THE LAW: Cautious Optimism for NCUA’s Proposed Fixed Assets Rule



The latest installment of National Credit Union Administration fixed assets amendments could prove advantageous to credit unions. CUB’s legal expert discusses what two major changes are in store and how your federal or state chartered CU can reap their benefits.

The National Credit Union Administration (NCUA) has issued proposed changes to its fixed assets rule … again. If you recall, NCUA issued similar amendments in July of last year, but they were never finalized. The second proposal, which came out in March, is similar to the first proposal, but it includes some changes that could prove beneficial to credit unions.
NCUA’s fixed assets rule (12 CFR 701.36) directly applies to federally chartered credit unions, but state law sets the limits to fixed assets ownership for state chartered credit unions. To regulate fixed assets ownership, states could either create separate standards or adopt a “parity” provision to bring in the NCUA rule. If finalized, the proposal would impact fixed assets investing for federal credit unions and those in states that incorporate federal law. This proposal is also an important one for state chartered credit unions that don’t follow the current NCUA rule since federal law is often the basis for changes made at the state level.
The proposed rule amends the current structure in two major ways: 1) it replaces the cap on ownership of fixed assets with a case-by-case approach; and 2) it simplifies the requirements for occupying real estate owned by the credit union.

Fixed Assets Cap
Current law restricts credit union ownership of fixed assets to five percent of shares and retained earnings, with the ability to receive a waiver from NCUA. The term “fixed asset” means the credit union’s “premises, furniture, fixtures, and equipment,” which includes all real property – branches and parking lots, ATMs, telephones, computers, printers, office furniture, and HVAC systems. The proposed rule removes the five percent cap (and the need for a waiver) and replaces it with supervisory guidance for examiners to use in reviewing each credit union’s fixed assets situation. As the NCUA states in the proposed rule, “The objective of the fixed assets rule is to place reasonable limits on the risk associated with excessive or speculative acquisition of fixed assets. Upon further review and consideration, the Board believes this objective can be effectively achieved through the supervisory process as opposed to a regulatory limit.”

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