Yesterday, NCUA Express notified the Compliance guy about NCUA's most recent legal opinion letter - NCUA Legal Opinion Letter 07-0633 (November 19, 2007).
In the letter, NCUA indicated that a credit union's plan to replace its third-party collateral protection insurance and private mortgage insurance program was impermissible. NCUA indicated that the program would make the credit union an insurer, which is prohibited.
Some of you may be aware of this 1999 legal opinion letter that permitted a credit union to establish collateral protection program. In the 1999 letter, NCUA indicated that the credit union's program did not make it an insurer.
What makes one program an insurance program and not the other? Here's how NCUA explained itself in the 2007 legal opinion letter.
"We note your proposed collateral protection program is significantly different from an internal collateral protection program we determined was not insurance in a previous opinion. OGC Op. 99-0447 (Dec. 9, 1999) (copy enclosed). In that opinion, we concluded an FCU’s internal collateral protection program fell within an FCU’s incidental powers because the collateral protection program was closely related to the express power to lend, and the ability to limit risk from lending activities is useful in carrying out the business of credit unions. That program, in contrast to your proposal, charged a uniform fee to all borrowers at loan origination. Your program would charge fees, using your prior insurer’s rate schedule, only on loans where the member’s insurance policy has lapsed. The program we approved replaced the FCU’s blanket collateral protection policy, while your program would replace the member’s individual, force-placed insurance policy. In summary, your proposed program would make your FCU an insurer, which, as discussed above, is not a permitted activity for FCUs."
There you have it.
On Saturday, the Compliance Guy attended the 2007 Army-Navy game. If you ever have a chance to go, it is well worth the December weather.