Industry Letter  Parity updates for the credit union industry

Date:	08/24/2016
Referenced Sources:	M.G.L. c. 171 s. 6A

To the Chief Executive Officer of the Credit Union Addressed:

On August 12, 2016, revisions to 209 CMR 50.00: Parity with Federal Credit Unions (Parity Regulations) went into effect.  The purpose of this industry letter is to highlight some of the major changes to the regulation.  A full listing of changes can be viewed in the red lined version, which is located on the Division of Banks’ website at this link.   

The Parity Regulations are the implementing regulations for Massachusetts General Laws (G.L.) chapter 171, section 6A.  This statute authorizes the Commissioner of Banks to propose regulations, subject to Legislative review, to authorize activities that are available to federally chartered credit unions in order to make the state charter more competitive.  The revised Parity Regulations add several new types of authorities.  In addition, they significantly restructure and streamline procedural requirements by allowing credit unions to exercise certain authorities after notice to the Division of Banks (Division) or with no notice requirements, rather than requiring that the credit unions receive advance approval from the Division. 

​​​​​​​New authorities

Some of the new authorities set forth in the revised Parity Regulation are as follows:

1. Authority for derivatives;
2. More explicit authority for secondary capital;
3. Authority for private label investments;
4. Authority for charitable donation accounts;
5. Expanded authority for charitable contributions and donations;
6. Authority to invest in credit union service organizations (CUSOs) with non-credit union parties; and
7. Authority for CUSO related activities regarding business loan origination.

Reduced regulatory burden

Some of the major amendments to reduce regulatory burden are set forth below:

1. Investments in land, building, improvements and equipment were moved from requiring approval to requiring notice and only if the investment is more than $1,000,000.  In addition, any investment in land, building, improvements and equipment of less than $1,000,000 requires no notice to or approval from the Division. 
2. A credit union designated as low-income by the Division and the National Credit Union Administration (NCUA) may accept deposits for any purpose from any source up to the aggregate of 20% of its existing deposits or $3 million, whichever is greater.   Credit unions not designated as low-income may accept deposits for any purpose from any credit union insured by the NCUA up to the aggregate of 20% of its existing deposits or $3 million, whichever is greater.  Non-member deposit authority previously required Division approval and is now a notice authority.
3. Authority for real estate loan participations has been amended from approval to requiring neither notice nor approval.
4. Authority for leasing activities is amended from requiring approval to requiring neither approval nor notice;
5. Authority for loan related products, specifically debt cancellation and debt suspension products, is amended from approval to requiring neither notice nor approval;
6. Authority for operational programs is amended from approval to notice;
7. Authority for certain finder activities is amended from approval to notice;
8. Authority for interest-bearing corporate checking accounts is amended from notice to requiring neither notice nor approval;
9. Authority for Treasury Tax and Loan Depositories is amended from notice to requiring neither notice nor approval;
10. Eligibility requirements regarding capital for credit unions are amended so that adequately capitalized state-chartered credit unions are now eligible for authorities requiring neither notice nor approval; and
11. Application process is amended from requiring a detailed business plan to requiring a description of the business purpose as well as the anticipated financial and business impact.

Updated provisions

In addition, upon further review of authorities relative to consumer and non-residential loan participations, the purchase and sale of loan portfolios, and the purchase of loans, the Division made the following amendments to the Parity Regulations:

1. The authority for a credit union to enter into consumer loan participations with CUSOs and governmental agencies now requires neither notice nor approval.  (The authority for a credit union to enter into a consumer loan participation with a federally-insured bank, credit union, or insurance company remains permissible under G.L. c. 171, s. 65E(3) and requires no Division approval or notice.¹) 
2. The authority for a credit union to enter into a real estate loan participation now includes participations with CUSOs and governmental agencies, requires neither notice nor approval, and has been clarified to be for all real estate loan participations;
3. The authorities for the purchase and sale of loan portfolios, as well as for the purchase of loans, are governed by G.L. c. 171, s. 65A.  As such, under c. 171, s. 65A, credit unions may acquire loans and mortgage loans.  Authority under the Parity Regulations is no longer required, and is therefore repealed.  (However, NCUA Rules and Regulations Section 741.8(a) still requires federally-insured credit unions to obtain prior NCUA and state regulator approval when whole loans are purchased from a bank or entity other than a federally-insured credit union); and
4. Since many of the Parity authorities were moved from approval to notice, the Division amended the notice authority to require written notice to the Commissioner 30 days prior to commencing the activity, it allows a request for a waiver of the notice period, and it allows the Commissioner to modify, curtail, rescind or limit the activities listed under the notice authority.

For a full version of the Parity Regulations, please click on this link.  As a reminder, these changes are now effective.  Please contact Chief Director Andrea L. Cipolla at [phone] or [e-mail] with any questions.

Sincerely,

David J. Cotney
Commissioner of Banks

1. State-chartered credit unions are subject to all conditions of 12 CFR § 701.22 for both loan participations and mortgage loan participations.  However, for consumer loan participations under G.L. c. 171, s. 65E(3), credit unions are exempt from the membership requirements.  For further information, refer to the Division’s industry letter here.