What the overhead transfer means for credit unions

For decades, controversy has surrounded NCUA's practice of tapping the National Credit Union Share Insurance Fund to pay for a percentage of the agency's overhead.

The agency justifies this "overhead transfer" by internally calculating the percentage of its expenses related to share insurance.

For the last 15 years, the overhead transfer rate has been set at 50% -- which means half of NCUA's expenses are paid by the insurance fund.

NCUA funds its operations in three ways:

1) operating fees charged to federal credit unions

2) limited investment income (on NCUA's funds, not the insurance fund)

3) overhead transfer from the insurance fund.

Authority for the transfer is found in the Federal Credit Union Act (12 USC 1783(a)). Decisions on the rate and the amount of the transfer are left to the NCUA Board.

Lower Dividend

The effect of the overhead transfer is to reduce the size of the share insurance dividend by the amount of expenses transferred. The expenses transferred are shared by federal and state credit unions in proportion to their total insured shares.

Lower Operating Fee

The transferred expenses also reduce the amount that must be collected as operating fees from federal credit unions. Because 579/6 of federally insured shares are held by federally chartered credit unions, they pay 57% of the transferred expenses. Statechartered credit unions pay 43%. The operating fee charged to federal credit unions falls by the amount of the overhead transfer.

Some state credit unions consider the transfer rate too high, while some federal credit unions believe the rate is too low.

Two Concerns

1) Under its current leadership, NCUA has not provided adequate information to credit unions to explain the need for the current overhead transfer rate (or an increase) and how the rate figures into NCUA's overall budget allocations.

2) An increase in the overhead transfer rate means NCUA may have more latitude to camouflage some non-insurance related costs.

No Independent Analysis

From 1985 to 1994, NCUA conducted annual internal studies to evaluate the appropriateness of the overhead transfer rate.

In 1994, the NCUA Board began a three-year review cycle. That year it found insurance-related costs were about 59% of the agency's examination expenses, but voted to keep the overhead transfer rate at 50%.

In 1997, the agency found insurance-related costs declined to 49%, but again approved the 50% transfer rate.

No Cost Controls?

CUNA is very concerned that NCUA does not appear to be controlling costs. The agency has not been accountable to credit unions on the overhead transfer rate and other major budget decisions.

CUNA's Examination & Supervision Subcommittee, working with a former senior examiner from the U.S. Office of Management and Budget, is pressing NCUA for detailed budget information and reviewing the agency's allocation of resources.

The Subcommittee plans to deliver its findings to the NCUA Board and to credit unions.

Copyright Credit Union National Association, Inc. Oct 23, 2000
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