NCUA Share Insurance Coverage: Expectations and Disclosures January - - PowerPoint PPT Presentation

NCUA Share Insurance Coverage: Expectations and Disclosures

January 25, 2012

National Association of Federal Credit Unions l www.nafcu.org

January 25, 2012 2:00 p.m. – 4:00 p.m. EST

Presented by: Steve Van Beek, Esq., NCCO JiJi Bahhur, Esq. National Association of Federal Credit Unions

Agenda

• Importance of Share Insurance
• Education of Existing Members and

Potential Members Share Insurance Coverage by Account

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• Share Insurance Coverage by Account
• Coverage in Special Situations
• NCUA’s Share Insurance Calculator
• Advertising of Insured Status

Importance

• Focus on Share Insurance Since 2007-08
• Not Every Credit Union is Federally Insured

– Shared Branching Disclosure – 12 CFR 740.4(c)

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– 12 CFR 740.4(c)

• Instability of Financial Institutions
• Aging Memberships

– Reducing Stock Market Exposure

• New Members; New to Credit Unions

– Bank Transfer Day

Educating Members

• NCUA Letter to Credit Unions 08-CU-18
• “During these uncertain times in the financial

markets, it is important for credit unions to help members understand their NCUA-insured

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help members understand their NCUA-insured shares are backed by the full faith and credit of the United States Government. NCUA protects members against losses should a federally insured credit union fail. No member has ever lost insured funds.”

Educating Members

• Structuring is Not Always a Bad Word
• “In addition to informing members about NCUA

insurance, credit unions should strive to educate members on how to structure their accounts in order

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members on how to structure their accounts in order to maximize the share insurance coverage available. NCUA offers several resources to help educate members.”

• Credit Union should be able to help assure

members that their funds are properly insured

Educating Members

• Regulatory Requirement – 12 CFR 745.13

§ § § § 745.13 Notification to members/shareholders. Each insured credit union shall provide notice to its members concerning NCUA insurance coverage of member accounts. This

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concerning NCUA insurance coverage of member accounts. This may be accomplished by placing either a copy of part 745 of these rules, the appendix, or one or more copies of the NCUA brochure “Your Insured Funds” in each branch office and main

• ffice of the credit union. Copies of these materials shall also be

made available to members upon request. For purposes of this section, an automated teller machine or point of sale terminal is not a branch office.

Educating Members

• Options for Notification

– Copy of Section 745 of NCUA’s Rules & Regulations; – Copy of the Appendix to Part 745; or – One of More Copies of “Your Insured Funds”

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• Upon Request
• The Above is the Bare Minimum

– Other Options: Newsletter Articles; Blog Postings; Statement Inserts; Workshops; Disclosures at Account Opening; and more.

Educating Members

• Members Want to Know Specifics

– How are their accounts insured? – Are their accounts fully insured? – What if they added a new account? Still insured?

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– What if they added a new account? Still insured?

• Brochures and Inserts can provide general

information

• NCUA’s Share Insurance Calculator provides an

avenue for inputting a member’s specific information and creating a detailed report

Share Insurance by Account

• The Basics:

– Dodd-Frank made the increase to $250,000

• permanent. Retirement accounts stay at $250k.

– Ownership type determines the share insurance coverage (rather than account type)

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coverage (rather than account type) – Accounts with the same ownership type are

• combined. Examples:
• Individual share account added with checking account
• Joint accounts (Sue & Joe; Joe & Sue) added together

– Share insurance coverage is per credit union

Individual Accounts

• Individual Ownership Accounts

– NCUA insures up to $250,000 – Includes any account owned individually

• If Joe Member has 3 individual accounts:

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– Share: $100,000 – Checking: $20,000 – Certificate: $200,000

• Joe has $320,000; but only $250,000 insured
• Note: If account has “POD” it is not individual

Joint Ownership Account

• Joint Ownership Account
• Up to $250,00 for each joint owner
• If account has 3 joint owners, the

account would be insured up to $750,000

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account would be insured up to $750,000

• Each joint owner’s insurance is added

together with any other joint account where he/she has an ownership interest

Joint Ownership Account

• Example – Two Joint Accounts – Insured

– Joe & Jane have $300,000 in a joint account – Joe & Bill have $200,000 in a joint account

• Joe, Jane & Bill can each receive up to $250,000

in insurance coverage for joint accounts.

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in insurance coverage for joint accounts.

– Jane’s ownership is $150,000; Bill’s is $100,000 and Joe’s is $250,000 ($150,000 + $100,000)

• Each account is fully insured

Note: Joe does not receive up to $500,000

Joint Ownership Account

• Example – Two Joint Accounts

– Joe & Jane have $400,000 in a joint account – Joe & Bill have $300,000 in a joint account

• Joe, Jane & Bill can each receive up to $250,000

in insurance coverage for joint accounts.

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in insurance coverage for joint accounts.

