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Effective Date 1/29/2020

In a significant move impacting credit unions, the National Credit Union Administration (NCUA) Board announced revisions to regulations governing the acceptance of public unit and nonmember shares by federal credit unions (FCUs). The effective date for these changes was January 29, 2020.

Understanding the Changes:
Previously, FCUs were subject to rigid limits on nonmember shares, capped at 20% of total shares or $3 million, whichever was greater. However, under the new regulations, FCUs now have greater flexibility. They can accept public unit and nonmember shares up to 50% of their net amount of paid-in and unimpaired capital and surplus, or $3 million, whichever is greater.

Calculation Breakdown:
To grasp the implications, let’s simplify the math. FCUs take their net amount of paid-in and unimpaired capital and surplus (which reflects their financial cushion), less any public unit and nonmember shares (as measured at the time of acceptance of such public unit or nonmember share); from this, they can accept nonmember shares up to 50% of that total or $3 million, whichever is greater.

Elimination of Waivers:
One notable change in the revised regulations pertains to eliminating the waiver process for exceeding the nonmember share limits. Under the previous rules, FCUs could seek waivers from the appropriate regional director if they wished to surpass the specified limits. However, the revised regulations have done away with this provision. The NCUA believes that removing the waiver procedures ensures financial prudence given the increased limit and, therefore, does not see a need for a case-by-case basis for waivers. Additionally, any previously effective waivers that were granted expired when the revised regulation became effective.

The NCUA’s revisions represent a significant development for credit unions, as the increase in nonmember shares offers them greater control over their financial strategies. By expanding opportunities for nonmember shares, credit unions can explore alternative funding avenues and navigate toward growth.

Link to the Final Rule: