ALEXANDRIA, Va.—By a vote of 3-0, the NCUA board Thursday approved a proposal to remove the full occupancy requirement on credit union properties.
The new rule gives credit unions greater flexibility in managing their real estate purchases, NCUA stated.
“This is another excellent example of how NCUA listens and responds to stakeholders who are seeking regulatory relief,” explained NCUA board chairman Debbie Matz in her final meeting. Matz is stepping down as chairman of NCUA on April 30. Vice Chair Rick Metsger will assume the chairman’s role.
Similar to the rules NCUA finalized during the past year on member business lending, fixed assets, and associational common bonds, NCUA said this proposal would:
- Remove outdated regulatory limits.
- Cut unnecessary paperwork.
- Empower credit union boards to make their own business decisions.
“I feel strongly that credit union officials should be able to manage their own real estate purchases,” said Matz. “As long as credit unions have a plan to occupy at least half of each property, they should decide how to use the ‘incidental’ portion of each property without regulatory micro-management.”
Matz noted that in her two terms on the NCUA board, she has seen businesses operating successfully in mixed-use buildings, where street-level space is used for retail operations and an upper floor is used for commercial rentals or private residences. These types of mixed-use zoning are especially popular in urban areas, she said.
“The facilities help businesses connect to residents in their neighborhoods,” explained Matz. “However, if a federal credit union were to buy such a facility, NCUA’s current rule would require the credit union to evict all the renters and tenants in order to fully occupy the building. Clearly, the full occupancy requirement is not fair to renters and tenants. And it makes no business sense for credit unions.”
Connecting to Residents
Matz said as a result of the previous rule, very few federal credit unions were in position to buy mixed-use facilities that could help them connect to residents in their neighborhoods. She said commenters pointed out this unintended consequence when NCUA opened the fixed assets rule for comments in 2014.
“Unfortunately, those comments were outside the scope of our proposed rule at the time,” explained Matz. “So, in order to comply with the federal Administrative Procedure Act, we first had to finalize the rule to eliminate the 5% limit on fixed assets — which we did in 2015 — then re-propose the rule as we are doing today. We heard commenters’ concerns on this issue, and we have responded as reasonably as we could under the law.”
Matz pointed out that the rule is the 22nd regulatory relief provision NCUA has introduced since she announced the agency’s Regulatory Modernization Initiative four-and-a-half years ago.
“Now in my final action at an open board meeting, I am pleased to have this opportunity to vote on a proposed solution to remove another regulatory burden for credit unions and consumers,” Matz said.
Why Not Repeal Rule?
Matz asked agency attorney Pamela Yu why the agency could not simply remove all occupancy requirements and repeal the entire rule.
“Unlike the 5% aggregate limit which the board repealed, several provisions in this rule have a statutory basis and should not be entirely repealed,” Yu said. “Section 107(4) of the Federal Credit Union Act authorizes a federal credit union to purchase, hold, and dispose of property ‘necessary or incidental to its operations.’ NCUA has interpreted this provision to mean that a federal credit union may only invest in property it intends to use to transact business or to support its internal operations or member services.”
Yu added that there is no authority in the Federal Credit Union Act for a federal credit union to invest in real estate for speculative purposes.
“Thus, our rule includes occupancy, planning, and disposal provisions to ensure that, within a reasonable time, federal credit union property is being utilized to support credit union business and operations, and that any property no longer intended for that purpose is timely disposed,” she explained.
McWatters asked if this has been a problem, with staff saying it has not been a “huge” issue and no safety and soundness risks are expected.