– Jane’s ownership is $200,000; Bill’s is $150,000 and Joe’s is $350,000 ($200,000 + $150,000)

• Jane and Bill are fully insured for their

interests in the accounts. Joe has $100,000 that is uninsured

Joint Ownership Account

• Example – Two Joint Accounts

– Joe & Jane have $500,000 in a joint account – Want to add a second account with $500,000 but have the account be Jane & Joe

Joe and Jane can each receive $250,000 in

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• Joe and Jane can each receive $250,000 in

insurance coverage for joint accounts

• Flipping the account names or the “primary”
• wner on the account does not impact the

share insurance coverage

• Joe and Jane will receive $500,000 total

Revocable Trust Accounts

• Revocable Trust Accounts

– Most common are Payable on Death (POD) or In Trust For (ITF) – Account records need to indicate intent to pass funds upon death to beneficiaries

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funds upon death to beneficiaries – Insurance coverage stems from beneficiaries – Up to $250,000 per beneficiary – Do not receive additional coverage by adding the same beneficiary to another POD account – Beneficiaries can be natural persons or nonprofit

• rganizations (changed in 2009)

Revocable Trust Accounts

• Example: Joe POD Sue, Sally & Bill

– Account insured up to $750,000 as Joe receives up to $250,000 in coverage for each beneficiary

• Example: Ray has 2 POD Accounts

– Ray POD Nick and Jamie

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– Ray POD Nick and Jamie – Ray POD Jamie and Ray Jr. – Up to $750,000 in insurance (Jamie listed twice)

• $1,000,000 in coverage for family of four?

– Husband POD Son and Daughter ($500,000) – Wife POD Son and Daughter ($500,000)

Revocable Trust Accounts

• Joint Revocable Trust Account

– Mary and Frank POD Barry and Sue – Mary receives $250,000 each for Barry and Sue ($500,000) – Frank receives $250,000 each for Barry and Sue ($500,000) – Account insured up to $1,000,000

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• General Rule for Joint Revocable Trust Accounts

– Number of Owners X Number of Beneficiaries X $250,000 – 2 Owners X 3 Beneficiaries X $250,000 = $1,500,000 – 2 Owners X 4 Beneficiaries X $250,000 = $2,000,000 – 4 Owners X 2 Beneficiaries X $250,000 = $2,000,000

• Each Owner and Beneficiary Must be Unique

Revocable Trust Accounts

• Complex Revocable Trust Accounts

– More than $1,250,000 AND more than 5 beneficiaries – Instead of $250,000 per beneficiary, NCUA will review the interest assigned to each beneficiary – Special rule to prevent accountholders from adding beneficiaries solely to increase the share insurance coverage

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beneficiaries solely to increase the share insurance coverage

• Example: Joe POD Jane and 10 Non-Profits

– Account has $2,000,000 – Jane will receive 90% of the account; each non-profit will receive 1% of the account – Account insured for only $450,000 – Jane receives $250,000; each non-profit insured for $20,000

Business & Retirement Accounts

• Business Accounts

– Insured up to $250,000 – Separate legal entity; insured separately

• Retirement Accounts

Insured separately than other accounts

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– Insured separately than other accounts

• Example: IRA is not combined with individual certificate

– Insured up to $250,000 – Roth IRA and Traditional IRA accounts combined to a total of $250,000 – KEOGH accounts separately insured; up to $250K

NonInterest-Bearing Transaction

• NonInterest-Bearing Transaction Accounts

– Special coverage until December 31, 2012 – Fully insured; regardless of amount of account – Coverage is separate and in addition to any insurance coverage for other accounts

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insurance coverage for other accounts

• Example: $225,000 individual account and a

$300,000 no-dividend checking account

– Individual account insured up to $250,000 – No-dividend checking is fully insured

NonInterest-Bearing Transaction

Special Disclosure Requirements

• Notice of Temporary Coverage

– Effective June 24, 2011 – Main office; each branch lobby; on website 12 CFR 745.14(c)(1)

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– 12 CFR 745.14(c)(1)

• Notice if Change in Account Impacts Coverage

– If the credit union changes the account in a way that changes the unlimited share insurance coverage, it must notify members individually of the change – What change? Paying dividends on the account

Merger Situations

• Mergers or Consolidations

– Member accounts are insured separately for a six month grace period – Bill has $250,000 in individual account at FCU 1 – Bill also has $250,000 in individual account at FCU 2

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– Bill also has $250,000 in individual account at FCU 2

• If FCU 1 and FCU 2 merge, Bill is fully insured for 6 months
• Share Certificates

– Special rule: Separately insured until the earliest maturity date after the end of the 6 month period – If matures during grace period, no extra coverage

Death of a Member

• Generally, a 6 month grace period following a

member’s death (share insurance not impacted)

• Grace period ends if the account is restructured
• This special rule does not apply to a revocable

trust account where a beneficiary passes away

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trust account where a beneficiary passes away

