June 9, 1998
Mr. Oscar Weidler
Weidler Associates Inc.
712 Midway Avenue
Saint Joseph, MI 49085
Dear Mr. Weidler:
NCUA Board Member Yolanda Townsend Wheat has referred your correspondence
regarding permissible reimbursement to credit unions in connection
with insurance sales to the Office of General Counsel for our
review.
NCUA's regulations permit federal credit unions (FCUs) to make
insurance involving outside vendors available to their members
and to provide administrative services on behalf of the vendors.
12 C.F.R. Part 721. Since August 1985, FCUs have been permitted
to be reimbursed or compensated without any limitation, except
as restricted by state law, in connection with the sale of credit-related
and share account-related insurance to members. 50 Fed. Reg.
16462 (April 26, 1985). Your correspondence notes examples of
alleged "reverse competition," meaning situations where
credit unions elect to use an insurance program that pays a higher
commission or fee to the credit union without due regard to related
costs being passed onto members.
The NCUA Board considered the issue of reverse competition when
it adopted the rule change in 1985 and noted several factors that
contribute to there being little incentive simply to select a
program with the highest commissions. Two factors were the accountability
of directors and management to the members inherent in a cooperatively
owned institution and the regulatory prohibition against directors,
officials and senior management receiving any compensation in
connection with insurance sales. The Board also stated that it
would reconsider the rule if there were evidence of dramatic increases
of insurance premiums. In the thirteen years this rule has been
in effect, we are unaware of evidence to support a finding of
widespread abuse by insurance companies or credit unions. We
suggest that you may want to consider reporting particular instances
of abuse to the appropriate state insurance regulator.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/RSS:bhs
SSIC 3500/98-0529A
cc: Board Member Wheat