Title 12: Banks and Banking
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PART 701—ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
Section Contents
§ 701.1 Federal credit union chartering, field of membership modifications, and conversions.
§§ 701.2-701.5 [Reserved]
§ 701.6 Fees paid by Federal credit unions.
§§ 701.7-701.13 [Reserved]
§ 701.14 Change in official or senior executive officer in credit unions that are newly chartered or are in troubled condition.
§§ 701.15-701.18 [Reserved]
§ 701.19 Benefits for employees of Federal credit unions.
§ 701.20 Suretyship and guaranty.
§ 701.21 Loans to members and lines of credit to members.
§ 701.22 Loan participation.
§ 701.23 Purchase, sale, and pledge of eligible obligations.
§ 701.24 Refund of interest.
§ 701.25 Charitable contributions and donations.
§ 701.26 Credit union service contracts.
§§ 701.27-701.30 [Reserved]
§ 701.31 Nondiscrimination requirements.
§ 701.32 Payment on shares by public units and nonmembers.
§ 701.33 Reimbursement, insurance, and indemnification of officials and employees.
§ 701.34 Designation of low income status; Acceptance of secondary capital accounts by low-income designated credit unions.
§ 701.35 Share, share draft, and share certificate accounts.
§ 701.36 FCU ownership of fixed assets.
§ 701.37 Treasury tax and loan depositaries; depositaries and financial agents of the Government.
§ 701.38 Borrowed funds from natural persons.
§ 701.39 Statutory lien.
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601–3610. Section 701.35 is also authorized by 42 U.S.C. 4311–4312.
Link to an amendment published at 71 FR 42251, July 26, 2006.
§ 701.1 Federal credit union chartering, field of membership modifications, and conversions.
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National Credit Union Administration policies concerning chartering, field of membership modifications, and conversions are set forth in Interpretive Ruling and Policy Statement 03–1, Chartering and Field of Membership Manual, as amended by IRPS 06–1, Copies may be obtained on NCUA's Web site, http://www.ncua.gov, or by contacting NCUA at the address found in Section 790.2(c) of this chapter.
(Approved by the Office of Management and Budget under control number 3133–0015 and 3133–0116)
[71 FR 36670, June 28, 2006]
§§ 701.2-701.5 [Reserved]
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§ 701.6 Fees paid by Federal credit unions.
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(a) Basis for assessment. Each calendar year or as otherwise directed by the Board, each Federal credit union shall pay to the Administration for the current National Credit Union Administration fiscal year (January 1 to December 31) an operating fee in accordance with a schedule as fixed from time to time by the National Credit Union Administration Board based on the total assets of each Federal credit union as of December 31 of the preceding year or as otherwise determined pursuant to paragraph (b) of this section.
(b) Coverage. The operating fee shall be paid by each Federal credit union engaged in operations as of January 1 of each calendar year, except as otherwise provided by this paragraph.
(1) New charters. A newly chartered Federal credit union will not pay an operating fee until the year following the first full calendar year after the date chartered.
(2) Conversions. A state chartered credit union that converts to Federal charter will pay an operating fee in the year following the conversion. Federal credit unions converting to state charter will not receive a refund of the operating fee paid to the Administration in the year in which the conversion takes place.
(3) Mergers. A continuing Federal credit union that has merged with another credit union will pay an operating fee in the following year based on the combined total assets of the merged credit union and the continuing Federal credit union as of December 31 of the year in which the merger took place. For purposes of this requirement, a purchase and assumption transaction wherein the continuing Federal credit union purchases all or essentially all of the assets of another credit union shall be deemed a merger. Federal credit unions merging with other Federal or state credit unions will not receive a refund of the operating fee paid to the Administration in the year in which the merger took place.
(4) Liquidations. A Federal credit union placed in liquidation will not pay any operating fee after the date of liquidation.
(c) Notification. Each Federal credit union shall be notified at least 30 days in advance of the schedule of fees to be paid. A Federal credit union may submit written comments to the Board for consideration regarding the existing fee schedule. Any subsequent revision to the schedule shall be provided to each Federal credit union at least 15 days before payment is due.
(d) Assessment of Administrative Fee and Interest for Delinquent Payment. Each Federal credit union shall pay to the Administration an administrative fee, the costs of collection, and interest on any delinquent payment of its operating fee. A payment will be considered delinquent if it is postmarked later than the date stated in the notice to the credit union provided under §701.6(c). The National Credit Union Administration may waive or abate charges or collection of interest if circumstances warrant.
(1) The administrative fee for a delinquent payment shall be an amount fixed from time to time by the National Credit Union Administration Board and based upon the administrative costs of such delinquent payments to the Administration in the preceding year.
(2) The costs of collection shall be the actual hours expended by Administration personnel multiplied by the average hourly salary and benefits costs of such personnel as determined by the National Credit Union Administration Board.
(3) The interest rate charged on any delinquent payment shall be the U.S. Department of the Treasury Tax and Loan Rate in effect on the date when the payment is due as provided in 31 U.S.C. 3717.
(4) If a credit union makes a combined payment of its operating fee and its share insurance deposit as provided in §741.4 of this chapter and such payment is delinquent, only one administrative fee will be charged and interest will be charged on the total combined payment.
[44 FR 27380, May 10, 1979, as amended at 50 FR 20745, May 20, 1985; 55 FR 1799, Jan. 19, 1990; 59 FR 33421, June 29, 1994; 60 FR 58503, Nov. 28, 1995]
§§ 701.7-701.13 [Reserved]
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§ 701.14 Change in official or senior executive officer in credit unions that are newly chartered or are in troubled condition.
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(a) Statement of scope and purpose. Section 212 of the Federal Credit Union Act (12 U.S.C. 1790a) sets forth conditions under which a credit union must notify NCUA in writing of any proposed changes in its board of directors, committee members or senior executive staff. The regulation only applies in cases of newly chartered credit unions and credit unions in troubled condition.
(b) Definitions. For the purposes of this section:
(1) Committee member means any individual who serves as an official of the credit union in the capacity of a credit committee member or supervisory committee member.
(2) Senior executive officer means a credit union's chief executive officer (typically this individual holds the title of president or treasurer/manager), any assistant chief executive officer (e.g., any assistant president, any vice president or any assistant treasurer/manager) and the chief financial officer (controller). The term “senior executive officer” also includes employees of an entity, such as a consulting firm, hired to perform the functions of positions covered by the regulation.
(3) Except as provided in paragraph (b)(4) of this section for corporate credit unions, “troubled condition” means any insured credit union that has one or a combination of the following conditions:
(i) Has been assigned
(A) A 4 or 5 Camel composite rating by the NCUA in the case of a federal credit union, or
(B) An equivalent 4 or 5 Camel composite rating by the state supervisor in the case of a federally insured, state-chartered credit union, or
(C) A 4 or 5 Camel composite rating by NCUA based on core workpapers received from the state supervisor in the case of a federally insured, state-chartered credit union in a state that does ot use the Camel system. In this case, the state supervisor will be notified in writing by the Regional Director in the Region in which the credit union is located that the credit union has been designated by NCUA as a troubled institution;
(ii) Has been granted assistance as outlined under sections 208 or 216 of the Federal Credit Union Act.
(4) In the case of a corporate credit union, “troubled condition” means any insured corporate credit union that has one or a combination of the following conditions:
(i) Has been assigned
(A) A 4 or 5 Corporate Risk Information System (CRIS) rating by NCUA in either the Financial Risk or Risk Management composites, in the case of a federal corporate credit union, or
(B) An equivalent 4 or 5 CRIS rating in either the Financial Risk or Risk Management composites by the state supervisor in the case of a federally insured, state-chartered corporate credit union in a state that has adopted the CRIS system, or an equivalent 4 or 5 CAMEL composite rating by the state supervisor in the case of a federally insured, state-chartered corporate credit union in a state that uses the CAMEL system, or
(C) A 4 or 5 CRIS rating in either the Financial Risk or Risk Management composites by NCUA based on core workpapers received from the state supervisor in the case of a federally insured, state-chartered credit union in a state that does not use either the CRIS or CAMEL system. In this case, the state supervisor will be notified in writing by the Director of the Office of Corporate Credit Unions that the corporate credit union has been designated by NCUA as a troubled institution;
(ii) Has been granted assistance as outlined under sections 208 or 216 of the Federal Credit Union Act.
(c) Procedures for Notice of Proposed Change in Official or Senior Executive Officer—(1) Prior Notice Requirement. An insured credit union must give NCUA written notice at least 30 days before the effective date of any addition or replacement of a member of the board of directors or committee member or the employment or change in responsibilities of any individual to a position of senior executive officer if:
(i) The credit union has been chartered for less than two years; or
(ii) The credit union meets the definition of troubled condition in paragraph (b)(3) or (4) of this section.
(2) Waiver of Prior Notice—(i) Waiver requests. Parties may petition the appropriate Regional Director for a waiver of the prior notice required under this section. Waiver may be granted if it is found that delay could harm the credit union or the public interest.
(ii) Automatic waiver. In the case of the election of a new member of the board of directors or credit committee member at a meeting of the members of a federally insured credit union, the prior 30-day notice is automatically waived and the individual may immediately begin serving, provided that a complete notice is filed with the appropriate Regional Director within 48 hours of the election. If NCUA disapproves a director or credit committee member, the board of directors of the credit union may appoint its own alternate, to serve until the next annual meeting, contingent on NCUA approval.
(iii) Effect on disapproval authority. A waiver does not affect the authority of NCUA to issue a Notice of Disapproval within 30 days of the waiver or within 30 days of any subsequent required notice.
(3) Filing procedures—(i) Where to file. Notices will be filed with the appropriate Regional Director or, in the case of a corporate credit union, with the Director of the Office of Corporate Credit Unions. All references to Regional Director will, for corporate credit unions, mean the Director of Office of Corporate Credit Unions. State-chartered federally insured credit unions will also file a copy of the notice with their state supervisor.
(ii) Contents. The notice must contain information about the competence, experience, character, or integrity of the individual on whose behalf the notice is submitted. The Regional Director or his or her designee may require additional information. The information submitted must include the identity, personal history, business background, and experience of the individual, including material business activities and affiliations during the past five years, and a description of any material pending legal or administrative proceedings in which the individual is a party and any criminal indictment or conviction of the individual by a state or federal court. Each individual on whose behalf the notice is filed must attest to the validity of the information filed. At the option of the individual, the information may be forwarded to the Regional Director by the individual; however, in such cases, the credit union must file a notice to that effect.
(iii) Processing. Within ten calendar days after receiving the notice, the Regional Director will inform the credit union either that the notice is complete or that additional, specified information is needed and must be submitted within 30 calendar days. If the initial notice is complete, the Regional Director will issue a written decision of approval or disapproval to the individual and the credit union within 30 calendar days of receipt of the notice. If the initial notice is not complete, the Regional Director will issue a written decision within 30 calendar days of receipt of the original notice plus the amount of time the credit union takes to provide the requested additional information. If the additional information is not submitted within 30 calendar days of the Regional Director's request, the Regional Director may either disapprove the proposed individual or review the notice based on the information provided. If the credit union and the individual have submitted all requested information and the Regional Director has not issued a written decision within the applicable time period, the individual is approved.
