B-202052 L/M, MAR 12, 1981

B-202052 L/M, MAR 12, 1981

SUBJECT: NATIONAL CREDIT UNION ADMINISTRATION'S REQUEST CONCERNING INITIAL PARTIAL YEAR SHARE INSURANCE PREMIUMS (FILE B-202052)

ASSOCIATE DIRECTOR, AFMD/AFA - RONALD J. POINTS:

THIS IS TO CONFIRM MY INFORMAL ADVICE REGARDING YOUR MEMORANDUM OF JANUARY 30, 1981, REQUESTING OUR VIEWS ON TWO PROPOSED RECOMMENDATIONS THAT THE NATIONAL CREDIT UNION ADMINISTRATION (NCUA) BOARD HAS SUBMITTED TO GAO FOR COMMENT IN ITS LETTER DATED DECEMBER 10, 1980. THESE PROPOSED RECOMMENDATIONS RELATE TO THE CURRENT STATUTORY REQUIREMENT THAT THE NCUA COLLECT INITIAL PARTIAL YEAR SHARE INSURANCE PREMIUMS FROM NEWLY CHARTERED AND INSURED CREDIT UNIONS. FOR THE REASONS STATED BELOW WE AGREE WITH AFMD'S QUALIFIED ACCEPTANCE OF NCUA'S RECOMMENDATION THAT THIS STATUTORY REQUIREMENT BE REMOVED. HOWEVER, WE CANNOT ACCEPT NCUA'S RECOMMENDATION THAT IT NOT ENFORCE THIS REQUIREMENT PENDING APPROPRIATE LEGISLATION, GIVEN THE MANDATORY NATURE OF THE APPLICABLE STATUTORY LANGUAGE AND THE ABSENCE OF WAIVER AUTHORITY.

AS EXPLAINED IN NCUA'S LETTER, THE FEDERAL CREDIT UNION ACT SPECIFIES THE RATE AT WHICH PREMIUMS WILL BE COLLECTED FROM CREDIT UNIONS FOR COVERAGE OF MEMBER ACCOUNTS, THE BASIC ANNUAL PREMIUM BEING 1/12 OF 1 PERCENT OF SHAREHOLDINGS AS OF THE PREVIOUS YEAR END (12 U.S.C. SEC. 1782(C)(1)). THE CASE OF AN OPERATING CREDIT UNION WHICH BECOMES INSURED DURING A YEAR THE PREMIUM FOR THE PARTIAL YEAR IS AT THE SAME 1/12 OF 1 PERCENT BUT ON A PRORATED BASIS (12 U.S.C. SEC. 1782(C)(2)). THE NCUA'S PRESENT REQUEST RELATES TO THE PREMIUMS FOR INITIAL PARTIAL YEAR COVERAGE ASSESSED CREDIT UNIONS THAT ARE BOTH NEWLY CHARTERED AND NEWLY INSURED. THE DETAILED FORMULA FOR SUCH ASSESSMENT IS SET FORTH IN SUBPARAGRAPH (C)(3) OF SEC. 1782.

ACCORDING TO NCUA, FROM A COST/BENEFIT STANDPOINT THE STATUTORY FORMULA FOR NEWLY CHARTERED AND INSURED CREDIT UNIONS IS BOTH UNNECESSARY AND IMPRACTICAL TO ADMINISTER. CITING VARIOUS ADVANTAGES TO THE DISCONTINUATION OF THE ASSESSMENT AND COLLECTION OF PARTIAL YEAR INSURANCE PREMIUMS FOR THESE CREDIT UNIONS (E.G., REDUCTION OF NCUA ADMINISTRATIVE COSTS FOR HANDLING THE COLLECTION OF SUCH PREMIUMS), THE NCUA HAS REQUESTED GAO'S COMMENTS ON THE FOLLOWING TWO RECOMMENDATIONS:

1. THE NCUA BOARD SHOULD APPROVE SUBMITTING A REQUEST TO CONGRESS TO DELETE SECTION 202(C)(3) OF THE FEDERAL CREDIT UNION ACT.

