NCUA Transfer Rate

The NCUA is raising the transfer rate and lowering the fees of the federal credit unions paying their federal regulator. It's time to pull back the veil of the NCUA and its actions.


The NCUA is raising the transfer rate and lowering the fees of the federal credit unions paying their federal regulator. It's time to pull back the veil of the NCUA and its actions.

For one, the recent moves of the NCUA appear to be a scheme to reward federal credit unions for staying with their federal charters and penalizing those who opt out of the federal charter for a state one. Odious as this sounds, it smacks of a divide-and-conquer tactic to keep the federal and state credit unions that have federal share insurance at seeming odds one with another and thus incapable of uniting in a challenge to what the NCUA is doing.

Federal credit unions may now feel it is in their best interests to retain their federal charters for the financial incentives dangled before them by the NCUA; state-chartered credit unions may resent federal advantages.

These recent moves by the NCUA may very well work. The reaction among credit union managers so far has been, ''I have bigger things to worry about.''

The problem is that the NCUA has gotten out of hand and the ''I have bigger things to worry about'' attitude has gone on for far too long, more than a decade anyway.

Credit unions and the Congress were both asleep when NCUA increasingly raised the overhead transfer rate and increasingly operated a regulatory function with money meant instead for insurance losses.

It's time to take a hard look at the NCUA and what it has been doing. It was founded as a regulator and it had this function long before there ever was an insurance fund. What are they really doing now, with the presence of an insurance fund, that they were not doing before the insurance fund was created? Very little. But it is in the name of the insurance fund that they tap into NCUSIF income to pay for 67 percent of NCUA operating expenses.

Who are they kidding? How did they ever get along before they had an insurance fund into which to tap?

Both Types of Credit Unions Lose

The really sad part of the potential enmity between the federal and state credit unions owing to differing financial treatments is that both sides lose. They both lose dividends earned on their fund (that is, earned on their own money) and otherwise returned to them for their members were it not for the NCUA taking those dividends instead to underwrite its operations.

When the NCUSIF was set up, everyone agreed that, owing to NCUSIF's make up and method of funding, a dividend would very likely be returned in every normal year and even in most abnormal years. But increasingly that dividend is being eaten up by the agency's transfer rate. Our estimate for the coming year is that credit unions contributing to the NCUSIF would lose on account of the transfer rate in excess of $80 million, or over $1.00 per member.

Credit Union Capital at Risk

That's bad enough, but there is more here than merely missing a big deposit check because a dividend is not being paid by the NCUSIF. The NCUA has spent $250 million of fund money over the last five years owing to its transfer rate dippings, and that was at a transfer rate of 50 percent, not the prospective 67 percent. These have been years of no or very little insurance losses.

Thus the way I see it, the only real threat to the insurance fund lately and presently is the NCUA itself. The credit unions have been doing just fine. It is not they who are drawing down the insurance fund; it is the regulatory agency.
Now carry this one step further. The fund is a copious source of funds, in fact, of all of the capital accumulated by all of the credit unions that contribute to it. People forget that by law the fund cannot go below 1% owing to the fact that credit union capital is pledged to keep it to at least that level. Thus if the fund were whittled and whittled by the transfer rate, credit union capital would begin to flow into it. Sixty-four billion dollars of credit union capital is thus pledged. Better watch your wallet.

The agency has slipped its leash. It sets its budget in secret executive committee, it uses money meant for insurance losses to fund its own operations, and it adopts tactics that pits one set of credit union against another. The bells are ringing all over town. It's time we all woke up, found out where the fires are and put them out.




April 2, 2001



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