In a Pre-$250,000.00 deposit insurance coverage case, the issue was how one depositor deposits were combined, thereby avoiding insurance coverage. This type of ruling below could also apply to the current $250,000.00 coverage limits as to the combination of account deposits.

In Waukesha State Bank et al. v. National Credit Union Administration Board (U.S. Court of Appeals, Dist. of Columbia Cir., No. 91-1285), the Court of Appeals upheld a decision of the NCUA Board that restricted insurability of a credit union depositor to $100,000.

Here, the depositor, Waukesha State Bank, purchased a $200,000 share certificate and another share certificate of $95,000 in the credit union. The depository credit union fell on hard times and Waukesha State Bank faced a loss to its deposits when the NCUA Board ruled that the bank was only insured on its $295,000 deposit to the extent of $100,000.

Waukesha Bank thought that it actually had three separate deposits with each deposit totaling $100,000 or less, and the bank further believed that it was fully insured on each account to the extent of $100,000. Therefore, according to the bank, this federally insured credit union held insurance of $100,000 to the the bank on each account to the aggregate extent of $295,000.

The NCUA Board and the court, however, relied upon federal law governing insurance coverage for depositors and found that:

[I]n determining the amount due to any member, there shall be added together all accounts in the credit union maintained by him [or her] for his [or her] own benefit either in his [or her] own name or in the names of others.

The court referred to the credit union’s account deposit cards for each account of the bank and found they were under the name of “Wabank and Company.” The court held that the established rule of law in this matter is to rely upon the written account cards.

In this case, although the bank thought it was depositing funds for the benefit of is own depositors, each account specified “Wabank and Company” as the owner of the account. Accordingly, the bank’s deposits in the credit union were only insured to the extent of $100,000 and the bank faces to lose the balance of $195,000.

EDITOR’S COMMENT

Federal statutes and regulations identify the extent to which a member’s deposits are federally insured.

It is possible for one member to have several accounts which are insured in excess of the base insurance coverage, however, each credit union should consult with its own attorney as to properly establishing those accounts.

For example, according to the NCUA, if two or more persons, such as husband and wife, have in the same credit union a joint account as well as their own individual accounts, each account is separately insured.

Joint accounts are insured separately from individual accounts up to the maximum, provided that each of the co-owners has personally signed an account signature card and has a right of withdrawal on the same basis as the other co-owner.

Author: Charles R. Harroun, Attorney at Law