Agency board rejects appeals by two low-income federal credit unions seeking secondary capital

The board of the federal credit union regulator last month upheld denials of two low-income federal credit unions’ appeals related to requested secondary capital authority, according to written decisions posted on the agency’s website.

The low-income credit unions (LICUs), unnamed in the written documents to afford privacy, reportedly were told by their respective National Credit Union Administration (NCUA) regional office in December 2018 that they could not proceed with the secondary capital plans they presented, as required, for review; those decisions were affirmed upon reconsideration in February. Both final decisions and orders by the board – one issued Oct. 11, the other on Oct. 24, when the board met in closed session – noted the region cited “multiple” safety and soundness concerns with the plans.

There is some variation in the arguments described by the two institutions, but it appears that both, based on the agency’s perspective as described in the final orders, argued that if they satisfied the agency secondary capital rule’s minimum content requirements for proposed plans, they would receive approval.

The more substantive discussion of this point, as well as a contention that the secondary capital rule is ambiguous, is provided in the final order regarding the credit union granted the oral hearing in September (Docket BD-07-19).

“Upon consideration of all the available facts and the parties’ oral and written arguments, the Board concludes there is no uncertainty as to the secondary capital rule’s meaning. Read plainly, the Board sees no ambiguity in the rule text, which clearly states, ‘[b]efore accepting secondary capital, a [LICU] shall adopt, and forward to NCUA for approval, a written [SC Plan] that, at a minimum,’ includes five specific components,” it states. That is, “the rule just means what it means,” which is “to seek approval to accept secondary capital, a LICU must submit to the NCUA a written plan that at a minimum includes five things,” it states.

The board further noted that there is “no genuine ambiguity that in determining whether to approve or disapprove a submitted SC [secondary capital] Plan, the Region must conduct a meaningful assessment, evaluation, and critique of the contents of the submitted SC Plan, including its underlying safety and soundness. To deny the Region the ability to exercise reasonable discretion in assessing, evaluating, and critiquing the contents of a submitted SC Plan would be to render the rule’s pre-approval requirement essentially meaningless.”

In both orders, the board said the credit unions are not precluded from submitting new applications and secondary capital plans.

Docket BD-07-19 (considered after oral arguments in September, final order dated Oct. 11)

Docket BD-08-19 (considered based on written record, final order dated Oct. 24)

NCUA Supervisory Review Committee Appeal Decisions

NCUA Board Appeals