– If a beneficiary passes away, the impact on share insurance would be immediate

• Example: Jim and Sue have a joint account with their

3 children as beneficiaries; insured up to $1,500,000

– If a beneficiary dies, insurance drops to $1,000,000

Death of a Member

• Example: Dan and Judy have a joint account with

$500,000. Dan has $250,000 in individual account

– If Judy passes away, Dan becomes the sole owner of the joint account. – NCUA will insure the previous joint account as a joint

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– NCUA will insure the previous joint account as a joint account, separate from the individual account, for a 6 month period. – Dan would need to restructure his accounts within 6 months to ensure he is fully insured. – If he fails to do so, he will have $750,000 owned in an individual capacity with $500,000 uninsured

Share Insurance Calculator

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Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

National Association of Federal Credit Unions l www.nafcu.org

Share Insurance Calculator

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Share Insurance Calculator

• How do we help Joe Member?
• Options for Structuring Accounts to

ensure Joe Member is Fully Insured

– Move Funds from Share Account to Joint Checking

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– Move Funds from Share Account to Joint Checking – Add Joint Owner (Jane) to Share or Certificate – Add Beneficiaries to Share Certificate

• Mary & Jim each can get an additional $50,000
• Joe could add Jane Member as well to ensure the

account is fully ensured (Jane receives up to $250,000)

Share Insurance Calculator

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Share Insurance Calculator

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Share Insurance Calculator

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Disclosing Insured Status

• NCUA’s Regulations have two distinct

disclosure requirements for credit unions

• Located in 12 CFR 740 of NCUA’s Regulations

–NCUA Official Sign Disclosure

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–NCUA Official Sign Disclosure

• 12 CFR 740.4

–Official Advertising Statement

• 12 CFR 740.5

Official Sign Disclosure

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Available for Download or Purchase on NCUA’s website (along with NCUA Insurance brochures)

Official Sign Disclosure

• Required at each teller window:

“[A]t each station or window where insured account funds or deposits are normally received in its principal place of business and in all its branches, 30 days after its first day of operation as an insured credit union.” 12

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its first day of operation as an insured credit union.” 12 CFR 740.4(a).

• Does not include ATMs or POS terminals. 12

CFR 740.4(e).

• Does include drive-up teller stations
• Night Depository? Most likely no.

Official Sign Disclosure

• Also required on Internet page where members

can deposit funds or open an account:

“Each insured credit union must also display the

• fficial sign on its Internet page, if any, where it

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accepts deposits or open accounts, but it may vary the font sizes from that depicted in paragraph (b) of this section to ensure its legibility.” 12 CFR 740.4(a).

• Mobile Banking?

Official Advertising Statement

• NCUA also requires credit unions to include the

“Official Advertising Statement” on all

• advertisements. 12 CFR 740.5(a).
• NCUA recently added a definition of

“advertisement” in 12 CFR 740.1(b).

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“advertisement” in 12 CFR 740.1(b). “(b) Advertisement as used in this part means a

commercial message, in any medium, that is designed to attract public attention or patronage to a product or business.”

• Very broad definition, follows FDIC

Official Advertising Statement

• Disclosure required on annual reports and

statements of condition required by law

– Must be located on cover page – If no cover page, must be on first page 12 CFR 740.5(a)

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– 12 CFR 740.5(a) – Why? Recently added by NCUA as a way to clearly indicate whether a credit union is federally insured

• Disclosure required on CU’s main Internet page

Official Advertising Statement

• Credit unions have 3 options for disclosing the
• fficial advertising statement. 12 CFR 740.5(b)
• 1. Full official advertising statement: “This credit

union is Federally insured by the National Credit Union Administration.”

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Union Administration.”

• 2. Short version: “Federally insured by NCUA”
• 3. Official Sign
• Credit unions can include more than one
• ption but are not required to do so.

Official Advertising Statement

• New Font Size Requirement

“The official advertising statement must be in a

size and print that is clearly legible and may be no smaller than the smallest font size used in

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no smaller than the smallest font size used in

• ther portions of the advertisement intended to

convey information to the consumer.”

• Plenty of confusion in this area. No

exceptions to font size requirements.

• Cleanest option: Federally insured by NCUA

Official Advertising Statement

• Two recently reduced exceptions:

– TV and radio advertisements of less than 15

• seconds. 12 CFR 740.5(c)(7-8).

– Exceptions were for ads of less than 30 seconds

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• Other exceptions listed in 12 CFR 740.5(c):

– Loan advertisements; safe deposit boxes – Small promotional items: pens, pencils, etc. – Credit union supplies: checks, deposit slips

• No exception for billboards!! (font size)

Questions?

Contact Info: Steve Van Beek, Esq., NCCO JiJi Bahhur, Esq.

National Association of Federal Credit Unions l www.nafcu.org

JiJi Bahhur, Esq. Email: compliance@nafcu.org www.nafcu.org/compliance www.nafcucomplianceblog.com