Suretyship and Guaranty; Segregated Deposit and Collateral

NATIONAL CREDIT UNION ADMINISTRATION <CFR>12 CFR Part 701</CFR> <RIN>RIN 3133-AF80</RIN> <SUBJECT>Suretyship and Guaranty; Segregated Deposit and Collateral</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> National Credit Union Administration (NCUA). <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The NCUA Board (Board) seeks comment on a proposed rule to remove the segregated deposit and collateral requirements when a federally insured credit union (FICU) acts as a surety and guarantor. Removing this regulation will provide FICUs with greater flexibility to design products that meet member needs. FICUs would remain subject to the other requirements regarding surety and guaranty agreements. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received by February 27, 2026. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments may be submitted in one of the following ways. ( <E T="03">Please send comments by one method only</E> ): • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov</E> . The docket number for this proposed rule is NCUA-2025-1434. Follow the “Submit a comment” instructions. If you are reading this document on <E T="03">federalregister.gov,</E> you may use the green “SUBMIT A PUBLIC COMMENT” button beneath this rulemaking's title to submit a comment to the <E T="03">regulations.gov</E> docket. A plain language summary of the proposed rule is also available on the docket website. • <E T="03">Mail:</E> Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. • <E T="03">Hand Delivery/Courier:</E> Same as mailing address. Mailed and hand-delivered comments must be received by the close of the comment period. <E T="03">Public inspection:</E> Please follow the search instructions on <E T="03">https://www.regulations.gov</E> to view the public comments. Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments are public records; they are publicly displayed exactly as received and will not be deleted, modified, or redacted. Comments may be submitted anonymously. If you are unable to access public comments on the internet, you may contact the NCUA for alternative access by calling (703) 518-6540 or emailing <E T="03">OGCMail@ncua.gov</E> . <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Keisha Brooks, Attorney-Advisor, Office of General Counsel, at (703) 518-6540 or at 1775 Duke Street, Alexandria, VA 22314. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Introduction</HD> <HD SOURCE="HD2">A. Background</HD> Federal Credit Unions (FCUs) may only engage in activities that are expressly authorized either by statute or within the FCU's incidental powers. The Federal Credit Union Act (FCU Act) explicitly grants FCUs the power to, among other activities, make loans to members and to provide letters of credit on behalf of members. <SU>1</SU> <FTREF/> The accompanying incidental powers provision states that each FCU may “exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.”  <SU>2</SU> <FTREF/> The FCU Act defines the business for which each FCU is incorporated: “promoting thrift among its members and creating a source of credit for provident or productive purposes.”  <SU>3</SU> <FTREF/> Section 701.20, established in 2004, recognizes the ability of FCUs to enter into suretyship and guaranty agreements for their members as an incidental power, providing additional flexibility to meet member needs. <SU>4</SU> <FTREF/> For example, the regulation allows FCUs to become one party in a three-way lending relationship, where the FCU agrees to take responsibility for repayment if the member is unable to meet the lending obligation. <FTNT> <SU>1</SU>  12 U.S.C. 1757(5), 1757a. </FTNT> <FTNT> <SU>2</SU>  12 U.S.C. 1757(17). </FTNT> <FTNT> <SU>3</SU>  12 U.S.C. 1752(1). </FTNT> <FTNT> <SU>4</SU>  69 FR 8547, Feb. 25, 2004. </FTNT> Section 701.20 defines these arrangements and, to promote safety and soundness, requires that the FCU's obligation be for a fixed amount and duration, that the FCU's performance of the agreement creates an authorized loan that complies with the applicable lending regulations, and that it obtains a segregated deposit from the member sufficient to cover the potential liability. As provided in § 741.221 of the NCUA regulations, these requirements also apply to federally insured state credit unions (FISCUs) that are authorized under state law to enter into suretyship and guaranty agreements. <SU>5</SU> <FTREF/> The rule was amended in 2019 as part of a regulatory reform initiative to reduce burden and improve clarity by updating internal cross-references. <SU>6</SU> <FTREF/> <FTNT> <SU>5</SU>  12 CFR 741.221. </FTNT> <FTNT> <SU>6</SU>  84 FR 10975 (Mar. 25, 2019). </FTNT> <HD SOURCE="HD2">B. Legal Authority</HD> The Board has the legal authority to issue this proposed rule pursuant to its plenary rulemaking authority under the FCU Act and its specific rulemaking authority under the various acts the Board administers. <SU>7</SU> <FTREF/> Under the FCU Act, the NCUA is the chartering and supervisory authority for FCUs and the federal supervisory authority for FICUs. <SU>8</SU> <FTREF/> The FCU Act grants the NCUA a broad mandate to issue regulations governing both FCUs and all FICUs. Section 120 of the FCU Act is a general grant of regulatory authority and authorizes the Board to prescribe rules and regulations for the administration of the FCU Act. <SU>9</SU> <FTREF/> Section 207 of the FCU Act is a specific grant of authority over share insurance coverage, conservatorships, and liquidations. <SU>10</SU> <FTREF/> Section 209 of the FCU Act is a plenary grant of regulatory authority to the Board to issue rules and regulations necessary or appropriate to carry out its role as share insurer for all FICUs. <SU>11</SU> <FTREF/> Accordingly, the FCU Act grants the Board broad rulemaking authority to ensure that the credit union industry and the National Credit Union Share Insurance Fund remain safe and sound. <FTNT> <SU>7</SU>  12 U.S.C. 1766, 1789. </FTNT> <FTNT> <SU>8</SU>  12 U.S.C. 1752-1775. </FTNT> <FTNT> <SU>9</SU>  12 U.S.C. 1766(a). </FTNT> <FTNT> <SU>10</SU>  12 U.S.C. 1787(b)(1). </FTNT> <FTNT> <SU>11</SU>  12 U.S.C. 1789(a)(11). </FTNT> <HD SOURCE="HD1">II. Proposed Rule</HD> As part of its deregulatory initiative, the Board proposes to remove paragraphs (c)(3) and (d) of § 701.20, which impose segregated deposit and collateral requirements when FICUs act as a surety and guarantor. Under these provisions, depending on the nature of the collateral, an FCU must have a perfected security interest in collateral equal to 100 or 110 percent of the obligation. The 100 percent collateral category includes cash; obligations of the United States or its agencies; obligations fully guaranteed by the United States or its agencies as to principal and interest; and notes, drafts, bills of exchange, and bankers' acceptances that are eligible for rediscount or purchase by a Federal Reserve Bank. <SU>12</SU> <FTREF/> The 110 percent collateral category includes real estate and marketable securities. <SU>13</SU> <FTREF/> Section 741.221 of the NCUA regulations applies these requirements to FISCUs that are authorized under state law to act as a surety or guarantor. <FTNT> <SU>12</SU>  12 CFR 701.20(d)(2). </FTNT> <FTNT> <SU>13</SU>  12 CFR 701.20(d)(3). </FTNT> The Board is now of the view that removing these segregated deposit and collateral requirements will provide FICUs the flexibility to design products that meet member needs. These proposed changes are intended to simplify the regulatory framework and reduce unnecessary compliance burdens. It is not always necessary to have a segregated deposit that fully covers the liability. For example, current regulations require a FICU acting as a surety or guarantor to create an authorized loan that complies with the applicable NCUA lending regulations. <SU>14</SU> <FTREF/> The NCUA's commercial lending regulations adopted in 2016 include collateral requirements that reflect a broad principles-based regulatory approach for FICUs engaged in member business lending activities. <SU>15</SU> <FTREF/> These principles are predicated on the Board's expectation that credit unions will maintain prudent risk management practices and sufficient capital to mitigate the risks associated with their commercial lending activities. <SU>16</SU> <FTREF/> Maintaining this additional requirement for a segregated deposit associated with suretyship or guaranty agreements adds complexity to these transactions. FICUs are best positioned to determine the amount and types of collateral they are willing to accept to cover the risk. <FTNT> <SU>14</SU>  See 12 CFR 701.20(c)(2), 741.203, 741.221. </FTNT> <FTNT> <SU>15</SU>  See Final Rule, Member Business Loans; Commercial Lending, 81 FR 13530, 13533 (Mar. 14, 2016); 12 CFR part 723. For FISCUs, a state regulator may adopt state-specific rules if the state rule covers at least all provisions in part 723 and is no less restrictive as determined by the NCUA. FISCUs in states with an NCUA-approved state rule may comply with the state rule and need not comply with part 723. See 12 CFR 723.10, 741.203. </FTNT> <FTNT> <SU>16</SU>  See Final Rule, Member Business Loans; Commercial Lending, 81 FR 13530, 13533 (Mar. 14, 2016). </ ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 20k characters. 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