NCUA Clarifies Plan for Voluntary Prepaid Assessments

In a teleconference last week, the National Credit Union Administration (NCUA) clarified its plans for a voluntary Corporate Stabilization prepayment program.

Two key points arose from the conference call. Firstly, assessments prepaid under the plan would apply to fiscal years 2013 and beyond, not 2011 and 2012.  When considering participation, credit unions should be aware that in addition to any prepaid amount, they will still be required to pay approximately 25 basis points of insured shares this year (and 13 in 2012). 

Secondly, credit unions would not be permitted to borrow against prepaid funds.

“It is a good plan to minimize costs to the credit union system,” said Director of Compliance Services Mary Sroufe. “However before participating, credit unions should understand the full implications to their financials—both this year and into the future.”

At the most recent board meeting, NCUA proposed a plan for credit unions to prepay Stabilization Fund assessments. The agency put the plan out for comment to learn whether credit unions: are willing to participate in the program; had any suggestions for improvements; had any accounting considerations; and if there are any public policy concerns.

Other key elements of the voluntary prepaid assessment proposal include:

  • Participation would be purely voluntary and open to all federally insured credit unions able to meet the minimum participation amount of $10,000;
  • Liquidity would be provided to the Stabilization Fund by augmenting the 2011 and 2012 assessments from participating credit unions;
  • NCUA would implement the voluntary prepaid assessment program only if a minimum aggregate amount (at least $300 million) could be raised, which would reduce mandatory assessments for all federally insured credit unions in 2011 and 2012;
  • Beginning in 2013, NCUA would offset each participating credit union’s future Stabilization Fund assessments with any contributions they made to the voluntary program;
  • CUNA has estimated that if all eligible credit unions participate to the maximum extent permitted, the 2011 assessment to all credit unions would be around 10 basis points instead of 25 bp. Next year’s assessment would likely be around 10 bp instead of 13 bp. Subsequent assessments would likely be around 9 bp and would gradually decline as total insured shares in credit unions grow; and
  • 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 the year after.  

CUNA Q&A Overview on NCUA Prepay Plan

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Posted in Compliance News, NCUA.