(d) Commencement of Service. A proposed director, committee member, or senior executive officer may begin service after the end of the 30-day period or any other additional period as provided under paragraph (c)(3)(iii) of this section, unless the NCUA disapproves the notice before the end of the period.
(e) Notice of disapproval. NCUA may disapprove the individual's serving as a director, committee member or senior executive officer if it finds that the competence, experience, character, or integrity of the individual with respect to whom a notice under this section is submitted indicates that it would not be in the best interests of the members of the credit union or of the public to permit the individual to be employed by, or associated with, the credit union. The Notice of Disapproval will advise the parties of their rights of appeal pursuant to 12 CFR part 747 subpart J, of NCUA's Regulations.
[55 FR 43086, Oct. 26, 1990, as amended at 59 FR 36042, July 15, 1994; 60 FR 31911, June 19, 1995; 64 FR 28717, May 27, 1999; 66 FR 65624, Dec. 20, 2001; 69 FR 62562, Oct. 27, 2004]
§§ 701.15-701.18 [Reserved]
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§ 701.19 Benefits for employees of Federal credit unions.
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(a) General authority. A federal credit union may provide employee benefits, including retirement benefits, to its employees and officers who are compensated in conformance with the Act and the bylaws, individually or collectively with other credit unions. The kind and amount of these benefits must be reasonable given the federal credit union's size, financial condition, and the duties of the employees.
(b) Plan trustees and custodians. Where a federal credit union is the benefit plan trustee or custodian, the plan must be authorized and maintained in accordance with the provisions of part 724 of this chapter. Where the benefit plan trustee or custodian is a party other than a federal credit union, the benefit plan must be maintained in accordance with applicable laws governing employee benefit plans, including any applicable rules and regulations issued by the Secretary of Labor, the Secretary of the Treasury, or any other federal or state authority exercising jurisdiction over the plan.
(c) Investment authority. A federal credit union investing to fund an employee benefit plan obligation is not subject to the investment limitations of the Act and part 703 or, as applicable, part 704, of this chapter and may purchase an investment that would otherwise be impermissible if the investment is directly related to the federal credit union's obligation or potential obligation under the employee benefit plan and the federal credit union holds the investment only for as long as it has an actual or potential obligation under the employee benefit plan.
(d) Defined benefit plans. Under paragraph (c) of this section, a federal credit union may invest to fund a defined benefit plan if the investment meets the conditions provided in that paragraph. If a federal credit union invests to fund a defined benefit plan that is not subject to the fiduciary responsibility provisions of part 4 of the Employee Retirement Income Security Act of 1974, it should diversify its investment portfolio to minimize the risk of large losses unless it is clearly prudent not to do so under the circumstances.
(e) Liability insurance. No federal credit union may occupy the position of a fiduciary, as defined in the Employee Retirement Income Security Act of 1974 and the rules and regulations issued by the Secretary of Labor, unless it has obtained appropriate liability insurance as described and permitted by Section 410(b) of the Employee Retirement Income Security Act of 1974.
(f) Definitions. For this section, defined benefit plan has the same meaning as in 29 U.S.C. 1002(35) and employee benefit plan has the same meaning as in 29 U.S.C. 1002(3).
[68 FR 23027, Apr. 30, 2003]
§ 701.20 Suretyship and guaranty.
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(a) Scope. This section authorizes a federal credit union to enter into a suretyship or guaranty agreement as an incidental powers activity. This section does not apply to the guaranty of public deposits or the assumption of liability for member accounts.
(b) Definitions. A suretyship binds a federal credit union with its principal to pay or perform an obligation to a third person. Under a guaranty agreement, a federal credit union agrees to satisfy the obligation of the principal only if the principal fails to pay or perform. The principal is the person primarily liable, for whose performance of his obligation the surety or guarantor has become bound.
(c) Requirements. The suretyship or guaranty agreement must be for the benefit of a principal that is a member and is subject to the following conditions:
(1) The federal credit union limits its obligations under the agreement to a fixed dollar amount and a specified duration;
(2) The federal credit union's performance under the agreement creates an authorized loan that complies with the applicable lending regulations, including the limitations on loans to one member or associated members or officials for purposes of §§701.21(c)(5), (d); 723.2 and 723.8; and
(3) The federal credit union obtains a segregated deposit from the member that is sufficient in amount to cover the federal credit union's total potential liability.
(d) Collateral. A segregated deposit under this section includes collateral:
(1) In which the federal credit union has perfected its security interest (for example, if the collateral is a printed security, the federal credit union must have obtained physical control of the security, and, if the collateral is a book entry security, the federal credit union must have properly recorded its security interest); and
(2) That has a market value, at the close of each business day, equal to 100 percent of the federal credit union's total potential liability and is composed of:
(i) Cash;
(ii) Obligations of the United States or its agencies;
(iii) Obligations fully guaranteed by the United States or its agencies as to principal and interest; or
(iv) Notes, drafts, or bills of exchange or banker's acceptances that are eligible for rediscount or purchase by a Federal Reserve Bank; or
(3) That has a market value equal to 110 percent of the federal credit union's total potential liability and is composed of:
(i) Real estate, the value of which is established by a signed appraisal or evaluation in accordance with part 722 of this chapter. In determining the value of the collateral, the federal credit union must factor in the value of any existing senior mortgages, liens or other encumbrances on the property except those held by the principal to the suretyship or guaranty agreement; or
(ii) Marketable securities that the federal credit union is authorized to invest in. The federal credit union must ensure that the value of the security is 110 percent of the obligation at all times during the term of the agreement.
[69 FR 8547, Feb. 25, 2004]
§ 701.21 Loans to members and lines of credit to members.
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Link to an amendment published at 71 FR 42251, July 26, 2006.
(a) Statement of scope and purpose. Section 701.21 complements the provisions of section 107(5) of the Federal Credit Union Act (12 U.S.C. 1757(5)) authorizing Federal credit unions to make loans to members and issue lines of credit (including credit cards) to members. Section 107(5) of the Act contains limitations on matters such as loan maturity, rate of interest, security, and prepayment penalties. Section 701.21 interprets and implements those provisions. In addition, §701.21 states the NCUA Board's intent concerning preemption of state laws, and expands the authority of Federal credit unions to enforce due-on-sale clauses in real property loans. Also, while §701.21 generally applies to Federal credit unions only, its provisions may be used by state-chartered credit unions with respect to alternative mortgage transactions in accordance with 12 U.S.C. 3801 et seq., and certain provisions apply to loans made by federally insured state-chartered credit unions as specified in §741.203 of this chapter. Part 722 of this chapter sets forth requirements for appraisals for certain real estate secured loans made under §701.21 and any other applicable lending authority. Finally, it is noted that §701.21 does not apply to loans by Federal credit unions to other credit unions (although certain statutory limitations in section 107 of the Act apply), nor to loans to credit union organizations which are governed by section 107(5)(D) of the Act and part 712 of this part.
(b) Relation to other laws—(1) Preemption of state laws. Section 701.21 is promulgated pursuant to the NCUA's Board's exclusive authority as set forth in section 107(5) of the Federal Credit Union Act (12 U.S.C 1757(5)) to regulate the rates, terms of repayment and other conditions of Federal credit union loans and lines of credit (including credit cards) to members. This exercise of the Board's authority preempts any state law purporting to limit or affect:
(i)(A) Rates of interest and amounts of finance charges, including:
(1) The frequency or the increments by which a variable interest rate may be changed;
(2) The index to which a variable interest rate may be tied;
(3) The manner or timing of notifying the borrower of a change in interest rate;
(4) The authority to increase the interest rate on an existing balance;
(B) Late charges; and
(C) Closing costs, application, origination, or other fees;
(ii) Terms of repayment, including:
(A) The maturity of loans and lines of credit;
(B) The amount, uniformity, and frequency of payments, including the accrual of unpaid interest if payments are insufficient to pay all interest due;
(C) Balloon payments; and
(D) Prepayment limits;
(iii) Conditions related to:
(A) The amount of the loan or line of credit;
(B) The purpose of the loan or line of credit;
(C) The type or amount of security and the relation of the value of the security to the amount of the loan or line of credit;
(D) Eligible borrowers; and
(E) The imposition and enforcement of liens on the shares of borrowers and accommodation parties.
(2) Matters not preempted. Except as provided by paragraph (b)(1) of this section, it is not the Board's intent to preempt state laws that do not affect rates, terms of repayment and other conditions described above concerning loans and lines of credit, for example:
(i) Insurance laws;
(ii) Laws related to transfer of and security interests in real and personal property (see, however, paragraph (g)(6) of this section concerning the use and exercise of due-on-sale clauses);
(iii) Conditions related to:
(A) Collection costs and attorneys' fees;
(B) Requirements that consumer lending documents be in “plain language;” and
(C) The circumstances in which a borrower may be declared in default and may cure default.
(3) Other Federal law. Except as provided by paragraph (b)(1) of this section, it is not the Board's intent to preempt state laws affecting aspects of credit transactions that are primarily regulated by Federal law other than the Federal Credit Union Act, for example, state laws concering credit cost disclosure requirements, credit discrimination, credit reporting practices, unfair credit practices, and debt collection practices. Applicability of state law in these instances should be determined pursuant to the preemption standards of the relevant Federal law and regulations.
(4) Examination and enforcement. Except as otherwise agreed by the NCUA Board, the Board retains exclusive examination and administrative enforcement jurisdiction over Federal credit unions. Violations of Federal or applicable state laws related to the lending activities of a Federal credit union should be referred to the appropriate NCUA regional office.
(5) Definition of State law. For purposes of paragraph (b) of this section “state law” means the constitution, laws, regulations and judicial decisions of any state, the District of Columbia, the several territories and possessions of the United States, and the Commonwealth of Puerto Rico.
(c) General rules—(1) Scope. The following general rules apply to all loans to members and, where indicated, all lines of credit (including credit cards) to members, except as otherwise provided in the remaining provisions of §701.21.
(2) Written policies. The board of directors of each Federal credit union shall establish written policies for loans and lines of credit consistent with the relevant provisions of the Act, NCUA's regulations, and other applicable laws and regulations.
(3) Credit applications and overdrafts. Consistent with policies established by the board of directors, the credit committee or loan officer shall ensure that a credit application is kept on file for each borrower supporting the decision to make a loan or establish a line of credit. A credit union may advance money to a member to cover an account deficit without having a credit application from the borrower on file if the credit union has a written overdraft policy. The policy must: set a cap on the total dollar amount of all overdrafts the credit union will honor consistent with the credit union's ability to absorb losses; establish a time limit not to exceed forty-five calendar days for a member either to deposit funds or obtain an approved loan from the credit union to cover each overdraft; limit the dollar amount of overdrafts the credit union will honor per member; and establish the fee and interest rate, if any, the credit union will charge members for honoring overdrafts.
