Footnote 4's Impact on NIBTAs; Text of NIBTA Notice

Written by Steve Van Beek

Am I the only one who is sick of writing and saying "noninterest-bearing transaction accounts?"  It seems there are more unanswered questions in this new rule than there are answers.  And less than 21 total days before the effective date of June 24, 2011.  

One issue that we have seen is credit unions wondering if their accounts meet the definition of noninterest-bearing transaction accounts (NIBTAs) because they have a clause in their disclosures (and bylaws).

The model clauses in Appendix B to NCUA's Truth in Savings regulation includes this language:

"The credit union reserves the right to require a member intending to make a withdrawal from any account (except a share draft account) to give written notice of such intent not less than seven days and up to 60 days before such withdrawal.

Note: This disclosure is limited to federal credit unions with Bylaws containing this limitation. See Standard Federal Credit Union Bylaws, Art. III, section 5(a). Similar disclosures are required of any state-chartered credit unions having similar limitations in their bylaws, or under state law. This limitation does not directly relate to the “number” or “amount” of transactions, and accordingly, may not be necessary under §707.4(b)(5), but would, if applicable, be required by §707.3(b)."

So, the question is: Does this mean our accounts are no longer noninterest-bearing transaction accounts because we reserve the right to require advance notice of withdrawal?  

NCUA tucked the answer into Footnote 4 of their final rule.  NCUA indicates this reservation is an administrative requirement and does not impact the determination of whether the account meets the definition of a noninterest-bearing transaction account.  Here is Footnote 4:

"4 The NCUA Board does not believe the general provisions of Article III, Section 5(a) of the Federal Credit Union Bylaws, or other similar provisions, affect the definition ofnoninterest-bearing transaction account or the share insurance coverage of this kind ofaccount. Article III, Section 5(a) of the bylaws states that with respect to memberwithdrawals from share accounts, the federal credit union’s board of directors has theright, at any time, to require members to give up to 60 days written notice of intention towithdraw the whole or any part of the amounts paid in by members. The NCUA Boardconsiders this a broad, administrative provision that does not alter the nature of anaccount that otherwise satisfies the definition of a noninterest-bearing transactionaccount."  76 Fed. Reg. 30251. 

So - these accounts would be noninterest-bearing transaction accounts even though the credit union has reserved the right to require advance notice of withdrawals.

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I just wonder what would happen if a credit union put the discussion of a main issue in the footnote of the preamble to a Federal Register document!  If you are thinking "unfair and deceptive" - we are on the same wavelength.

As an extra bonus, guess what happens when this rule is published in the Electronic Code of Federal Regulations (12 C.F.R. 745.1(f))?  If you guessed - the footnote is nowhere to be found - you are two for two.    

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If you are looking for the exact text of 745.14(c)(1) notice, the language has been posted in the Electronic Code of Federal Regulations.  You are looking for the language starting with the capitalized letters and going through "www.ncua.gov."  There was not any font or size requirements included in the final rule.  I think credit unions would want to follow the "clearly legible" standard used for other notices.

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Extra Friday Bonus:  If you are wondering where you have heard of a prominent Footnote 4 before (and you wanted to bat 3-for-3 going into the weekend) - check the comments to the blog by clicking through the title of this blog post.  

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Super Geeky Footnote 4 Reference.  I still sometimes lose sleep over a different Footnote 4.  The one from a 1938 United States Supreme Court Case - United States vs. Carolene Products Co.  304 U.S. 144.  Wikipedia entry here.

During a Constitutional Law exam, one essay question was simply (I'm paraphrasing but not shortening):

"Explain Footnote 4 of Carolene Products as it relates to Constitutional Powers and Limitations." 

I don't remember what I wrote, but I don't think it was pretty.  Did I mention my professor was the one who wrote the Constitutional Law textbook we were using?  Ouch.  

Have a great weekend.

Comments

[Steve Van Beek]

Extra Friday Bonus Answer: Footnote 4 in Regulation D's definition of "Savings Deposit" in 12 C.F.R. 204.2(d)(2). Reg D's Footnote 4 outlines the steps a depository institution can take to enforce the Reg D transaction limitations.