Posted by Anthony Demangone
Last week, NCUA issued Legal Opinion Letter 09-0218 (February 24, 2009). Access it here. Here's a snippet of the letter:
You have asked if an FCU is engaging in an insurance business under New York state law if the FCU earns a fee by offering GAP waivers to its members for more than the cost of the FCU’s GAP creditor insurance coverage. No, GAP waivers are a permissible loan-related activity for FCUs under NCUA’s incidental powers rule, regardless of state law limitations. The incidental powers rule also permits FCUs to derive income from these activities.
The letter points out how NCUA believes its incidental powers rule preempts a New York state law. If your credit union offers GAP insurance, this is a good read. Regarding preemption, I still believe that this letter provides the best overall guidance on the preemption issue. If you are new to compliance, read it. Live it. Love it. It will give you a great overview of "preemption" in 5 minutes.