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CUs have until July 29 for prepay decisions
ALEXANDRIA, Va. (6/30/11)--While the National Credit Union Administration’s (NCUA) corporate credit union assessment prepayment plan will help credit unions, the Credit Union National Association (CUNA) said that the program could have been of greater benefit to credit unions if interest were paid on the prepaid amounts and if the size of the program was expanded to at least $1 billion.
Click to view larger image NCUA board members (seated at the table on right) listen and watch as staff makes its presentation on a new plan that would allow credit unions to prepay their Temporary Corporate Credit Union Stabilization Fund assessments due in 2013 and thereafter. From back, board members are Michael Fryzel, Debbie Matz, chairman, and Gigi Hyland. Staff members who presented the plan, which was unanimously adopted, were (from rear, on left) Melinda Love (obscured), John Worth, Larry Fazio, and Lisa Henderson. (CUNA Photo)
The NCUA on Wednesday unanimously voted to move forward with a plan to allow credit unions, on a voluntary basis, to prepay their Corporate Stabilization Fund assessment. The agency has set the target size of the program at $500 million, which will result in a reduction of the 2011 regular assessment from 24.9 basis points (bp) to 18.5 bp. CUNA said that a higher minimum of $1 billion “would have allowed a greater reduction in this year’s assessment beyond NCUA’s projected 6.4 bp, making the program more appealing to credit unions.” If less than $500 million is committed, the NCUA will not implement the program. If more than $500 million is committed, prepayments from credit unions will be prorated so that the $500 million target will not be exceeded. The $500 million target is an increase from the previous minimum starting funding amount of $300 million. Other changes to the proposal include:
* Lowering the minimum level for each credit union’s participation to $1,000 or 5 bp, so that 98% of credit unions are eligible; * Raising the maximum participation per credit union from 36 bp to 48 bp insured shares; and * Using all prepayments made to reduce this year’s assessment.
The agency said that credit unions that take part in the program will not accrue interest on prepaid assessments, as the NCUA does not have the independent authority to issue interest-bearing debt. NCUA Chairman Debbie Matz during the meeting emphasized that participation in the prepayment plan is voluntary, and said that the agency is neither encouraging nor discouraging credit union participation in the program. "We are offering it as an option," she said. Agency staff said that credit unions that do elect to participate in the plan would not be publicized. The amount that they have decided to pay into the prepayment fund would also not be publicized. However, that information will be made available on NCUA call reports once they are released later in the year. CUNA encourages all federally credit unions to consider the extent to which the program will benefit them and whether they should participate. The NCUA will be sending a letter to credit unions today regarding the program and participating credit unions must provide completed program agreements, which the agency is providing with the letter and on its website, by July 29. The NCUA will tally the total amount of credit union commitments on Aug. 9, and, if it moves forward with the plan, will debit the amounts that have been pledged from credit union accounts on Aug. 18. The agency has planned a webinar on the plan for July 11. A list of frequently asked questions for credit unions, and materials from the Wednesday NCUA meeting, can also be accessed via the resource link.
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