DCU Issues Guidance on Final Subordinated Debt Rule

The Washington State Department of Financial Institutions Division of Credit Unions issued DCU Bulletin B-22-01 to provide state-chartered credit unions with guidance on implementing the NCUA’s final rule on Subordinated Debt.

The final subordinated debt rule now permits complex credit unions (those with $00 million or more in assets) and newly chartered credit unions to issue subordinated debt to comply with risk-based capital requirements. The rule also permits low-income designated credit unions (LICUs) to issue debt instruments to qualifying natural persons but does not change the ability of a LICU to include Subordinated Debt in its net worth.

The bulletin covers topics such as:

  • Application and Regulatory Approval Process; and
  • Investor Disclosure and Reporting Requirements

Question of the Week

Q. What is the difference between a 1099-MISC and 1099?

A. Form 1099-MISC must be filed for each person the credit union pays at least $600 in prizes, awards, gross proceeds paid to an attorney, professional fees, or services. Form 1099-MISC must be filed once each calendar year regarding the payments it made during the calendar year.

Form 1099-INT must be filed for each person the credit union pays $10 or more in interest during the calendar year. Interest is an amount paid or credited by a credit union on deposits. Even if the credit union does not call the amount interest, it may still be included in the definition of interest for the purpose of filing a 1099-INT.

When determining whether to file a 1099-MISC or a 1099-INT for an incentive, consider whether the incentive was given in connection with either opening a deposit account or maintaining an account relationship. If the incentive was given for one of those reasons, the item given is considered interest and a 1099-INT must be filed if it is valued at $10 or more. If the person did not agree to participate based on the opening or maintaining of an account, a 1099-MISC is required.

Related Links

26 CFR 1.6041-1
26 CFR 1.6049-4
26 CFR 1.6049-5
IRS Instructions Form 1099-INT
IRS Instructions Form 1099-MISC

Compliance Alerts

Consumer Financial Protection Bureau

CFPB Releases Report Detailing Consumer Complaint Response Deficiencies of the Big Three Credit Bureaus: The CFPB released an analysis of how changes in complaint responses provided by nationwide consumer reporting companies resulted in fewer meaningful responses and less consumer relief. The CFPB found the three companies often failed to provide substantive responses, especially when they alleged the complaints were sent in by third parties. However, consumers can authorize third-party representatives to submit complaints on their behalf.

Washington State DFI Division of Credit Unions

Guidance on NCUA’s Final Subordinated Debt Rule: The DCU issued guidance to help state-chartered credit unions understand the NCUA’s final rule on subordinated debt. The final subordinated debt rule now permits complex credit unions and newly chartered credit unions to issue subordinated debt to comply with risk-based capital requirements. The rule permits low-income credit unions to issue debt instruments to qualifying natural persons but does not change the ability of a LICU to include Subordinated Debt in its net worth in the same manner in which it currently includes secondary capital in its net worth.

Office of Foreign Assets Control

OFAC has updated the SDN list as of Jan. 10. The last update prior to this was Jan. 5.

­­­­­­­­­­­­­­­­­­­Questions? Contact the Compliance Hotline: 1.800.546.4465; compliance@nwcua.org.

Posted in Compliance News, Compliance News, Compliance Question.