The National Credit Union Administration advanced a proposed rule on Thursday that would add veteran-focused nonprofits to the pool of institutions eligible for donations submitted by federal credit unions.
In 2013, the agency enacted legislation that gave federal credit union boards the authority to establish and fund a Charitable Donation Account through channels such as fundraising campaigns and earnings — as long as the total value of these accounts never exceeds 5% of the credit union’s net worth, among other conditions. These vehicles allow credit unions to use the support for philanthropic causes.
The potential amendment to the NCUA’s incidental powers regulation — which grants federally chartered institutions certain liberties to engage in activities that enable it to continue operating as intended — would modify the definition of a “qualified charity” under the current framework to include “war veterans’ organizations” as acceptable establishments for funding by a CDA. These incidental powers are allowed under the Federal Credit Union Act of 1934.
The change would further support credit unions catering to the armed forces and defense-related organizations by creating additional opportunities to aid veteran groups, said Todd Harper, chairman of the NCUA, during the agency’s monthly board meeting.
“With this proposed rule change, we will allow them to better serve their members and fulfill their missions. … That’s good for veterans, good for military families, good for credit union members, good for credit unions and good for our country,” Harper said.
Per regulatory guidelines, federal credit unions are required to distribute at least 51% of the CDA’s total returns at least once every five years. This ensures that credit union leaders are adequately managing the risks associated with the investments and are making timely disbursements.
Since the initial rule focused on charities categorized under section 501(c)(3) of the Internal Revenue Code, which include those organized for religious, charitable, scientific, literary or educational purposes, those classified under section 501(c)(19) that serve the needs of past and present members of the armed forces were excluded.
Trade advocates with organizations such as the National Association of Federally-Insured Credit Unions and the Credit Union National Association called upon the regulatory agency last year to adjust its interpretation of a qualified charity.
Federal credit unions can donate to veteran organizations without the use of a CDA, but the process of identifying excess funds suitable for contribution independent of the accounts is laden with regulatory and legal risks for both the institution and the recipients, said James Akin, senior regulatory affairs counsel for NAFCU.
“Veterans’ organizations serve a mission that is aligned with the credit union mission of helping people and, as we unfortunately see every day, veterans face a number of pressing issues related to mental health, homelessness, disabilities and more. … There is a real need here,” Akin said.
NCUA board members voted unanimously to proceed with the proposal at the meeting and open the 60-day comment period for the draft upon its publication in the Federal Register.
“Military credit unions represent a significant portion of the nation’s credit union system [and] although this proposed change applies to credit unions in general, it is appropriate to give the nation’s military credit unions the ability to take advantage of Charitable Donation Accounts to support 501(c)(19) tax exempt veterans’ groups,” Kyle Hauptman, vice chairman of the NCUA, said during the meeting.