(4) Maturity. The maturity of a loan to a member may not exceed 12 years. Lines of credit are not subject to a statutory or regulatory maturity limit. Amortization of line of credit balances and the type and amount of security on any line of credit shall be as determined by contract between the Federal credit union and the member/borrower.
(5) Ten percent limit. No loan or line of credit advance may be made to any member if such loan or advance would cause that member to be indebted to the Federal credit union upon loans and advances made to the member in an aggregate amount exceeding 10% of the credit union's total unimpaired capital and surplus. In the case of member business loans as defined in §723.1 of this chapter, additional limitations apply as set forth in §723.8 and 723.9 of this chapter.
(6) Early payment. A member may repay a loan, or outstanding balance on a line of credit, prior to maturity in whole or in part on any business day without penalty.
(7) Loan interest rates—(i) General. Except when a higher maximum rate is provided for in paragraph (c)(7)(ii) of this section, a Federal credit union may extend credit to its members at rates not to exceed 15 percent per year on the unpaid balance inclusive of all finance charges. Variable rates are permitted on the condition that the effective rate over the term of the loan (or line of credit) does not exceed the maximum permissible rate.
(ii) Temporary rates—(A) 21 percent maximum rate. Effective from December 3, 1980 through May 14, 1987, a Federal credit union may extend credit to its members at rates not to exceed 21 percent per year on the unpaid balance inclusive of all finance charges. Loans and line of credit balances existing on or before May 14, 1987, may continue to bear rates of interest of up to 21 percent per year after May 14, 1987.
(B) 18 percent maximum rate. Effective May 15, 1987, a Federal credit union may extend credit to its members at rates not to exceed 18 percent per year on the unpaid balance inclusive of all finance charges.
(C) Expiration. After September 8, 2006, or as otherwise ordered by the NCUA Board, the maximum rate on federal credit union extensions of credit to members shall revert to 15 percent per year. Higher rates may, however, be charged, in accordance with paragraph (c)(7)(ii)(A) and (B) of this section, on loans and line of credit balance existing on or before September 8, 2006.
(8)(i) Except as otherwise provided herein, no official or employee of a Federal credit union, or immediate family member of an official or employee of a Federal credit union, may receive, directly or indirectly, any commission, fee, or other compensation in connection with any loan made by the credit union.
(ii) For the purposes of this section:
Compensation includes non monetary items, except those of nominal value.
Immediate family member means a spouse or other family member living in the same household.
Loan includes line of credit.
Official means any member of the board of directors or a volunteer committee.
Person means an individual or an organization.
Senior management employee means the credit union's chief executive officer (typically, this individual holds the title of President or Treasurer/Manager), any assistant chief executive officers (e.g., Assistant President, Vice President, or Assistant Treasurer/Manager), and the chief financial officer (Comptroller).
Volunteer official means an official of a credit union who does not receive compensation from the credit union solely for his or her service as an official.
(iii) This section does not prohibit:
(A) Payment, by a Federal credit union, of salary to employees;
(B) Payment, by a Federal credit union, of an incentive or bonus to an employee based on the credit union's overall financial performance;
(C) Payment, by a Federal credit union, of an incentive or bonus to an employee, other than a senior management employee, in connection with a loan or loans made by the credit union, provided that the board of directors of the credit union establishes written policies and internal controls in connection with such incentive or bonus and monitors compliance with such policies and controls at least annually.
(D) Receipt of compensation from a person outside a Federal credit union by a volunteer official or non senior management employee of the credit union, or an immediate family member of a volunteer official or employee of the credit union, for a service or activity performed outside the credit union, provided that no referral has been made by the credit union or the official, employee, or family member.
(d) Loans and lines of credit to officials—(1) Purpose. Sections 107(5)(A) (iv) and (v) of the Act require the approval of the board of directors of the Federal credit union in any case where the aggregate of loans to an official and loans on which the official serves as endorser or guarantor exceeds $20,000 plus pledged shares. This paragraph implements the requirement by establishing procedures for determining whether board of directors's approval is required. The section also prohibits preferential treatment of officials.
(2) Official. An “official” is any member of the board of directors, credit committee or supervisory committee.
(3) Initial approval. All applications for loans or lines of credit on which an official will be either a direct obligor or an endorser, cosigner or guarantor shall be initially acted upon by either the board of directors, the credit committee or a loan officer, as specified in the Federal credit union's bylaws.
(4) Board of Directors' review. The board of directors shall, in any case, review and approve or deny an application on which an official is a direct obligor, or endorser, cosigner or guarantor if the following computation produces a total in excess of $20,000:
(i) Add:
(A) The amount of the current application.
(B) The outstanding balances of loans, including the used portion of an approved line of credit, extended to or endorsed, cosigned or guaranteed by the official.
(C) The total unused portion of approved lines of credit extended to or endorsed, cosigned or guaranteed by the official.
(ii) From the above total subtract:
(A) The amount of shares pledged by the official on loans or lines of credit extended to or endorsed, cosigned or guaranteed by the official.
(B) The amount of shares to be pledged by the official on the loan or line of credit applied for.
(5) Nonpreferential treatment. The rates, terms and conditions on any loan or line of credit either made to, or endorsed or guaranteed by—
(i) An official,
(ii) An immediate family member of an official, or
(iii) Any individual having a common ownership, investment or other pecuniary interest in a business enterprise with an official or with an immediate family member of an official,
shall not be more favorable than the rates, terms and conditions for comparable loans or lines of credit to other credit union members. “Immediate family member” means a spouse or other family member living in the same household.
(e) Insured, Guaranteed and Advance Commitment Loans. A loan secured, in full or in part, by the insurance or guarantee of, or with an advance commitment to purchase the loan, in full or in part, by the Federal Government, a State government or any agency of either, may be made for the maturity and under the terms and conditions, including rate of interest, specified in the law, regulations or program under which the insurance, guarantee or commitment is provided.
(f) 20-Year Loans. (1) Notwithstanding the general 12-year maturity limit on loans to members, a federal credit union may make loans with maturities of up to 20 years in the case of:
(i) A loan to finance the purchase of a mobile home if the mobile home will be used as the member-borrower's residence and the loan is secured by a first lien on the mobile home, and the mobile home meets the requirements for the home mortgage interest deduction under the Internal Revenue Code,
(ii) A second mortgage loan (or a nonpurchase money first mortgage loan in the case of a residence on which there is no existing first mortgage) if the loan is secured by a residential dwelling which is the residence of the member-borrower, and
(iii) A loan to finance the repair, alteration, or improvement of a residential dwelling which is the residence of the member-borrower.
(2) For purposes of this paragraph (f), mobile home may include a recreational vehicle, house trailer or boat.
(g) Long-Term Mortgage Loans.—(1) Authority. A federal credit union may make residential real estate loans to members, including loans secured by manufactured homes permanently affixed to the land, with maturities of up to 40 years, or such longer period as may be permitted by the NCUA Board on a case-by-case basis, subject to the conditions of this paragraph (g).
(2) Statutory limits. The loan shall be made on a one to four family dwelling that is or will be the principal residence of the member-borrower and the loan shall be secured by a perfected first lien in favor of the credit union on such dwelling (or a perfected first security interest in the case of either a residential cooperative or a leasehold or ground rent estate).
(3) Loan application. The loan application shall be a completed standard Federal Housing Administration, Veterans Administration, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association or Federal Home Loan Mortgage Corporation/Federal National Mortgage Association application form. In lieu of use of a standard application the Federal credit union may have a current attorney's opinion on file stating that the forms in use meet the requirements of applicable Federal, state and local laws.
(4) Security instrument and note. The security instrument and note shall be executed on the most current version of the FHA, VA, FHLMC, FNMA, or FHLMC/FNMA Uniform Instruments for the jurisdiction in which the property is located. No prepayment penalty shall be allowed, although a Federal credit union may require that any partial prepayments be made on the date monthly installments are due and be in the amount of that part of one or more monthly installments that would be applicable to principal. In lieu of use of a standard security instrument and note, the Federal credit union may have a current attorney's opinion on file stating that the security instrument and note in use meet the requirements of applicable Federal, state and local laws.
(5) First lien, territorial limits. The loan shall be secured by a perfected first lien or first security interest in favor of the credit union supported by a properly executed and recorded security instrument. No loan shall be secured by a residence located outside the United States of America, its territories and possessions, or the Commonwealth of Puerto Rico.
(6) Due-on-sale clauses. (i) Except as otherwise provided herein, the exercise of a due-on-sale clause by a Federal credit union is governed exclusively by section 341 of Pub. L. 97–320 and by any regulations issued by the Federal Home Loan Bank Board implementing section 341.
(ii) In the case of a contract involving a long-term (greater than twelve years), fixed rate first mortgage loan which was made or assumed, including a transfer of the liened property subject to the loan, during the period beginning on the date a State adopted a constitutional provision or statute prohibiting the exercise of due-on-sale clauses, or the date on which the highest court of such state has rendered a decision (or if the highest court has not so decided, the date on which the next highest court has rendered a decision resulting in a final judgment if such decision applies statewide) prohibiting such exercise, and ending on October 15, 1982, a Federal credit union may exercise a due-on-sale clause in the case of a transfer which occurs on or after November 18, 1982, unless exercise of the due-on-sale clause would be based on any of the following:
(A) The creation of a lien or other encumbrance subordinate to the lender's security instrument which does not relate to a transfer of rights of occupancy in the property;
(B) The creation of a purchase money security interest for household appliances;
(C) A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(D) The granting of a leasehold interest of 3 years or less not containing an option to purchase;
(E) A transfer to a relative resulting from the death of a borrower;
(F) A transfer where the spouse or children of the borrower become an owner of the property;
(G) A transfer resulting from a decree of a dissolution of marriage, a legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(H) A transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(I) Any other transfer or disposition described in regulations promulgated by the Federal Home Loan Bank Board.
(7) Assumption of real estate loans by nonmembers. A Federal credit union may permit a nonmember to assume a member's mortgage loan in conjunction with the nonmember's purchase of the member's principal residence, provided that the nonmember assumes only the remaining unpaid balance of the loan, the terms of the loan remain unchanged, and there is no extension of the original maturity date specified in the loan agreement with the member. An assumption is impermissible if the original loan was made with the intent of having a nonmember assume the loan.
(h) Third-party servicing of indirect vehicle loans. (1) A federally-insured credit union must not acquire any vehicle loan, or any interest in a vehicle loan, serviced by a third-party servicer if the aggregate amount of vehicle loans and interests in vehicle loans serviced by that third-party servicer and its affiliates would exceed:
(i) 50 percent of the credit union's net worth during the initial thirty months of that third-party servicing relationship; or
(ii) 100 percent of the credit union's net worth after the initial thirty months of that third-party servicing relationship.
