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NCUA Board Approves New Charitable Accounts for Federal Credit Unions
Friday, December 13, 2013 6:40 AM

The National Credit Union Administration (NCUA) Board convened its final scheduled open meeting of 2013 at the agency’s headquarters yesterday and approved four items, including a final rule under NCUA’s Regulatory Modernization Initiative to allow federal credit unions to invest in hybrid accounts to fund charitable causes under certain conditions.

With the Board’s unanimous approval of a final rule (Parts 703 and 721), federal credit unions will soon be able to fund hybrid charitable and investment vehicles designated as charitable donation accounts, under certain conditions.

“Developed as part of NCUA’s Regulatory Modernization Initiative, this new rule allows federal credit unions to invest in accounts to fund charitable causes, and it sets safeguards to ensure that these accounts are used for their intended purposes,” NCUA Board Chairman Debbie Matz said. “This innovative rule strikes the right balance to provide flexibility, but ensures that the majority of earnings received from the account will benefit charities and communities, rather than propping up a credit union’s income statement.”

To protect safety and soundness, the final rule caps aggregate funding of a charitable donation account at five percent of a federal credit union’s net worth for the duration of the account. As proposed, the rule would have capped these accounts at three percent. This change aligns the final rule with a cap on public welfare investments that banks are allowed to make.

The final rule clarifies that a federal credit union may hold investments within a charitable donation account that are not allowed otherwise, so long as the account is primarily charitable in nature and structured to preserve the safety and soundness of the federal credit union.

As in the proposed rule, the final rule requires federal credit unions to ensure that:

  • A minimum of 51 percent of the total return from such an account must be distributed to one or more 501(c)(3) charities.
  • Distributions must be made to qualified charities no less frequently than every five years.
  • Assets in a charitable donation account must be held in segregated custodial accounts or special purpose entities regulated by the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission or other federal or state financial regulatory agency.

The charitable donations rule, available here, is effective immediately upon publication in the Federal Register.

Other items approved include:

  • A reduced budget for overseeing the Temporary Corporate Credit Union Stabilization Fund in 2014.
  • A proposed rule to enhance member access, better preserve member privacy and ensure examiner safety at home-based federal credit unions.
  • Final technical amendments to conform NCUA regulations with the Board’s September 2013 Board action to end the use of the Corporate Risk Information System for corporate credit unions and replace it with the CAMEL rating system.