NonInterest-Bearing Transaction Accounts; Dodd-Frank Webcast

Written by Steve Van Beek

Last Thursday, NCUA finalized a rule to fully insure, until December 31, 2012, noninterest-bearing transaction accounts.  The underlying requirement for this rulemaking comes from Section 343 of Dodd-Frank.  The actual insurance coverage is already effective but NCUA's rule defines "noninterest-bearing transaction account" and requires credit unions to provide notice of the temporary insurance.

Insurance is Separate.  NCUA clarified this unlimited insurance for noninterest-bearing transaction accounts (or nondividend-bearing transaction accounts for FCUs) is separate from, and in addition to, the member's share insurance coverage for other accounts.  NCUA included this example:

"[I]f a member has a $225,000 share certificate and a no-dividend share draft account with a balance of $300,000, both held in a single ownership capacity, he or she would be fully insured for $525,000 (plus dividends accrued on the share certificate), assuming the member has no other single-ownership funds at the same credit union." 

This result occurs because the $225,000 share certificate is insured under NCUA's normal share insurance rules (insured up to $250,000 in total for all individual accounts).  The $300,000 no-dividend share draft account is also fully insured - even though it is an individual account - because the unlimited share insurance for these accounts is separate from, and in addition to, other accounts at the same credit union.  This unlimited coverage for these accounts will expire after December 31, 2012, unless extended by Congress.    

Disclosure and Notice Requirement.  Credit unions that offer noninterest-bearing transaction accounts need to provide a disclosure in the lobby of its main office, in each branch and on their websites.  The language of the notice will be located in 12 C.F.R. 745.14(c)(1).  Until the rule is published in the Federal Register (and subsequently included in the Code of Federal Regulations), you can see the disclosure requirements here (page 15-16).

There is a second notice required if the credit union uses sweep arrangements.  If your credit union offers these types of arrangements, the second notice would need to be provided to any members utilizing those types of products.  Pages 5-6 of the rule describe and define these arrangements.

Update on 05/26:  This second notice would also be triggered if the credit union takes action that changes the account in a way that impacts the share insurance coverage.  An example would be if the credit union started to pay dividends on the account - which would remove the account from the unlimited share insurance coverage because it would no longer be "noninterest-bearing." 

Effective Date.  This rule will become effective 30 days after it is published in the Federal Register.  We will update you with that final date, but credit unions that offer noninterest-bearing transaction accounts should begin to prepare for their disclosures right away.    

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Shameless plug alert:

Dodd-Frank Webcast.  On June 2, NAFCU will have a webcast highlighting the provisions of Dodd-Frank that will impact credit unions.  Ted Dreyer of Wolters Kluwer will provide an update on implementation of Dodd-Frank regulations and upcoming deadlines.  And, of course, no discussion of Dodd-Frank would be complete without analyzing how the CFPB will impact credit unions.  You can save $100 by signing up by Thursday, May 26.         

Comments

[David Whitcomb]

Do the non-interest bearing account notices apply to Mortgage Escrow accounts?

[Steve Van Beek]

David,
The final rule does not mention mortgage escrow accounts. I don't think they fall under the definition as members usually do not full withdrawal rights. NCUA does insure these accounts - under 12 CFR 745.3(a)(3). That provision became effective in late 2008.

[Cheryl Hart]

does this rule apply to business accounts?

[Steve Van Beek]

Cheryl,
Yes. Here is from the preamble to the rule: "This definition of noninterest-bearing transaction account encompasses only traditional, noninterest-bearing demand deposit (checking or share draft) accounts that allow for an unlimited number of deposits and withdrawals at any time,4 whether held by a business, an individual, or other type of member. It does not include negotiable order of withdrawal (NOW) accounts, money-market accounts (MMA), or Interest on Lawyers Trust Accounts (IOLTA)."

[Sue Fowler]

Do you know when or if the NCUA calculators will be updated?

[Steve Van Beek]

Sue,
We haven't heard any word from NCUA on updating the calculators on their website. I have a feeling they won't as the insurance coverage is temporary (through 12/31/2012) and any funds in these accounts are fully insured.

[Steve Settino]

Is there any clarification on posting the required notice on the web site? What constitutes "internet deposit services"? If we allow a member to transfer funds from one of their accounts to another one of their accounts via our web site's on line banking product, do we have to posat the notice on the web site?

[Steve Van Beek]

Steve,
NCUA has not provided any additional guidance on what is considered "internet deposit services." I do think the ability to make deposits or transfer funds between accounts would meet the definition and require the notice.

[Michelle]

Does anyone have an example of the 2nd notice that they'd be willing to share?

[Cheryl]

Now with this expiring, will we need to send a notice to our memembers, such as a 'change in terms' notice?

[Michael Coleman]

Cheryl,

You are correct, the unlimited share insurance coverage for noninterest-bearing transaction accounts expires on December 31, 2012. Starting January 1, 2013, noninterest-bearing transaction accounts will have the standard maximum share insurance amount (SMISA) of $250,000. As a member service you could send a notice to your affected members if they need to restructure their accounts to ensure full share insurance coverage. However, this would not be a required change in terms notice.