(2) Regional directors may grant a waiver of the limits in paragraph (h)(1) of this section to permit greater limits upon written application by a credit union. In determining whether to grant or deny a waiver, a regional director will consider:
(i) The credit union's understanding of the third-party servicer's organization, business model, financial health, and the related program risks;
(ii) The credit union's due diligence in monitoring and protecting against program risks;
(iii) If contracts between the credit union and the third-party servicer grant the credit union sufficient control over the servicer's actions and provide for replacing an inadequate servicer; and
(iv) Other factors relevant to safety and soundness.
(3) A regional director will provide a written determination on a waiver request within 45 calendar days after receipt of the request; however, the 45-day period will not begin until the requesting credit union has submitted all necessary information to the regional director. If the regional director does not provide a written determination within the 45-day period the request is deemed denied. A credit union may appeal any part of the determination to the NCUA Board. Appeals must be submitted through the regional director within 30 days of the date of the determination.
(4) For purposes of paragraph (h) of this section:
(i) The term “third-party servicer” means any entity, other than a federally-insured depository institution or a wholly-owned subsidiary of a federally-insured depository institution, that receives any scheduled, periodic payments from a borrower pursuant to the terms of a loan and distributes payments of principal and interest and any other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan. The term also excludes any servicing entity that meets the following three requirements:
(A) Has a majority of its voting interests owned by federally-insured credit unions;
(B) Includes in its servicing agreements with credit unions a provision that the servicer will provide NCUA with complete access to its books and records and the ability to review its internal controls as deemed necessary by NCUA in carrying out NCUA's responsibilities under the Act; and
(C) Has its credit union clients provide a copy of the servicing agreement to their regional directors.
(ii) The term “its affiliates,” as it relates to the third-party servicer, means any entities that:
(A) Control, are controlled by, or are under common control with, that third-party servicer; or
(B) Are under contract with that third-party servicer or other entity described in paragraph (h)(4)(ii)(A) of this section.
(iii) The term “vehicle loan” means any installment vehicle sales contract or its equivalent that is reported as an asset under generally accepted accounting principles. The term does not include:
(A) Loans made directly by a credit union to a member, or
(B) Loans in which neither the third-party servicer nor any of its affiliates are involved in the origination, underwriting, or insuring of the loan or the process by which the credit union acquires its interest in the loan.
(iv) The term “net worth” means the retained earnings balance of the credit union at quarter end as determined under generally accepted accounting principles. For low income-designated credit unions, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders, and the National Credit Union Share Insurance Fund.
(i) Put option purchases in managing increased interest-rate risk for real estate loans produced for sale on the secondary market—
(1) Definitions. For purposes of this §701.21(i):
(i) Financial options contract means an agreement to make or take delivery of a standardized financial instrument upon demand by the holder of the contract at any time prior to the expiration date specified in the agreement, under terms and conditions established either by:
(A) A contract market designated for trading such contracts by the Commodity Futures Trading Commission, or
(B) By a Federal credit union and a primary dealer in Government securities that are counterparties in an over-the-counter transaction.
(ii) FHLMC security means obligations or other securities which are or ever have been sold by the Federal Home Loan Mortgage Corporation pursuant to section 305 or 306 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454 and 1455).
(iii) FNMA security means an obligation, participation, or any instrument of or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association.
(iv) GNMA security means an obligation, participation, or any instrument of or issued by, or fully guaranteed as to principal and interest by, the Government National Mortgage Association.
(v) Long position means the holding of a financial options contract with the option to make or take delivery of a financial instrument.
(vi) Primary dealer in Government securities means:
(A) A member of the Association of Primary Dealers in United States Government Securities; or
(B) Any parent, subsidiary, or affiliated entity of such primary dealer where the member guarantees (to the satisfaction of the FCU's board of directors) over-the-counter sales of financial options contracts by the parent, subsidiary, or affiliated entity to a Federal credit union.
(vii) Put means a financial options contract which entitles the holder to sell, entirely at the holder's option, a specified quantity of a security at a specified price at any time until the stated expiration date of the contract.
(2) Permitted options transactions. A Federal credit union may, to manage risk of loss through a decrease in value of its commitments to originate real estate loans at specified interest rates, enter into long put positions on GNMA, FNMA, and FHLMC securities:
(i) If the real estate loans are to be sold on the secondary market within ninety (90) days of closing;
(ii) If the positions are entered into:
(A) Through a contract market designated by the Commodity Futures Trading Commission for trading such contracts, or
(B) With a primary dealer in Government securities;
(iii) If the positions are entered into pursuant to written policies and procedures which are approved by the Federal credit union's board of directors, and include, at a minimum:
(A) The Federal credit union's strategy in using financial options contracts and its analysis of how the strategy will reduce sensitivity to changes in price or interest rates in its commitments to originate real estate loans at specified interest rates;
(B) A list of brokers or other intermediaries through which positions may be entered into;
(C) Quantitative limits (e.g., position and stop loss limits) on the use of financial options contracts;
(D) Identification of the persons involved in financial options contract transactions, including a description of these persons' qualifications, duties, and limits of authority, and description of the procedures for segregating these persons' duties,
(E) A requirement for written reports for review by the Federal credit union's board of directors at its monthly meetings, or by a committee appointed by the board on a monthly basis, of:
(1) The type, amount, expiration date, correlation, cost of, and current or projected income or loss from each position closed since the last board review, each position currently open and current gains or losses from such positions, and each position planned to be entered into prior to the next board review;
(2) Compliance with limits established on the policies and procedures; and
(3) The extent to which the positions described contributed to reduction of sensitivity to changes in prices or interest rates in the Federal credit union's commitments to originate real estate loans at a specified interest rate; and
(iv) If the Federal credit union has received written permission from the appropriate NCUA Regional Director to engage in financial options contracts transactions in accordance with this §701.21(i) and its policies and procedures as written.
(3) Recordkeeping and reporting. (i) The reports described in §701.21(i)(2)(iii)(E) for each month must be submitted to the appropriate NCUA Regional Office by the end of the following month. This monthly reporting requirement may be waived by the appropriate NCUA Regional Director on a case-by-case basis for those Federal credit unions with a proven record of responsible use of permitted financial options contracts.
(ii) The records described in §701.21(i)(2)(iii)(E) must be retained for two years from the date the financial options contracts are closed.
(4) Accounting. A federal credit union must account for financial options contracts transactions in accordance with generally accepted accounting principles.
[49 FR 30685, Aug. 1, 1984]
Editorial Note: For Federal Register citations affecting §701.21, see the List of CFR Sections Affected, which appears in the Finding Aids section of the printed volume and on GPO Access.
§ 701.22 Loan participation.
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(a) For purposes of this section:
(1) Participation loan means a loan where one or more eligible organizations participates pursuant to a written agreement with the originating lender.
(2) Eligible organizations means a credit union, credit union organization, or financial organization.
(3) Credit union means any Federal or State chartered credit union.
(4) Credit union organization means any credit union service organization meeting the requirements of part 712 of this chapter. This term does not include trade associations or membership organizations principally composed of credit unions.
(5) Financial organization means any federally chartered or federally insured financial institution; and any state or federal government agency and their subdivisions.
(6) Originating lender means the participant with which the member contracts.
(b) Subject to the provisions of this section any Federal credit union may participate in making loans with eligible organizations within the limitations of the board of director's written participation loan policies, Provided:
(1) No Federal credit union shall obtain an interest in a participation loan if the sum of that interest and any (other) indebtedness owing to the Federal credit union by the borrower exceeds 10 per centum of the Federal credit union's unimpaired capital and surplus;
(2) A written master participation agreement shall be properly executed, acted upon by the Federal credit union's board of directors, or if the board has so delegated in its policy, the investment committee or senior management official(s) and retained in the Federal credit union's office. The master agreement shall include provisions for identifying, either through a document which is incorporated by reference into the master agreement or directly in the master agreement, the participation loan or loans prior to their sale; and
(3) A Federal credit union may sell to or purchase from any participant the servicing of any loan in which it owns a participation interest.
(c) An originating lender which is a Federal credit union shall:
(1) Originate loans only to its members;
(2) Retain an interest of at least 10 per centum of the face amount of each loan;
(3) Retain the original or copies of the loan documents; and
(4) Require the credit committee or loan officer to use the same underwriting standards for participation loans used for loans that are not being sold in a participation agreement unless there is a participation agreement in place prior to the disbursement of the loan. Where a participation agreement is in place prior to disbursement, either the credit union's loan policies or the participation agreement shall address any variance from non-participation loan underwriting standards.
(d) A participant Federal credit union that is not an originating lender shall:
(1) Participate only in loans it is empowered to grant, having a participation policy in place which sets forth the loan underwriting standards prior to entering into a participation agreement;
(2) Participate in participation loans only if made to its own members or members of another participating credit union;
(3) Retain the original or a copy of the written participation loan agreement and a schedule of the loans covered by the agreement; and
(4) Obtain the approval of the board of directors or investment committee of the disbursement of proceeds to the originating lender.
[43 FR 51610, Nov. 6, 1978, as amended at 46 FR 38680, July 29, 1981; 46 FR 43830, Sept. 1, 1981; 47 FR 1371, Jan. 13, 1982; 47 FR 54428, Dec. 3, 1982. Redesignated and amended at 49 FR 30688, Aug. 1, 1984; 60 FR 58204, Nov. 27, 1995; 68 FR 75111, Dec. 30, 2003]
§ 701.23 Purchase, sale, and pledge of eligible obligations.
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(a) For purposes of this section:
(1) Eligible obligation means a loan or group of loans.
(2) Student loan means a loan granted to finance the borrower's attendance at an institution of higher education or at a vocational school, which is secured by and on which payment of the outstanding principal and interest has been deferred in accordance with the insurance or guarantee of the Federal Government, of a State government, or any agency of either.
(b) Purchase. (1) A Federal credit union may purchase, in whole or in part, within the limitations of the board of directors' written purchase policies:
(i) Eligible obligations of its members, from any source, if either: (A) They are loans it is empowered to grant or (B) they are refinanced with the consent of the borrowers, within 60 days after they are purchased, so that they are loans it is empowered to grant;
(ii) Eligible obligations of a liquidating credit union's individual members, from the liquidating credit union;
(iii) Student loans, from any source, if the purchaser is granting student loans on an ongoing basis and if the purchase will facilitate the purchasing credit union's packaging of a pool of such loans to be sold or pledged on the secondary market; and
(iv) Real estate-secured loans, from any source, if the purchaser is granting real estate-secured loans pursuant to §701.21 on an ongoing basis and if the purchase will facilitate the purchasing credit union's packaging of a pool of such loans to be sold or pledged on the secondary mortage market. A pool must include a substantial portion of the credit union's members' loans and must be sold promptly.
(2) A Federal credit union may make purchases in accordance with this paragraph (b), provided:
(i) The board of directors or investment committee approves the purchase;
(ii) A written agreement and a schedule of the eligible obligations covered by the agreement are retained in the purchasers office; and
(iii) For purchases under paragraph (b)(1)(ii) of this section, any advance written approval required by §741.8 of this chapter is obtained before consummation of such purchase.
