National Credit Union Administration (NCUA).
Proposed rule with request for comments.
NCUA proposes to amend its regulations to clarify that a federal credit union (FCU) is authorized to fund a charitable donation account (CDA), a hybrid charitable and investment vehicle described below, as an activity incidental to the business for which an FCU is chartered, provided the account is primarily charitable in nature and meets other regulatory conditions.
Comments must be received on or before October 21, 2013.
You may submit comments by any of the following methods (Please send comments by one method only):
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Comments on Notice of Proposed Rulemaking for Parts 703 and 721” in the email subject line.
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Steven W. Widerman, Senior Staff Attorney, Office of General Counsel, at the above address or by telephone: (703) 518–6540; or Rick Mayfield, Senior Capital Markets Specialist, Office of Examination and Insurance, at the above address or by telephone: (703) 518–6360.
The Federal Credit Union Act (“the Act”) provides that an FCU may “exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.”
Between 1999 and 2012, FCU donations were limited to two categories of charities: (1) non-profit organizations located or active in the community where the donor FCU had a place of business; and (2) tax-exempt organizations that “operated primarily to promote and develop credit unions.”
The Act grants FCUs the express power to invest in certain enumerated categories of investments.
The Board proposes to amend its regulations to clarify that, under certain circumstances, an FCU is authorized to fund a CDA, which may hold investments that are impermissible for an FCU, as a charitable contribution or donation under its incidental powers authority.
The details of how a CDA must be structured and how it would work under the proposed rule are discussed in more detail below.
Section 721.3 enumerates the categories of activities that are preapproved as incidental powers of an FCU. In order for the funding of a CDA to be characterized as a preapproved incidental power, the proposed rule provides that a CDA must be structured to satisfy the following seven conditions, including a definitions section.
a.
b.
c.
d.
An FCU's CDA agreement and policies must provide that the FCU will donate only to charities exempt from taxation under section 501(c)(3) of the Internal Revenue Code, and they must name those charities. The agreement and policies must document the investment strategies the CDA trustee or other manager must follow, and provide that the FCU will account for all aspects of the CDA, including its distributions and liquidation, in accordance with generally accepted accounting principles.
e.
The proposed rule defines “qualified charity” as a charitable organization or other non-profit entity recognized as exempt from taxation under section 501(c)(3) of the Internal Revenue Code, and “total return” as the actual rate of return of an investment, including realized interest, capital gains, dividends and distributions over a given period of up to 5 years. These minimum distribution frequency and amount requirements are a distinguishing feature of a CDIA. They are key to characterizing the funding of a CDA as primarily charitable and thus an incidental powers activity.
An FCU may choose to donate in excess of the minimum distribution frequency and amount. Also, the proposed rule allows an FCU to decide how frequently to make distributions. For example, an FCU may choose to make periodic distributions over a
f.
g.
The proposed rule revises part 703 to clarify that the funding of a CDA satisfying the above conditions is a preapproved incidental power of an FCU, even if the investments in the account are otherwise impermissible for FCUs, and it is not a violation of part 703 or the investment provisions of the Act.
The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a proposed rule may have on a substantial number of small credit unions (primarily those under $50 million in assets). This proposed rule does not impose any mandatory requirements on small credit unions, and NCUA does not anticipate many small credit unions will fund CDAs with significant amounts of money. NCUA has determined this proposed rule will not have a significant economic impact on a substantial number of small credit unions.
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency creates a new paperwork burden on regulated entities or modifies an existing burden. For purposes of the PRA, a paperwork burden may take the form of either a reporting or a recordkeeping requirement, both referred to as information collections. The proposed changes to parts 703 and 721 would clarify that CDAs are an option for FCUs. NCUA has determined that the procedures for an FCU to open, maintain, and monitor a CDA would create a new information collection requirement. As required, NCUA has applied to the Office of Management and Budget (OMB) for approval of the information collection.
To establish a CDA, an FCU must produce an internal policy and board of directors' resolution authorizing the funding of the CDA, must apply to open a segregated account, must engage a regulated trustee or registered investment advisor (“RIA”) to manage the CDA, and must enter into an operating agreement with the chosen trustee or RIA.
To maintain its CDA once it begins operating, an FCU will receive and review periodic activity statements and reports on the account in order to properly monitor, and account for, its performance. The FCU also must determine which qualified charities will receive charitable distributions.
NCUA estimates that, if this proposed rule were to become effective, approximately 100 FCUs would fund CDAs. NCUA further estimates that, on average, it would take an FCU's staff approximately 20 hours to draft, review, and retain the documentation associated with opening a CDA. NCUA also estimates that maintaining and monitoring a CDA and performing all other functions associated with the CDA will take an FCU's staff an additional 8 hours annually. Accordingly, NCUA estimates the aggregate information collection burden for FCUs funding CDAs would be 28 hours times 100 FCUs for a total of 2800 hours for the first year and 8 hours times 100 FCUs for a total of 800 hours annually thereafter.
Organizations and individuals wishing to submit comments on this information collection requirement should direct them to the Office of Information and Regulatory Affairs, OMB, Attn: Shagufta Ahmed, Room 10226, New Executive Office Building, Washington, DC 20503, with a copy to the Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314–3428. The PRA requires OMB to make a decision concerning the collection of information contained in the proposed regulation between 30 and 60 days after publication of this document in the
NCUA considers comments by the public on this proposed collection of information in:
• Evaluating whether the proposed collection of information is necessary for the proper performance of the functions of the NCUA, including whether the information will have a practical use;
• Evaluating the accuracy of NCUA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhancing the quality, usefulness, and clarity of the information to be collected; and
• Minimizing the burden of collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology (
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. This proposed rule applies only to federally chartered credit unions. Accordingly, the rule will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this proposed rule does not constitute a policy that has federalism implications for purposes of the Executive Order.
NCUA has determined that this proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105–277, 112 Stat. 2681 (1998).
Credit unions, investments.
Credit unions, functions, implied powers.
For the reasons set forth above, NCUA proposes to amend 12 CFR parts 703 and 721 as follows:
12 U.S.C. 1757(7), 1757(8), 1757(15).
The addition reads as follows:
(b) * * *
(7) Funding a Charitable Donation Account pursuant to § 721.3(b) of this chapter.
12 U.S.C. 1757(17), 1766, 1789.
(b) * * *
(2)
(i)
(ii)
(iii)
(iv)
(A) Your CDA agreement and policies must at a minimum:
(
(
(
(B) [Reserved]
(v)
(vi)
(vii)
(A)
(B)
(C)
(D)