seven eight four,

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one seven eight five, one seven eight
six, one seven eight seven, one seven

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eight eight, and one seven eight nine.

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Section seven zero one point two
zero, Suretyship and guaranty.

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The federal credit union limits its
obligations under the agreement to a

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fixed dollar amount and a specified
duration, and the federal credit union’s

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performance under the agreement creates
an authorized loan that complies with the

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applicable lending regulations, including
the limitations on loans to one member

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or associated members or officials.

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This concludes the proposal.

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If your credit union could use assistance
with your exam, reach out to Mark Treichel

00:12:09.200 --> 00:12:12.400
on LinkedIn or at Mark Treichel dot com.

00:12:12.400 --> 00:12:16.400
This is Samantha Shares, and
we thank you for listening.