(3) The aggregate of the unpaid balance of eligible obligations purchased under paragraph (b) of this section shall not exceed 5 percent of the unimpaired capital and surplus of the purchaser. The following can be exculded in calculating this 5 percent limitation:
(i) Student loans purchased in accordance with paragraph (b)(1)(iii) of this section;
(ii) Real estate loans purchased in accordance with paragraph (b)(1)(iv) of this section;
(iii) Eligible obligations purchased in accordance with paragraph (b)(1)(i) of this section that are refinanced by the purchaser so that it is a loan it is empowered to grant;
(iv) An indirect lending or indirect leasing arrangement that is classified as a loan and not the purchase of an eligible obligation because the Federal credit union makes the final underwriting decision and the sales or lease contract is assigned to the Federal credit union very soon after it is signed by the member and the dealer or leasing company.
(c) Sale. A Federal credit union may sell, in whole or in part, to any source, eligible obligations of its members, eligible obligations purchased in accordance with paragraph (b)(1)(ii) of this section, student loans purchased in accordance with paragraph (b)(1)(iii) of this section, and real estate loans purchased in accordance with paragraph (b)(1)(iv) of this section, within the limitations of the board of directors' written sale policies, Provided:
(1) The board of directors or investment committee approves the sale; and
(2) A written agreement and a schedule of the eligible obligations covered by the agreement are retained in the seller's office.
(d) Pledge. (1) A Federal credit union may pledge, in whole or in part, to any source, eligible obligations of its members, eligible obligations purchased in accordance with paragraph (b)(1)(ii) of this section, student loans purchased in accordance with paragraph (b)(1)(iii) of this section, and real estate loans purchased in accordance with paragraph (b)(1)(iv) of this section, within the limitations of the board of directors' written pledge policies, Provided:
(i) The board of directors or investment committee approves the pledge;
(ii) Copies of the original loan documents are retained; and
(iii) A written agreement covering the pledging arrangement is retained in the office of the credit union that pledges the eligible obligations.
(2) The pledge agreement shall identify the eligible obligations covered by the agreement.
(e) Servicing. A Federal credit union may agree to service any eligible obligation it purchases or sells in whole or in part.
(f) 10 Percent limitation. The total indebtedness owing to any Federal credit union by any person, inclusive of retained and reacquired interests, shall not exceed 10 percent of its unimpaired capital and surplus.
[44 FR 27071, May 9, 1979, as amended at 46 FR 38680, July 29, 1981. Redesignated at 49 FR 30688, Aug. 1, 1984, and amended at 53 FR 4844, Feb. 18, 1988; 56 FR 15036, Apr. 15, 1991; 56 FR 35811, July 29, 1991; 60 FR 58504, Nov. 28, 1995; 63 FR 70998, Dec. 23, 1998]
§ 701.24 Refund of interest.
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(a) The board of directors of a Federal credit union may authorize an interest refund to members who paid interest to the credit union during any dividend period and who are members of record at the close of business on the last day of such dividend period. Interest refunds may be made for a dividend period only if dividends on share accounts have been declared and paid for that period.
(b) The amount of interest refund to each member shall be determined as a percentage of the interest paid by the member. Such percentage may vary according to the type of extension of credit and the interest rate charged.
(c) The board of directors may exclude from an interest refund:
(1) A particular type of extension of credit;
(2) Any extension of credit made at a particular interest rate; and
(3) Any extension of credit that is presently delinquent or has been delinquent within the period for which the refund is being made.
[53 FR 19747, May 31, 1988]
§ 701.25 Charitable contributions and donations.
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(a) A federal credit union may make charitable contributions and/or donate funds to recipients not organized for profit that are located in or conduct activities in a community in which the federal credit union has a place of business or to organizations that are tax exempt organizations under Section 501(c)(3) of the Internal Revenue Code and operate primarily to promote and develop credit unions.
(b) The board of directors must approve charitable contributions and/or donations, and the approval must be based on a determination by the board of directors that the contributions and/or donations are in the best interests of the federal credit union and are reasonable given the size and financial condition of the federal credit union. The board of directors, if it chooses, may establish a budget for charitable contributions and/or donations and authorize appropriate officials of the federal credit union to select recipients and disburse budgeted funds among those recipients.
[64 FR 19443, Apr. 21, 1999]
§ 701.26 Credit union service contracts.
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A Federal credit union may act as a representative of and enter into a contractual agreement with one or more credit unions or other organizations for the purpose of sharing, utilizing, renting, leasing, purchasing, selling, and/or joint ownership of fixed assets or engaging in activities and/or services which relate to the daily operations of credit unions. Agreements must be in writing, and shall advise all parties subject to the agreement that the goods and services provided shall be subject to examination by the NCUA Board to the extent permitted by law.
[47 FR 30462, July 14, 1982, as amended at 63 FR 10756, Mar. 5, 1998]
§§ 701.27-701.30 [Reserved]
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§ 701.31 Nondiscrimination requirements.
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(a) Definitions. As used in this part, the term:
(1) Application carries the meaning of that term as defined in 12 CFR 202.2(f) (Regulation B), which is as follows:
An oral or written request for an extension of credit that is made in accordance with procedures established by a creditor for the type of credit requested;
(2) Dwelling carries the meaning of that term as defined in 42 U.S.C. 3602(b) (Fair Housing Act), which is as follows: “Any building, structure, or portion thereof which is occupied as, or designed or intended for occupancy as, a residence by one or more families, and any vacant land which is offered for sale or lease for the construction or location thereon of any building, structure, or portion thereof”; and
(3) Real estate-related loan means any loan for which application is made to finance or refinance the purchase, construction, improvement, repair, or maintenance of a dwelling.
(b) Nondiscrimination in Lending. (1) A Federal credit union may not deny a real estate-related loan, nor may it discriminate in setting or exercising its rights pursuant to the terms or conditions of such a loan, nor may it discourage an application for such a loan, on the basis of the race, color, national origin, religion, sex, handicap, or familial status (having children under the age of 18) of:
(i) Any applicant or joint applicant;
(ii) Any person associated, in connection with a real estate-related loan application, with an applicant or joint applicant;
(iii) The present or prospective owners, lessees, tenants, or occupants of the dwelling for which a real estate-related loan is requested;
(iv) The present or prospective owners, lessees, tenants, or occupants of other dwellings in the vicinity of the dwelling for which a real estate-related loan is requested.
(2) With regard to a real estate-related loan, a Federal credit union may not consider a lending criterion or exercise a lending policy which has the effect of discriminating on the basis of race, color, national origin, religion, sex, handicap, or familial status (having children under the age of 18). Guidelines concerning possible exceptions to this provision appear in paragraph (e)(1) of this section.
(3) Consideration of any of the following factors in connection with a real estate-related loan is not necessary to a Federal credit union's business, generally has a discriminatory effect, and is therefore prohibited:
(i) The age or location of the dwelling;
(ii) Zip code of the applicant's current residence;
(iii) Previous home ownership;
(iv) The age or location of dwellings in the neighborhood of the dwelling;
(v) The income level of residents in the neighborhood of the dwelling.
Guidelines concerning possible exceptions to this provision appear in paragraph (e)(2) of this section.
(c) Nondiscrimination in appraisals. (1) A Federal credit union may not rely upon an appraisal of a dwelling if it knows or should know that the appraisal is based upon consideration of the race, color, national origin, religion, sex, handicap, or familial status (having children under the age of 18) of:
(i) Any applicant or joint applicant;
(ii) Any person associated, in connection with a real estate-related loan application, with an applicant or joint applicant;
(iii) The present or prospective owners, lessees, tenants, or occupants of the dwelling for which a real estate-related loan is requested;
(iv) The present or prospective owners, lessees, tenants, or occupants of other dwellings in the vicinity of the dwelling for which a real estate-related loan is requested.
(2) With respect to a real-estate related loan, a Federal credit union may not rely upon an appraisal of a dwelling if it knows or should know that the appraisal is based upon consideration of a criterion which has the effect of discriminating on the basis of race, color, national origin, religion, sex, handicap, or familial status (having children under the age of 18). Guidelines concerning possible exceptions to this provision appear in paragraph (e)(1) of this section.
(3) A Federal credit union may not rely upon an appraisal that it knows or should know is based upon consideration of any of the following criteria, for such criteria generally have a discriminatory effect, and are not necessary to a Federal credit union's business:
(i) The age or location of the dwelling;
(ii) The age or location of dwellings in the neighborhood of the dwelling;
(iii) The income level of the residents in the neighborhood of the dwelling.
(4) Notwithstanding paragraph (c)(3) of this section, it is recognized that there may be factors concerning location of the dwelling which can be properly considered in an appraisal. If any such factor(s) is relied upon, it must be specifically documented in the appraisal, accompanied by a brief statement demonstrating the necessity of using such factor(s). Guidelines concerning the consideration of location factors appear in paragraph (e)(3) of this section.
(5) Each Federal credit union shall make available, to any requesting member/applicant, a copy of the appraisal used in connection with that member's real estate-related loan application. The appraisal shall be available for a period of 25 months after the applicant has received notice from the Federal credit union of the action taken by the Federal credit union on the real estate-related loan application.
(d) Nondiscrimination in advertising. No federal credit union may engage in any form of advertising of real estate-related loans that indicates the credit union discriminates on the basis of race, color, religion, national origin, sex, handicap, or familial status in violation of the Fair Housing Act. Advertisements must not contain any words, symbols, models or other forms of communication that suggest a discriminatory preference or policy of exclusion in violation of the Fair Housing Act or the Equal Credit Opportunity Act.
(1) Advertising notice of nondiscrimination compliance. Any federal credit union that advertises real estate-related loans must prominently indicate in such advertisement, in a manner appropriate to the advertising medium and format used, that the credit union makes such loans without regard to race, color, religion, national origin, sex, handicap, or familial status.
(i) With respect to written and visual advertisements, a credit union may satisfy the notice requirement by including in the advertisement a copy of the logotype, with the legend “Equal Housing Lender,” from the poster described in paragraph (d)(3) of this section or a copy of the logotype, with the legend “Equal Housing Opportunity,” from the poster described in §110.25(a) of the United States Department of Housing and Urban Development's (HUD) regulations (24 CFR 110.25(a)).
(ii) With respect to oral advertisements, a credit union may satisfy the notice requirement by a spoken statement that the credit union is an “Equal Housing Lender” or an “Equal Opportunity Lender.”
(iii) When an oral advertisement is used in conjunction with a written or visual advertisement, the use of either of the methods specified in paragraphs (d)(1)(i) or (ii) of this section will satisfy the notice requirement.
(iv) A credit union may use any other method reasonably calculated to satisfy the notice requirement.
