Credit Union Share Insurance Fund Parity Actby Representative Ed Perlmutter
Posted on 2014-05-06
PERLMUTTER. Madam Speaker, I thank my friend, Mr. Royce of
California, for his remarks, and I yield myself such time as I may
consume. As I say: ``Two Eds are better than one.'' So we will start
This bill is designed to create parity between certain accounts held at credit unions and those held at FDIC insured banks.
As a preliminary matter, I introduce into the Record six letters.
The first is a letter dated September 17, 1996, signed by Richard Schulman, the associate general counsel of the National Credit Union Administration.
Second is a letter dated October 8, 2008. That is from Sheila A. Albin, associate general counsel.
A letter dated May 6, 2014, from the American Bar Association, signed by the president, James R. Silkenat.
A letter dated May 5, 2014, signed by Brad Thaler of the National Association of Federal Credit Unions.
A letter dated May 5, 2014, signed by Bill Cheney, president of the Credit Union National Association.
And finally, a letter signed by Scott Earl from Mountain West Credit Union Association.
September 17, 1996.
Re Interest on Lawyers Trust Accounts (``IOLTA''), (Your August 22, 1996, Letter) Elyse E. Rogers, Esq., Mette, Evans & Woodside, Harrisburg, PA.
Dear Ms. Rogers: In your letter, you requested our opinion as to whether Pennsylvania attorneys can maintain client trust funds, in association with Pennsylvania's IOLTA Program, in share draft accounts at credit unions regulated by the National Credit Union Administration. As discussed below, the answer depends upon the credit union membership status of the clients whose funds are contained in the IOLTA account.
ANALYSIS Generally, an IOLTA account is set-up by an attorney or a law firm as an escrow account containing pooled client funds. In a credit union, an IOLTA account would be set-up as an ``agent'' account. Section 745.3(a)(2) of NCUA's Regulations defines an agent account as ``[f]unds owned by a principal [member] and deposited in one or more accounts in the names of agents or nominees. . . .'' The client continues to own the funds while the attorney or law firm serves only as a custodial agent.
A federal credit union (FCU) can only accept funds belonging to its member or those [[Page H3427]] that qualify for membership. There are limited exceptions which permit an FCU to accept nonmember funds if it serves predominately low-income members and thereby has a ``low- income'' designation. 12 U.S.C. Sec. 1757(6). NCUA Regulations define a member as ``those persons enumerated in the credit union's field of membership.'' 12 C.F.R. Sec. 745.1(b). Membership in an FCU is limited ``to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district.'' 12 U.S.C. Sec. 1759. An FCU's charter outlines its membership. 12 U.S.C. Sec. Sec. 1753, 1754.
With an agent account, the membership status of the client (owner of the funds) and not that of the agent (attorney, law firm or IOLTA Board) is determinative as to whether an IOLTA account can be properly maintained. Consequently, in order for an attorney or law firm to maintain an IOLTA account at an FCU, either all of the clients whose funds would be deposited must be members of that FCU or the FCU must be designated as a low income which would allow it to accept nonmember funds.
Sincerely, Richard S. Schulman, Associate General Counsel.
____ October 8, 2008.
Re Insurance Coverage for Interest on Lawyers Trust Accounts (IOLTA) Accounts Mary Hoeft Smith, Trust Account Program Administrator, Supreme Court of Wisconsin, Office of Lawyer Regulation, Madison, WI.
Dear Ms. Hoeft Smith: You have asked us about the insurance coverage by the National Credit Union Share Insurance Fund (NCUSIF) for IOLTA accounts in federal and state-chartered credit unions and those designated as ``low-income.'' As discussed below, client funds in an IOLTA account are insured for those clients who are members of the credit union or, if a credit union is designated as low-income, all funds are insured regardless of the client's membership status.
Under IOLTA programs, lawyers and law firms establish accounts to hold their clients' funds in trust to pay costs related to legal services. Participation in IOLTA programs by lawyers and law firms is required in some states and is optional in other states. A lawyer or law firm opens an IOLTA account and, as an agent, deposits its clients' funds in the account and holds them there in trust until they are needed. The interest earned from the money in the IOLTA accounts is aggregated and paid generally to another state agency or private nonprofit organization, such as a state bar association, to subsidize legal aid services or for other charitable purposes.
