MCUA Files Comment Letter on Charitable Donation Accounts
Charitable Donation Accounts (CDAs) are hybrid charitable and investment vehicles. They must primarily benefit a charity, such as the National Credit Union Foundation. However, the accounts would also allow federal credit unions to make investments that are otherwise prohibited and could have a higher return as long as the majority of the returns are provided to charities. The proposed rule contains several requirements for federal credit unions that invest in these accounts, including:
- The primary purpose of the accounts must be to generate funds for tax-exempt charities chosen by federal credit unions.
- The total investment in all such accounts must be limited to 3% of the federal credit union’s net worth for the duration of the accounts. This means that at all times, the aggregate book value of all such investments must not exceed 3% of net worth, regardless of the level of the initial investment.
- A minimum of 51% of the total return from such an account must be distributed to one or more qualified charities.
- Distributions must be made to qualified charities no less frequently than every five years.
- Assets of these accounts must be held in segregated, custodial accounts or special purpose entities regulated by the Office of the Comptroller of the Currency, the U.S. Securities and Exchange Commission, or another federal regulatory agency. Credit unions could make their own investment decisions, but if another entity is managing the account, that entity would have to be a Registered Investment Advisor.
The Missouri Credit Union Association (MCUA) filed a comment letter on October 21, 2013, and strongly supports the creation of hybrid charitable and investment vehicles. MCUA commends the National Credit Union Administration's (NCUA) willingness to develop a regulatory framework to support this structure. Nevertheless, MCUA urges NCUA to improve the proposal in a few key areas.
First, limitations on a federal credit union’s Aggregate Contributions to CDAs should be made more flexible by specifying the net worth limitation be measured at the time of purchase or placement of the investment in the CDA and at the time of any subsequent additional investment and raising it from 3% to 5% of net worth. It is also recommended that disbursements be made on an annual basis. Second, the rule should include 704 exclusions to allow corporate credit union participation in CDAs. Third, SEC registration requirements for OCC-Supervised Entities that Manage CDAs for federal credit unions should be eliminated to prevent redundant regulatory oversight. Fourth, the proposal should be modified to allow for a credit union to recoup its costs so that these do not impact the Total Return.