Department of Education agrees to CONTINUE federally insured credit unions in disbursements of federal student aid funds

September 28, 2007

FOR IMMEDIATE RELEASE
Contact:
Pat Keefe, CUNA
(202) 508-6765; pkeefe@cuna.com

In response to CUNA’s comment letter (sent just this morning), the U.S. Department of Education has decided to REVISE its final rule on disbursement of federal student aid funds TO INCLUDE CREDIT UNIONS. According to the education department (in contacting CUNA), since CUNA and one university administrator (who wrote the agency a couple of weeks ago) had commented that NCUSIF-insured credit unions accounts should be included in their student aid disbursement rule, that the agency has decided to REVISE the final rule to include credit union accounts.

The agency told CUNA this afternoon (in a phone call) that credit union accounts had not been included initially because of an oversight. The department thanked CUNA for its comment.

The final rule will be published in the Federal Register on or about Nov. 1.

The complete text of CUNA’s letter, which convinced the agency to alter its rule, is below:

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Dear Sir or Madam:

The Credit Union National Association (CUNA) requests the opportunity to comment on the Department’s proposed Federal Student Aid Programs rules under 34 C.F.R. Part 668. 72 Fed. Reg. 44,620, 44,630, 44,646 (proposed Aug. 8, 2007). We ask that the Department consider this comment despite its filing after September 7th because the definition of “bank account” used in the proposed rule to be codified at 34. C.F.R. § 668.164(b)(2) will have the consequence—presumably unintended and certainly unfortunate—of eliminating student access to credit union services; services upon which many university students rely.

By way of background, CUNA is the largest credit union trade association in this country and represents approximately 90 percent of our nation's 8,500 state and federal credit unions, which serve nearly 87 million members. Credit unions are not-for-profit, member-owned, cooperative depository institutions that have a long history of providing financial services to university students, including checking, savings, and stored-value card services related to direct payment of financial aid subject to the proposed rule.

Virtually all U.S. credit unions and their deposits are federally insured. However, this insurance is provided by the National Credit Union Share Insurance Fund (NCUSIF) administered by the National Credit Union Administration (NCUA), rather than the Federal Deposit Insurance Corporation (FDIC). By virtue of a regulatory regime designed by Congress, credit unions are only eligible for NCUSIF- insurance and cannot be insured by FDIC, just as banks and thrifts can only be insured by FDIC and not by the NCUA-administered NCUSIF.

Proposed Section 668.164(b)(2) defines “bank account” for purposes of Title IV, Higher Education Act fund disbursement as “an FDIC insured account such as a checking or savings account, or a similar account that underlies a stored-value card or other transaction device.” This proposed definition is not based on any provision of the Higher Education Act and does not appear in the current form of 34 C.F.R. § 668.164, but fails to acknowledge that NCUSIF insurance is an equally acceptable alternative.

Like FDIC deposit insurance, NCUA’s NCUSIF deposit insurance is backed by the full faith and credit of the United States to at least $100,000 per depositor. NCUSIF-insured credit unions are subject to stringent federal regulation and examination standards that are at least as rigorous as those that apply to FDIC-insured banks and thrifts. Since NCUSIF insurance is at least equivalent to FDIC insurance—if not superior because the NCUSIF is better capitalized than FDIC’s deposit insurance fund—we ask that the Department of Education not favor one form of federal deposit insurance and discriminate against the other.

We believe that the Department’s intention behind the proposed FDIC deposit insurance requirement is an admirable one: To reduce the risk of loss of student funds due to the failure of a depository institution or due to fraud. Permitting NCUSIF insurance as well as FDIC insurance would in no way increase the risk of loss of student funds. Revising the rule to permit NCUSIF insurance would further the Department’s goal of risk-reduction.

Failure to revise the rule to permit NCUSIF insurance, however, would have dire consequences for students who rely on credit unions as their provider of checking, savings, stored-value cards, and other financial services. Some NCUSIF-insured credit unions exist solely to serve the students of their university and alumni, such as Student Federal Credit Union at the University of Pennsylvania, in Philadelphia, PA, and Georgetown University Alumni and Student Federal Credit Union, in Washington, DC. Other credit unions serve both a university’s students and its employees, such as Harvard University Employees Credit Union, in Cambridge, MA. Many other credit unions serve specific student populations as well as other consumers, such as Achieve Financial Credit Union, in Berlin, CT, which serves students of Central Connecticut State University in New Britain, CT. Implementation of proposed Section 668.164’s definition of “bank account” would adversely affect the students who use these credit unions as well as the institutions themselves.

The prospect of Section 668.164 ending student access to credit union services is particularly disturbing because deposits in credit unions, including most checking deposits, earn interest and many students rely on that interest income to help support themselves during each semester, using the extra money they earn in interest to help pay for books, food, and other expenses. Fewer FDIC-insured institutions offer interest on a checking account. In addition, credit unions, as not-for-profits, typically charge fewer and lower fees than for-profit banks and thrifts.

We hope that the Department takes these comments regarding preservation of student access to NCUA- insured credit union services into account when promulgating the final version of Section 668.164. It is clear that the Department’s motivation behind the proposed definition of “bank account” was to protect students from risk of loss. It would be unfortunate if the Department’s well-meaning intention had the presumably unintended consequence of limiting student access to credit union services.

If you or agency staff have questions about our comments, please do not hesitate to call me or Michael Edwards at (202) 508-6705. Thank you.

Very truly yours,

Eric L. Richard
Executive Vice President and General Counsel

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