The clients, not their lawyers or law firms, own the funds in an IOLTA account. The lawyers or law firms are merely the agents holding the funds in trust for their clients. While NCUSIF insurance coverage might cover clients as the beneficial owners of the funds, 12 C.F.R. Sec. 745.3(a)(2); see, e.g., OGC Op. 96-0841 (Sept. 17, 1996), OGC Op. 94-0119 (Feb. 9, 1994) (available on NCUA's website at www.ncua.gov), the NCUSIF insures only member accounts. Therefore, client funds in an IOLTA account are insured by the NCUSIF only for those clients who are members of the credit union. 12 C.F.R. Sec. Sec. 745.0, 745.1(b). In the event of a credit union's liquidation, the amount of each client's insured funds in IOLTA accounts is added together with any other individual account of the client. 12 C.F.R. Sec. 745.3. Insurance coverage is the same whether the credit union is a federal or state-chartered credit union. 12 C.F.R. Part Sec. 745.
You have also asked about NCUSIF insurance coverage for IOLTA accounts at federal and state-chartered credit unions designated as low-income. Both federal credit unions and state-chartered credit unions designated as low-income can accept nonmember funds. 12 U.S.C. Sec. 1757(6); 12 C.F.R. Sec. 701.34; see, e.g., OGC Op. 96-0841. A state-chartered credit union can also be designated as low-income. 12 C.F.R. Sec. 741.204(b). Nonmembers at low-income credit unions are considered members for purposes of NCUSIF coverage. 12 C.F.R. Sec. 745.1(b). Therefore, a nonmember client's funds in an IOLTA account at a low-income credit union are entitled to NCUSIF coverage. 12 C.F.R. Sec. 745.1(b).
Sincerely, Sheila A. Albin, Associate General Counsel.
____ American Bar Association, Chicago, IL, May 6, 2014.
Hon. Ed Perlmutter, House of Representatives, Washington, DC.
Dear Representative Perlmutter: On behalf of the American Bar Association and its nearly 400,000 members, I am writing in support of H.R. 3468, the ``Credit Union Share Insurance Fund Parity Act.'' This legislation would benefit state charitable programs receiving revenue from Interest on Lawyers' Trust Accounts (IOLTA) by providing attorneys the ability to hold client funds in credit unions, which have historically provided higher interest rates than other financial institutions. More than 90 percent of IOLTA grants fund the delivery of legal services to Americans living in poverty. Legal aid and pro bono programs receiving IOLTA funds provide legal assistance to veterans, domestic violence victims, those coping with the after-effects of natural disasters, and those undergoing foreclosures and other housing issues.
Thank you for your leadership on this important issue. The ABA stands ready to assist you in helping this legislation become law.
Sincerely, James R. Silkenat, President.
____ National Association of Federal Credit Unions, Arlington, VA, May 3, 2014.
Re Support and Pass H.R. 3468, the Credit Union Share Insurance Fund Parity Act Hon. John Boehner, Speaker, House of Representatives, Washington, DC.
Hon. Nancy Pelosi, Minority Leader, House of Representatives, Washington, DC.
Dear Speaker Boehner and Minority Leader Pelosi: On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association exclusively representing the interests of our nation's federal credit unions, I write in strong support of the Credit Union Share Insurance Fund Parity Act (H.R. 3468), and to urge swift passage of this important bipartisan legislation.
Maintaining parity between the coverage provided by the National Credit Union Share Insurance Fund (NCUSIF) and the Federal Deposit Insurance Corporation (FDIC) on all types of deposits and accounts is imperative and a longstanding goal of NAFCU member credit unions. Consumers often do not distinguish between the government backing on accounts at financial institutions. It is important that the law dictate that there is no difference in coverage, so as not to favor one type of institution over another in the marketplace. NAFCU is pleased that the legislation, as favorably reported out of committee, will provide NCUSIF parity with the FDIC for certain accounts, including Interest on Lawyers Trust Accounts (IOLTAs).