(2) Lobby notice of nondiscrimination. Every federal credit union that engages in real estate-related lending must display a notice of nondiscrimination. The notice must be placed in the public lobby of the credit union and in the public area of each office where such loans are made and must be clearly visible to the general public. The notice must incorporate either a facsimile of the logotype and language appearing in paragraph (d)(3) of this section or the logotype and language appearing at 24 CFR 110.25(a). Posters containing the logotype and language appearing in paragraph (d)(3) of this section may be obtained from the regional offices of the National Credit Union Administration.
(3) Logotype and notice of nondiscrimination compliance. The logotype and text of the notice required in paragraph (d)(2) of this section shall be as follows:
View or download PDF
(e) Guidelines. (1) Compliance with the Fair Housing Act is achieved when each loan applicant's creditworthiness is evaluated on an individual basis, without presuming that the applicant has certain characteristics of a group. If certain lending policies or procedures do presume group characteristics, they may violate the Fair Housing Act, even though the characteristics are not based upon race, color, sex, national origin, religion, handicap, or familial status. Such a violation occurs when otherwise facially nondiscriminatory lending procedures (either general lending policies or specific criteria used in reviewing loan applications) have the effect of making real estate-related loans unavailable or less available on the basis of race, color, sex, national origin, religion, handicap, or familial status. Note, however, that a policy or criterion which has a discriminatory effect is not a violation of the Fair Housing Act if its use achieves a legitimate business necessity which cannot be achieved by using less discriminatory standards. It is also important to note that the Equal Credit Opportunity Act and Regulation B prohibit discrimination, either per se or in effect, on the basis of the applicant's age, marital status, receipt of public assistance, or the exercise of any rights under the Consumer Credit Protection Act.
(2) Paragraph (b)(3) of this section prohibits consideration of certain factors because of their likely discriminatory effect and because they are not necessary to make sound real estate-related loans. For purposes of clarification, the prohibited use of location factors in this section is intended to prevent abandonment of areas in which a Federal credit union's members live or want to live. It is not intended to require loans in those areas that are geographically remote from the FCU's main or branch offices or that contravene the parameters of a Federal credit union's charter. Further, this prohibition does not preclude requiring a borrower to obtain flood insurance protection pursuant to the National Flood Insurance Act and part 760 of NCUA's Rules and Regulations, nor does it preclude involvement with Federal or state housing insurance programs which provide for lower interest rates for the purchase of homes in certain urban or rural areas. Also, the legitimate use of location factors in an appraisal does not constitute a violation of the provision of paragraph (b)(3) of this section, which prohibits consideration of location of the dwelling. Finally, the prohibited use of prior home ownership does not preclude a Federal credit union from considering an applicant's payment history on a loan which was made to obtain a home. Such action entails consideration of the payment record on a previous loan in determining creditworthiness; it does not entail consideration of prior home ownership.
(3)(i) Paragraph (c)(3) of this section prohibits consideration of the age or location of a dwelling in a real estate-related loan appraisal. These restrictions are intended to prohibit the use of unfounded or unsubstantiated assumptions regarding the effect upon loan risk of the age of a dwelling or the physical or economic characteristics of an area. Appraisals should be based on the present market value of the property offered as security (including consideration of specific improvements to be made by the borrower) and the likelihood that the property will retain an adequate value over the term of the loan.
(ii) The term “age of the dwelling” does not encompass structural soundness. In addition, the age of the dwelling may be used by an appraiser as a basis for conducting further inspections of certain structural aspects of the dwelling. Paragraph (c)(3) of this section does, however, prohibit an unsubstantiated determination that a house over X years in age is not structurally sound.
(iii) With respect to location factors, paragraph (c)(4) of this section recognizes that there may be location factors which may be considered in an appraisal, and requires that the use of any such factors be specifically documented in the appraisal. These factors will most often be those location factors which may negatively affect the short range future value (up to 3–5 years) of a property. Factors which in some cases may cause the market value of a property to decline are recent zoning changes or a significant number of abandoned homes in the immediate vicinity of the property. However, not all zoning changes will cause a decline in property values, and proximity to abandoned buildings may not affect the market value of a property because the cause of abandonment is unrelated to high risk. Proper considerations include the condition and utility of the improvement and various physical factors such as street conditions, amenities such as parks and recreation areas, availability of public utilities and municipal services, and exposure to flooding and land faults.
[54 FR 46223, Nov. 2, 1989, as amended at 59 FR 36041, July 15, 1994; 66 FR 48206, Sept. 19, 2001]
§ 701.32 Payment on shares by public units and nonmembers.
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(a) Authority. A Federal credit union may, to the extent permitted under Section 107(6) of the Act and this section, receive payments on shares, (regular shares, share certificates, and share draft accounts) from public units and political subdivisions thereof (as those terms are defined in §745.1) and nonmember credit unions, and to the extent permitted under the Act, this section and §701.34, receive payments on shares (regular shares, share certificates, and share draft accounts) from other nonmembers.
(b) Limitations. (1) Unless a greater amount has been approved by the Regional Director, the maximum amount of all public unit and nonmember shares shall not, at any given time, exceed 20% of the total shares of the federal credit union or $1.5 million, whichever is greater.
(2) Before accepting any public unit or nonmember shares in excess of 20% of total shares, the board of directors must adopt a specific written plan concerning the intended use of these shares and forward a copy of the plan to the Regional Director. The plan must include:
(i) A statement of the credit union's needs, sources and intended uses of public unit and nonmember shares;
(ii) Provision for matching maturities of public unit and nonmember shares with corresponding assets, or justification for any mismatch; and
(iii) Provision for adequate income spread between public unit and nonmember shares and corresponding assets.
(3) A federal credit union seeking an exemption from the limits of paragraph (b)(1) of this section must submit to the Regional Director a written request including:
(i) The new maximum level of public unit and nonmember shares requested, either as a dollar amount or a percentage of total shares;
(ii) The current plan adopted by the credit union's board of directors concerning the use of new public unit and nonmember shares;
(iii) A copy of the credit union's latest financial statement; and
(iv) A copy of the credit union's loan and investment policies.
(4) Where the financial condition and management of the credit union are sound and the credit union's plan for the funds is reasonable, there will be a presumption in favor of granting the request. When granted, exemptions will normally be for a two-year period. The Regional Director will provide a written explanation for an exemption that is granted for a lesser time period.
(5) The Regional Director will provide a written determination on an exemption request within 30 calendar days after receipt of the request. The 30 day period will not begin to run until all necessary information has been submitted to the Regional Director. All denials may be appealed to the NCUA Board in a timely manner. Appeals should be submitted through the Regional Director.
(6) Upon expiration of an exemption, nonmember shares currently in the credit union in excess of the limits established pursuant to (b)(1) of this section will continue to be insured by the National Credit Union Insurance Fund within applicable limits. No new shares in excess of the limits established pursuant to (b)(1) of this section shall be accepted. Existing share certificates in excess of the limits established pursuant to (b)(1) of this section may remain in the credit union only until maturity.
(c) The limitations herein do not apply to accounts maintained in accordance with §701.37 (Treasury Tax and Loan Depositaries; Depositaries and Financial Agents of the Government) and matching funds required by §705.7(b) (Community Development Revolving Loan Program for Credit Unions). Once a loan granted pursuant to part 705 is repaid, nonmember share deposits accepted to meet the matching requirement are subject to this section.
[54 FR 31184, July 27, 1989, as amended at 54 FR 51384, Dec. 15, 1989; 55 FR 1794, Jan. 19, 1990; 58 FR 21645, Apr. 23, 1993; 59 FR 26102, May 19, 1994; 61 FR 3790, Feb. 2, 1996]
§ 701.33 Reimbursement, insurance, and indemnification of officials and employees.
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(a) Official. An official is a person who is or was a member of the board of directors, credit committee or supervisory committee, or other volunteer committee established by the board of directors.
(b) Compensation. (1) Only one board officer, if any, may be compensated as an officer of the board. The bylaws must specify the officer to be compensated, if any, as well as the specific duties of each of the board officers. No other official may receive compensation for performing the duties or responsibilities of the board or committee position to which the person has been elected or appointed.
(2) For purposes of this section, the term compensation specifically excludes:
(i) Payment (by reimbursement to an official or direct credit union payment to a third party) for reasonable and proper costs incurred by an official in carrying out the responsibilities of the position to which that person has been elected or appointed, if the payment is determined by the board of directors to be necessary or appropriate in order to carry out the official business of the credit union, and is in accordance with written policies and procedures, including documentation requirements, established by the board of directors. Such payments may include the payment of travel costs for officials and one guest per official;
(ii) Provision of reasonable health, accident and related types of personal insurance protection, supplied for officials at the expense of the credit union: Provided, that such insurance protection must exclude life insurance; must be limited to areas of risk, including accidental death and dismemberment, to which the official is exposed by reason of carrying out the duties or responsibilities of the official's credit union position; must cease immediately upon the insured person's leaving office, without providing residual benefits other than from pending claims, if any; and
(iii) Indemnification and related insurance consistent with paragraph (c) of this section.
(c) Indemnification. (1) A Federal credit union may indemnify its officials and current and former employees for expenses reasonably incurred in connection with judicial or administrative proceedings to which they are or may become parties by reason of the performance of their official duties.
(2) Indemnification shall be consistent either with the standards applicable to credit unions generally in the state in which the principal or home office of the credit union is located, or with the relevant provisions of the Model Business Corporation Act. A Federal credit union that elects to provide indemnification shall specify whether it will follow the relevant state law or the Model Business Corporation Act. Indemnification and the method of indemnification may be provided for by charter or bylaw amendment, contract or board resolution, consistent with the procedural requirements of the applicable state law or the Model Business Corporation Act, as specified. A charter or bylaw amendment must be approved by the National Credit Union Administration.
(3) A Federal credit union may purchase and maintain insurance on behalf of its officials and employees against any liability asserted against them and expenses incurred by them in their official capacities and arising out of the performance of their official duties to the extent such insurance is permitted by the applicable state law or the Model Business Corporation Act.
[53 FR 29642, Aug. 8, 1988, as amended at 57 FR 54503, Nov. 19, 1992; 66 FR 65629, Dec. 20, 2001]
§ 701.34 Designation of low income status; Acceptance of secondary capital accounts by low-income designated credit unions.
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(a) Designation of low-income status. (1) Section 107(6) of the Federal Credit Union Act (12 U.S.C. 1757(6)) authorizes federal credit unions serving predominantly low-income members to receive shares, share drafts and share certificates from nonmembers. In order to utilize this authority, a federal credit union must receive a low-income designation from its Regional Director. The designation may be removed by the Regional Director upon notice to the federal credit union if the definitions set forth in paragraphs (a) (2) and (3) of this section are no longer met. Removals may be appealed to the NCUA Board within 60 days. Appeals should be submitted through the Regional Director.
(2) The term low-income members shall mean those members who make less than 80 percent of the average for all wage earners as established by the Bureau of Labor Statistics or those members whose annual household income falls at or below 80 percent of the median household income for the nation as established by the Census Bureau or those members otherwise defined as low-income members as determined by order of the NCUA Board.