2. THE NCUA BOARD SHOULD APPROVE NONENFORCEMENT OF SECTION 202(C)(3) OF THE FEDERAL CREDIT UNION ACT PENDING CONGRESSIONAL ACTION TO DELETE THE SUBSECTION.

WE UNDERSTAND THAT AFMD BASICALLY AGREES WITH THE FIRST PROPOSED RECOMMENDATION. THE REASONS GIVEN IN SUPPORT OF NCUA'S PROPOSAL APPEAR APPROPRIATE AND WE DEFER TO AFMD'S JUDGMENT. YOUR SUGGESTION THAT THE ASSESSMENT AND COLLECTION OF INSURANCE PREMIUMS FOR NEWLY CHARTERED AND INSURED CREDIT UNIONS BE PLACED WITHIN THE DISCRETION OF NCUA-AS OPPOSED TO THE COMPLETE ELIMINATION OF SUCH - IS ALSO WELL-TAKEN. THAT IS, THE NCUA WOULD BE GIVEN THE AUTHORITY TO BEGIN THE ASSESSMENT AND COLLECTION OF INSURANCE PREMIUMS FROM THIS CATEGORY OF CREDIT UNIONS WHEN IT DETERMINES SUCH TO BE COST-BENEFICIAL ON THE WHOLE. THE ONLY THING THAT WE MAY SUGGEST IS THE INCLUSION OF CERTAIN FACTORS IN THE LEGISLATION WHICH NCUA SHOULD CONSIDER IN DECIDING WHETHER OR NOT NEW CREDIT UNIONS SHOULD BE ASSESSED A PREMIUM FOR INSURANCE COVERAGE.

AS TO THE SECOND PROPOSED RECOMMENDATION, IT IS CLEAR THAT OUR OFFICE CANNOT CONDONE OR OTHERWISE CONSENT TO NCUA'S PROPOSED "NONENFORCEMENT" OF SECTION 202(C)(3) PENDING THE ENACTMENT OF LEGISLATION. THE STATUTORY LANGUAGE OF THIS SECTION IS MANDATORY IN NATURE, STIPULATING THAT EACH NEWLY CHARTERED AND INSURED CREDIT UNION "SHALL PAY TO THE FUND" THE PREMIUM CHARGE PROVIDED FOR THEREIN. WE FIND NO BASIS (E.G., WAIVER AUTHORITY) UPON WHICH NCUA COULD PROPERLY DECIDE TO INSURE ANY SUCH CREDIT UNIONS WITHOUT ASSESSING AND COLLECTING THE STIPULATED INSURANCE PREMIUM.

WHILE WE CAN APPRECIATE NCUA'S GOOD FAITH EFFORTS TO REDUCE PROGRAM COSTS AND TO RESOLVE THE ADMINISTRATIVE COMPLICATIONS THAT NEW CREDIT UNIONS HAVE ENCOUNTERED, WE CONCLUDE THAT NCUA MUST CONTINUE TO ASSESS AND COLLECT SUCH PREMIUMS UNTIL APPROPRIATE LEGISLATION IS ENACTED.

DIGEST:

CONCERNING NATIONAL CREDIT UNION ADMINISTRATION'S PROPOSED RECOMMENDATIONS RELATING TO CURRENT STATUTORY REQUIREMENT THAT IT COLLECT INITIAL PARTIAL YEAR INSURANCE PREMIUMS FROM NEWLY CHARTERED AND INSURED CREDIT UNIONS, OGC AGREES WITH AFMD'S QUALIFIED ACCEPTANCE OF FIRST RECOMMENDATION THAT STATUTORY REQUIREMENT BE REMOVED, BUT CANNOT ACCEPT SECOND RECOMMENDATION THAT REQUIREMENT NOT BE ENFORCED PENDING APPROPRIATE LEGISLATION.