We applaud and thank the bill's sponsors, as well as House leadership, for addressing this important issue as it will provide much needed relief to our nation's credit unions. We appreciate your consideration of this measure and would welcome the opportunity to discuss this issue further should you need additional information. If my colleagues or I can be of assistance to you, please feel free to contact myself or NAFCU's Director of Legislative Affairs, Jillian Pevo.
Sincerely, Brad Thaler, Vice President of Legislative Affairs.
____ Credit Union National Association, Washington, DC, May 5, 2014.
Dear Representative. On behalf of the Credit Union National Association (CUNA), I am writing in support of certain regulatory relief measures scheduled on the suspension calendar this week. CUNA is the largest credit union advocacy organization in the United States, representing America's state and federally chartered credit unions and their 99 million members.
Credit unions face a crisis of creeping complexity with respect to regulatory burden. It is not any one regulatory change or requirement that is causing this crisis, but the ever-increasing, never decreasing accumulation of regulations over time that cripples credit unions' ability to efficiently serve their members. The bills that the House will consider this week will take small steps toward alleviating some of that burden, and better enable credit unions to more fully serve their members.
Credit unions support H.R. 3584, the Capital Access for Small Community Financial Institutions Act; H.R. 3468, the Credit Union Share Insurance Fund Parity Act; and H.R. 2672, the CFPB Rural Designation Petition and Correction Act. We urge the House to pass these measures.
H.R. 3584--Capital Access for Small Community Financial Institutions Act H.R. 3584, introduced by Representatives Steve Stivers (R- OH) and Joyce Beatty (D-OH), seeks to correct a drafting error in the Federal Home Loan Bank (FHLB) Act that prohibits state chartered, privately insured credit unions from joining the FHLB system. This legislation was reported out of the Financial Services Committee on March 14, 2014 by a vote of 55-0; similar legislation has also been approved by the House of Representatives as part of comprehensive regulatory relief legislation in 2006 and 2008. By correcting the oversight in the original legislation, 132 privately insured credit unions across the country will be eligible for membership in the FHLB system and have additional opportunities to provide mortgage credit to their members.
H.R. 3468--Credit Union Share Insurance Fund Parity Act H.R. 3468, introduced by Representatives Ed Royce (R-CA) and Ed Perlmutter (D-CO), provide National Credit Union Share Insurance Fund (NCUSIF) coverage for trust accounts, such as Interest on Lawyer Trust Accounts (IOLTAS) and other similar accounts. This legislation is necessary because the National Credit Union Administration (NCUA) has interpreted that the Federal Credit Union Act does not permit it to extend such coverage. The legislation would direct the NCUA to extend share insurance to the fund held in trust accounts opened and managed by credit union members, even if the funds in such accounts are owned by one or more nonmembers. This would provide parity in the [[Page H3428]] insurance treatment of trust accounts offered by credit unions with the treatment of similar accounts offered by banks.
H.R. 3468 was reported out of the Financial Services Committee on November 14, 2013 by voice vote.
H.R. 2672--CFPB Rural Designation Petition and Correction Act H.R. 2672, introduced by Representative Andy Barr (R-KY) would direct the CFPB to establish an application process determining whether a county should be designated as a rural area if the CFPB has not designated it as one. Designation of ``rural'' by the CFPB has many implications for credit unions, particularly with respect to the type of products credit unions may offer their members in these areas. For instance, the Escrow Requirements under the Truth in Lending Act Rule require certain lenders to create an escrow account for at least five years for higher-priced mortgage loans. If those loans are made by small lenders that operate predominately in rural or underserved counties, they are exempt from this requirement. Another example includes the Ability to Repay and Qualified Mortgage (QM) Standards Under the Truth in Lending Act rule by which mortgage loans with balloon payments do not meet the QM standard. Like the Escrow Rule, small lenders that operate predominately in rural areas are eligible to originate balloon-payment QMs. The CFPB has defined ``rural'' by using the U.S. Department of Agriculture Economic Research Services'' urban influence codes.
H.R. 2672 was reported out of the Financial Services Committee on March 14, 2014 by a vote of 54-1.