(i) In documenting its low-income membership, a credit union that serves a geographic area where a majority of residents fall at or below the annual income standard is presumed to be serving predominantly low-income members. In applying the standards, Regional Directors shall make allowances for geographical areas with higher costs of living. The following is the exclusive list of geographic areas with the differentials to be used:
Percent Hawaii......................................................... 40Alaska......................................................... 36Washington, DC................................................. 19Boston......................................................... 17San Diego...................................................... 15Los Angeles.................................................... 14New York....................................................... 13San Francisco.................................................. 13Seattle........................................................ 10Chicago........................................................ 7Philadelphia................................................... 7
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(ii) The term low-income member also includes those members who are enrolled as full-time or part-time students in a college, university, high school, or vocational school.
(3) The term predominantly is defined as a simple majority.
(b) Acceptance of secondary capital accounts by low-income designated credit unions. A federal credit union having a designation of low-income status pursuant to paragraph (a) of this section may accept secondary capital accounts from nonnatural person members and nonnatural person nonmembers subject to the following conditions:
(1) Secondary capital plan. Before accepting secondary capital, a low-income credit union (“LICU”) shall adopt, and forward to the appropriate NCUA Regional Director for approval, a written “Secondary Capital Plan” that, at a minimum:
(i) States the maximum aggregate amount of uninsured secondary capital the LICU plans to accept;
(ii) Identifies the purpose for which the aggregate secondary capital will be used, and how it will be repaid;
(iii) Explains how the LICU will provide for liquidity to repay secondary capital upon maturity of the accounts;
(iv) Demonstrates that the planned uses of secondary capital conform to the LICU's strategic plan, business plan and budget; and
(v) Includes supporting pro forma financial statements, including any off-balance sheet items, covering a minimum of the next two years.
(2) Decision on plan. If a LICU is not notified within 45 days of receipt of a Secondary Capital Plan that the plan is approved or disapproved, the LICU may proceed to accept secondary capital accounts pursuant to the plan.
(3) Nonshare account. The secondary capital account must be established as an uninsured secondary capital account or other form of non-share account.
(4) Minimum maturity. The maturity of the secondary capital account must be a minimum of five years.
(5) Uninsured account. The secondary capital account will not be insured by the National Credit Union Share Insurance Fund or any governmental or private entity.
(6) Subordination of claim. The secondary capital account investor's claim against the LICU must be subordinate to all other claims including those of shareholders, creditors and the National Credit Union Share Insurance Fund.
(7) Availability to cover losses. Funds deposited into a secondary capital account, including interest accrued and paid into the secondary capital account, must be available to cover operating losses realized by the LICU that exceed its net available reserves (exclusive of secondary capital and allowance accounts for loan and lease losses), and to the extent funds are so used, the LICU must not restore or replenish the account under any circumstances. The LICU may, in lieu of paying interest into the secondary capital account, pay accrued interest directly to the investor or into a separate account from which the secondary capital investor may make withdrawals. Losses must be distributed pro-rata among all secondary capital accounts held by the LICU at the time the losses are realized.
(8) Security. The secondary capital account may not be pledged or provided by the account investor as security on a loan or other obligation with the LICU or any other party.
(9) Merger or dissolution. In the event of merger or other voluntary dissolution of the LICU, other than merger into another LICU, the secondary capital accounts will be closed and paid out to the account investor to the extent they are not needed to cover losses at the time of merger or dissolution.
(10) Contract agreement. A secondary capital account contract agreement must be executed by an authorized representative of the account investor and of the LICU reflecting the terms and conditions mandated by this section and any other terms and conditions not inconsistent with this section.
(11) Disclosure and acknowledgement. An authorized representative of the LICU and of the secondary capital account investor each must execute a “Disclosure and Acknowledgment” as set forth in the Appendix to this section at the time of entering into the account agreement. The LICU must retain an original of the account agreement and the “Disclosure and Acknowledgment” for the term of the agreement, and a copy must be provided to the account investor.
(12) Prompt corrective action. As provided in §§702.204(b)(11), 702.304(b) and 702.305(b) of this chapter, the NCUA Board may prohibit a LICU classified “critically undercapitalized” or, if “new,” as “moderately capitalized”, “marginally capitalized”, “minimally capitalized” or “uncapitalized”, as the case may be, from paying principal, dividends or interest on its uninsured secondary capital accounts established after August 7, 2000, except that unpaid dividends or interest will continue to accrue under the terms of the account to the extent permitted by law.
(c) Accounting treatment; Recognition of net worth value of accounts. (1) Equity account. A LICU that issues secondary capital accounts pursuant to paragraph (b) of this section must record the funds on its balance sheet in an equity account entitled “uninsured secondary capital account.”
(2) Schedule for recognizing net worth value. For accounts with remaining maturities of less than five years, the LICU must reflect the net worth value of the accounts in its financial statement in accordance with the following schedule:
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------------------------------------------------------------------------ Net worth value of Remaining maturity original balance (percent)------------------------------------------------------------------------Four to less than five years............................... 80Three to less than four years.............................. 60Two to less than three years............................... 40One to less than two years................................. 20Less than one year......................................... 0------------------------------------------------------------------------
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(3) Financial statement. The LICU must reflect the full amount of the secondary capital on deposit in a footnote to its financial statement.
(d) Redemption of secondary capital. With the written approval of the appropriate Regional Director, secondary capital that is not recognized as net worth under paragraph (c)(2) of this section (“discounted secondary capital” recategorized as subordinated debt) may be redeemed according to the remaining maturity schedule in paragraph (d)(3) of this section.
(1) Request to redeem secondary capital. A request for approval to redeem discounted secondary capital may be submitted in writing at any time, must specify the increment(s) to be redeemed and the schedule for redeeming all any part of each eligible increment, and must demonstrate to the satisfaction of the appropriate Regional Director that:
(i) The LICU will have a post-redemption net worth classification of “adequately capitalized” under part 702 of this chapter;
(ii) The discounted secondary capital has been on deposit at least two years;
(iii) The discounted secondary capital will not be needed to cover losses prior to final maturity of the account;
(iv) The LICU's books and records are current and reconciled;
(v) The proposed redemption will not jeopardize other current sources of funding, if any, to the LICU; and
(vi) The request to redeem is authorized by resolution of the LICU's board of directors.
(2) Decision on request. A request to redeem discounted secondary capital may be granted in whole or in part. If a LICU is not notified within 45 days of receipt of a request for approval to redeem secondary capital that its request is either granted or denied, the LICU may proceed to redeem secondary capital accounts as proposed.
(3) Schedule for redeeming secondary capital.
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------------------------------------------------------------------------ Redemption limit as Remaining maturity percent of original balance------------------------------------------------------------------------Four to less than five years............................... 20Three to less than four years.............................. 40Two to less than three years............................... 60One to less than two years................................. 80------------------------------------------------------------------------
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Appendix to §701.34
A LICU that is authorized to accept uninsured secondary capital accounts and each investor in such an account shall execute and date the following “Disclosure and Acknowledgment” form, a signed original of which must be retained by the credit union:
Disclosure and Acknowledgment
[Name of CU] and [Name of investor] hereby acknowledge and agree that [Name of investor] has committed [amount of funds] to a secondary capital account with [name of credit union] under the following terms and conditions:
1. Term. The funds committed to the secondary capital account are committed for a period of __ years.
2. Redemption prior to maturity. Subject to the conditions set forth in 12 CFR 701.34, the funds committed to the secondary capital account are redeemable prior to maturity only at the option of the LICU and only with the prior approval of the appropriate regional director.
3. Uninsured, non-share account. The secondary capital account is not a share account and the funds committed to the secondary capital account are not insured by the National Credit Union Share Insurance Fund or any other governmental or private entity.
4. Prepayment risk. Redemption of U.S.C. prior to the account's original maturity date may expose the account investor to the risk of being unable to reinvest the repaid funds at the same rate of interest for the balance of the period remaining until the original maturity date. The investor acknowledges that it understands and assumes responsibility for prepayment risk associated with the [name of credit union]'s redemption of the investor's U.S.C. account prior to the original maturity date.
5. Availability to cover losses. The funds committed to the secondary capital account and any interest paid into the account may be used by [name of credit union] to cover any and all operating losses that exceed the credit union's net worth exclusive of allowance accounts for loan losses, and in the event the funds are so used, (name of credit union) will under no circumstances restore or replenish those funds to [name of institutional investor]. Dividends are not considered operating losses and are not eligible to be paid out of secondary capital.
6. Accrued interest. By initialing below, [name of credit union] and [name of institutional investor] agree that accrued interest will be:
__Paid into and become part of the secondary capital account;
__Paid directly to the investor;
__Paid into a separate account from which the investor may make withdrawals; or
__Any combination of the above provided the details are specified and agreed to in writing.
7. Subordination of claims. In the event of liquidation of [name of credit union], the funds committed to the secondary capital account will be subordinate to all other claims on the assets of the credit union, including claims of member shareholders, creditors and the National Credit Union Share Insurance Fund.
8. Prompt Corrective Action. Under certain net worth classifications (see 12 CFR 702.204(b)(11), 702.304(b) and 702.305(b), as the case may be), the NCUA Board may prohibit [name of credit union] from paying principal, dividends or interest on its uninsured secondary capital accounts established after August 7, 2000, except that unpaid dividends or interest will continue to accrue under the terms of the account to the extent permitted by law.
ACKNOWLEDGED AND AGREED TO this __ day of [month and year] by: ____________________
[name of investor's official]
[title of official]
[name of investor]
[address and phone number of investor]
[investor's tax identification number] ____________________
[name of credit union official]
[title of official]
[61 FR 3790, Feb. 2, 1996, as amended at 61 FR 50695, 50697, Sept. 27, 1996; 64 FR 72270, Dec. 27, 1999; 65 FR 21131, Apr. 20, 2000; 71 FR 4238, Jan. 26, 2006]
§ 701.35 Share, share draft, and share certificate accounts.
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(a) Federal credit unions may offer share, share draft, and share certificate accounts in accordance with section 107(6) of the Act (12 U.S.C. 1757(6)) and the board of directors may declare dividends on such accounts as provided in section 117 of the Act (12 U.S.C. 1763).
(b) A Federal credit union shall accurately represent the terms and conditions of its share, share draft, and share certificate accounts in all advertising, disclosures, or agreements, whether written or oral
(c) A Federal credit union may, consistent with this section, parts 707 and 740 of this subchapter, other federal law, and its contractual obligations, determine the types of fees or charges and other matters affecting the opening, maintaining and closing of a share, share draft or share certificate account. State laws regulating such activities are not applicable to federal credit unions.
(d) For purposes of this section, “state law” means the constitution, statutes, regulations, and judicial decisions of any state, the District of Columbia, the several territories and possessions of the United States, and the Commonwealth of Puerto Rico.
[47 FR 17979, Apr. 27, 1982, as amended at 50 FR 4637, Feb. 1, 1985; 59 FR 50445, Sept. 27, 1993]
§ 701.36 FCU ownership of fixed assets.