Conclusion Each of these bills would reduce credit unions regulatory burden and help them better serve their members. They were all subject to thorough consideration by the Financial Services Committee, and as the votes indicate, they are noncontroversial. We urge you to support the bills when they come to the floor.
On behalf of America's credit unions and their 99 million members, thank you very much for your consideration of our views.
Best regards, Bill Cheney, President & CEO.
____ Mountain West Credit Union Association, Denver, CO.
Hon. Ed Perlmutter, Longworth House Office Building, Washington, DC.
Dear Representative Perlmutter. On behalf of the Mountain West Credit Union Association, the trade association that represents Colorado credit unions, I am writing to express our support for H.R. 3468--Credit Union Share Insurance Fund Parity Act, which provides the National Credit Union Share Insurance Fund (NCUSIF) coverage for trust accounts, such as interest on Lawyer Trust Accounts (IOLTAS) and other similar accounts.
As you know, attorneys routinely receive client funds that are to be placed in IOTLA accounts. These accounts generate interest for charitable causes, primarily civil legal services for economically disadvantaged citizens. Currently, credit unions are unable to offer IOTLA accounts to members because the Federal Credit Union Act does not permit NCUA to extend insurance coverage to these accounts. As a result, credit union members that would like to open IOLTAS are then forced to go to thrift or a bank.
If passed, this legislation would provide parity in the insurance treatment of these accounts for credit unions.
On behalf of Mountain West Credit Union Association and our member credit unions, I want to thank you and Congressman Royce for your leadership in sponsoring this important piece of legislation.
Sincerely, Scott Earl, President/CEO.
____ Mr. PERLMUTTER. Specifically, the bill extends insurance coverage to Interest on Lawyer Trust Accounts, as Mr. Royce said, and I will call those ``trust accounts or similar escrow accounts,'' those that are held at credit unions that are otherwise fully insured at FDIC-insured banks up to $250,000.
As a practicing lawyer for 25 years, I know Lawyer Trust Accounts in Colorado as COLTAs, or Colorado Lawyer Trust Accounts, which we established for our clients so that interest can be earned for various charities that might exist. For instance, legal aid which provides assistance to veterans or people involved in domestic violence situations.
Under our bill, if a credit union were ever to fail and needed to be resolved, then the client funds held in an escrow account would be insured and thus protected, regardless if the beneficiary is a member of the credit union or not. In my instance, if I had a trust account which had a number of different clients, some clients might be members of the credit union, others are not. Only those under current law that are members of the credit union are covered by share insurance. Those that are not members of the credit union are not covered. So we are trying to stop this differentiation between banks and credit unions.
Currently, the NCUA's regulations and legal opinions as established in 1996, which is one the letters we are introducing today, do not allow Federal deposit insurance equal to the coverage provided by the FDIC for accounts held by credit union members that contain funds owned by one or more nonmembers.
IOLTA accounts often contain funds from many clients, some of whom may not be members of the particular credit union where the attorney or the escrow agent has opened the account.
With an IOLTA account or other escrow accounts held in trust, under current law, the membership status of the client/beneficiary, and not of the agent or the attorney, is determinative as to whether an IOLTA account can be properly maintained. In order for a law firm or a real estate escrow company to maintain an IOLTA account at a credit union, either all of the clients whose funds would be deposited must be members of that credit union or the credit union must be designated as a low-income, which would allow it to accept nonmember funds.
Many States or bar associations require the funds in an IOLTA to be fully insured, meaning a lawyer may not be able to use a credit union for these accounts if they can't be fully covered.
It is important to note that this legislation should not be seen as an authorization to take nonmember deposits beyond the current regulatory limits, nor should it be seen as an authorization for the NCUA to increase those thresholds.
What we have before us today is a negotiated compromise. The language as introduced in the manager's amendment narrowly defines which accounts will be extended Credit Union Share Insurance Fund coverage. This includes IOLTA/COLTAFs and other escrow accounts held in trust.
I thank my friend from California for bringing this legislation. It is time that there be parity and that all of the clients be covered by the Share Insurance Fund.
I urge quick passage of H.R. 3468, the Credit Union Share Insurance Fund Parity Act.