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(a) Investment in Fixed Assets. (1) No Federal credit union with $1,000,000 or more in assets may invest in any fixed assets if the investment would cause the aggregate of all such investments to exceed five percent of the credit union's shares and retained earnings.
(2) The NCUA may waive the prohibition in paragraph (a)(1) of this section.
(i) A Federal credit union desiring a waiver must submit a written request to the NCUA regional office having jurisdiction over the geographical area in which the credit union's main office is located. The request must describe in detail the contemplated investment and the need for the investment. The request must also indicate the approximate aggregate amount of fixed assets, as a percentage of shares and retained earnings, that the credit union would hold after the investment.
(ii) The regional director will inform the requesting credit union, in writing, of the date the request was received and of any additional documentation that the regional director might require in support of the waiver request.
(iii) The regional director will approve or disapprove the waiver request in writing within 45 days after receipt of the request and all necessary supporting documentation. If the regional director approves the waiver, the regional director will establish an alternative limit on aggregate investments in fixed assets, either as a dollar limit or as a percentage of the credit union's shares and retained earnings. Unless otherwise specified by the regional director, the credit union may make future acquisition of fixed assets only if the aggregate all of such future investments in fixed assets does not exceed an additional one percent of the shares and retained earnings of the credit union over the amount approved by the regional director.
(iv) If the regional director does not notify the credit union of the action taken on its request within 45 calendar days of the receipt of the waiver request or the receipt of additional requested supporting information, whichever occurs later, the credit union may proceed with its proposed investment in fixed assets. The investment, and any future investments in fixed assets, must not cause the credit union to exceed the aggregate investment limit described in its waiver request.
(b) Premises Not Currently Used To Transact Credit Union Business. (1) When a Federal credit union acquires premises for future expansion and does not fully occupy the space within one year, the credit union must have a board resolution in place by the end of that year with definitive plans for full occupation. Premises are fully occupied when the credit union, or a combination of the credit union, CUSOs, or vendors, use the entire space on a full-time basis. CUSOs and vendors must be using the space primarily to support the credit union or to serve the credit union's members. The credit union must make any plans for full occupation available to an NCUA examiner upon request.
(2) When a Federal credit union acquires premises for future expansion, the credit union must partially occupy the premises within a reasonable period, not to exceed three years. Premises are partially occupied when the credit union is using some part of the space on a full-time basis. The NCUA may waive this partial occupation requirement in writing upon written request. The request must be made within 30 months after the property is acquired.
(3) A Federal credit union must make diligent efforts to dispose of abandoned premises and any other real property not intended for use in the conduct of credit union business. The credit union must seek fair market value for the property, and record its efforts to dispose of abandoned premises. After premises have been abandoned for four years, the credit union must publicly advertise the property for sale. Unless otherwise approved in writing by the NCUA, the credit union must complete the sale within five years of abandonment.
(c) Prohibited Transactions. (1) Without the prior written approval of the NCUA, no federal credit union may invest in premises through an acquisition or a lease of one year or longer from any of the following:
(i) A director, member of the credit committee or supervisory committee, or senior management employee of the federal credit union, or immediate family member of any such individual.
(ii) A corporation in which any director, member of the credit committee or supervisory committee, official, or senior management employee, or immediate family members of any such individual, is an officer or director, or has a stock interest of 10 percent or more.
(iii) A partnership, limited liability company, or other entity in which any director, member of the credit committee or supervisory committee, or senior management employee, or immediate family members of any such individual, is a general partner, or a limited partner or entity member with an interest of 10 percent or more.
(2) The prohibition contained in paragraph (c)(1) of this section also applies to a lease from any other employee if the employee is directly involved in investments in fixed assets unless the board of directors determines that the employee's involvement does not present a conflict of interest.
(3) All transactions with business associates or family members not specifically prohibited by this paragraph (c) must be conducted at arm's length and in the interest of the credit union.
(d) Regulatory Flexibility Program. Federal credit unions that qualify for the Regulatory Flexibility Program provided for in part 742 of this chapter are exempt from the five percent limitation described in paragraph (a) of this section. For Federal credit unions eligible for the Regulatory Flexibility Program that subsequently lose eligibility:
(1) Section 742.8 of this chapter provides that NCUA may require the credit union to divest any existing fixed assets for substantive safety and soundness reasons; and
(2) The credit union may not make any new investments in fixed assets if, after the investment, the credit union's total investments in fixed assets would exceed the five percent limitation described in paragraph (a) of this section. The regional director may waive this prohibition to allow for new investments.
(e) Definitions—As used in this section:
(1) Abandoned premises means real property previously used to transact credit union business but no longer used for that purpose and real property originally acquired for future expansion for which the credit union no longer contemplates such use.
(2) Fixed assets means premises, furniture, fixtures and equipment.
(3) Furniture, fixtures, and equipment means all office furnishings, office machines, computer hardware and software, automated terminals, and heating and cooling equipment.
(4) Investments in fixed assets means:
(i) Any investment in improved or unimproved real property which is being used or is intended to be used as premises;
(ii) Any leasehold improvement on premises;
(iii) The aggregate of all capital and operating lease payments on fixed assets, without discounting commitments for future payments to present value; and
(iv) Any investment in furniture, fixtures and equipment.
(5) Immediate family member means a spouse or other family members living in the same household.
(6) Premises means any office, branch office, suboffice, service center, parking lot, other facility, or real estate where the credit union transacts or will transact business.
(7) Senior management employee means the credit union's chief executive officer (typically this individual holds the title of President or Treasurer/Manager), any assistant chief executive officers (e.g., Assistant President, Vice President or Assistant Treasurer/Manager) and the chief financial officer (Comptroller).
(8) Shares means regular shares, share drafts, share certificates, other savings.
(9) Retained earnings means undivided earnings, regular reserve, reserve for contingencies, supplemental reserves, reserve for losses, and other appropriations from undivided earnings as designated by management or the Administration.
[69 FR 58042, Sept. 29, 2004]
§ 701.37 Treasury tax and loan depositaries; depositaries and financial agents of the Government.
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(a) Definitions. (1) Treasury Tax and Loan (TT&L) Remittance Account means a nondividend-paying account, the balance of which is subject to the right of immediate withdrawal, established for receipt of payments of Federal taxes and certain United States obligations under United States Treasury Department regulations.
(2) TT&L Note Account means an account subject to the right of immediate call, evidencing funds held by depositaries electing the note option under United States Treasury Department regulations.
(3) Treasury General Account means an account, established under United States Treasury Department regulations, in which a zero balance may be maintained and from which the entire balance may be withdrawn by the depositor immediately under all circumstances except closure of the credit union.
(4) U.S. Treasury Time Deposit—Open Account means a nondividend-bearing account, established under United States Treasury Department regulations, which generally may not be withdrawn until the expiration of 14 days after the date of the United States Treasury Department's written notice of intent to withdraw.
(b) Subject to regulation of the United States Treasury Department, a Federal credit union may serve as a Treasury tax and loan depositary, a depositary of Federal taxes, a depositary of public money, and a financial agent of the United States Government. In serving in these capacities, a Federal credit union may maintain the accounts defined in subsection (a), pledge collateral, and perform the services described under United States Treasury Department regulations for institutions acting in these capacities.
(c) Funds held in a TT&L Remittance Account, a TT&L Note Account, a Treasury General Account, and a U.S. Treasury Time Deposit—Open Account shall be considered deposits of public funds. Funds held in a TT&L Remittance Account and a TT&L Note Account shall be added together and insured up to a maximum of $100,000 in the aggregate. Funds held in a Treasury General Account and a U.S. Treasury Time Deposit—Open Account shall be added together and insured up to a maximum of $100,000 in the aggregate.
(d) Funds held in a TT&L Remittance Account, a TT&L Note Account, a Treasury General Account, and U.S. Treasury Time Deposit—Open Account are not subject to the 60-day notice requirement of Article III, section 5(a) of the Federal Credit Union Bylaws.
[54 FR 18471, May 1, 1989]
§ 701.38 Borrowed funds from natural persons.
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(a) Federal credit unions may borrow from a natural person, provided:
(1) The borrowing is evidenced by a signed promissory note which sets forth the terms and conditions regarding maturity, prepayment, interest rate, method of computation, and method of payment;
(2) The promissory note and any advertisement for such funds contains conspicuous langauge indicating that:
(i) The note represents money borrowed by the credit union;
(ii) The note does not represent shares and, therefore, is not insured by the National Credit Union Share Insurance Fund.
[45 FR 29271, May 2, 1980, as amended at 47 FR 17979, Apr. 27, 1982]
§ 701.39 Statutory lien.
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(a) Definitions. Within this section, each of the following terms has the meaning prescribed below:
(1) Except as otherwise provided by law or except as otherwise provided by federal law is a qualifying phrase referring to a federal and/or state law, as the case may be, which supersedes a requirement of this section. It is the responsibility of the credit union to ascertain whether such statutory or case law exists and is applicable;
(2) Impress means to attach to a member's account and is the act which makes the lien enforceable against that account;
(3) Member means any member who is primarily, secondarily or otherwise responsible for an outstanding financial obligation to the credit union, including without limitation an obligor, maker, co-maker, guarantor, co-signer, endorser, surety or accommodation party;
(4) Notice means written notice to a member disclosing, in plain language, that the credit union has the right to impress and enforce a statutory lien against the member's shares and dividends in the event of failure to satisfy a financial obligation, and may enforce the right without further notice to the member. Such notice must be given at the time, or at any time before, the member incurs the financial obligation;
(5) Statutory lien means the right granted by section 107(11) of the Federal Credit Union Act, 12 U.S.C. 1757(11), to a federal credit union to establish a right in or claim to a member's shares and dividends equal to the amount of that member's outstanding financial obligation to the credit union, as that amount varies from time to time.
(b) Superior claim. Except as otherwise provided by law, a statutory lien gives the federal credit union priority over other creditors when claims are asserted against a member's account(s).
(c) Impressing a statutory lien. Except as otherwise provided by federal law, a credit union can impress a statutory lien on a member's account(s)—
(1) Account records. By giving notice thereof in the member's account agreement(s) or other account opening documentation; or
(2) Loan documents. In the case of a loan, by giving notice thereof in a loan document signed or otherwise acknowledged by the member(s); or
(3) By-Law or policy. Through a duly adopted credit union by-law or policy of the board of directors, of which the member is given notice.
(d) Enforcing a statutory lien—(1) Application of funds. Except as otherwise provided by federal law, a federal credit union may enforce its statutory lien against a member's account(s) by debiting funds in the account and applying them to the extent of any of the member's outstanding financial obligations to the credit union.
(2) Default required. A federal credit union may enforce its statutory lien against a member's account(s) only when the member fails to satisfy an outstanding financial obligation due and payable to the credit union.
(3) Neither judgment nor set-off required. A federal credit union need not obtain a court judgment on the member's debt, nor exercise the equitable right of set-off, prior to enforcing its statutory lien against the member's account.
[64 FR 56956, Oct. 22, 1999]
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