§ 1785. — Requirements governing insured credit unions.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1785]
TITLE 12--BANKS AND BANKING
CHAPTER 14--FEDERAL CREDIT UNIONS
SUBCHAPTER II--SHARE INSURANCE
Sec. 1785. Requirements governing insured credit unions
(a) Advertisement of insured status; exemptions; regulation of signs
Every insured credit union shall display at each place of business
maintained by it a sign or signs indicating that its member accounts are
insured by the Board and shall include in all of its advertisements a
statement to the effect that its member accounts are insured by the
Board. The Board may exempt from this requirement advertisements which
do not relate to member accounts or advertisements in which it is
impractical to include such a statement. The Board shall prescribe by
regulation the forms of such signs, the manner of display, the substance
of any such statement, and the manner of use.
(b) Restrictions
(1) Except as provided in paragraph (2), no insured credit union
shall, without the prior approval of the Board--
(A) merge or consolidate with any noninsured credit union or
institution;
(B) assume liability to pay any member accounts in, or similar
liabilities of, any noninsured credit union or institution;
(C) transfer assets to any noninsured credit union or
institution in consideration of the assumption of liabilities for
any portion of the member accounts in such insured credit union; or
(D) convert into a noninsured credit union or institution.
(2) Conversion of insured credit unions to mutual savings banks.--
(A) In general.--Notwithstanding paragraph (1), an insured
credit union may convert to a mutual savings bank or savings
association (if the savings association is in mutual form), as those
terms are defined in section 1813 of this title, without the prior
approval of the Board, subject to the requirements and procedures
set forth in the laws and regulations governing mutual savings banks
and savings associations.
(B) Conversion proposal.--A proposal for a conversion described
in subparagraph (A) shall first be approved, and a date set for a
vote thereon by the members (either at a meeting to be held on that
date or by written ballot to be filed on or before that date), by a
majority of the directors of the insured credit union. Approval of
the proposal for conversion shall be by the affirmative vote of a
majority of the members of the insured credit union who vote on the
proposal.
(C) Notice of proposal to members.--An insured credit union that
proposes to convert to a mutual savings bank or savings association
under subparagraph (A) shall submit notice to each of its members
who is eligible to vote on the matter of its intent to convert--
(i) 90 days before the date of the member vote on the
conversion;
(ii) 60 days before the date of the member vote on the
conversion; and
(iii) 30 days before the date of the member vote on the
conversion.
(D) Notice of proposal to board.--The Board may require an
insured credit union that proposes to convert to a mutual savings
bank or savings association under subparagraph (A) to submit a
notice to the Board of its intent to convert during the 90-day
period preceding the date of the completion of the conversion.
(E) Inapplicability of chapter upon conversion.--Upon completion
of a conversion described in subparagraph (A), the credit union
shall no longer be subject to any of the provisions of this chapter.
(F) Limit on compensation of officials.--
(i) In general.--No director or senior management official
of an insured credit union may receive any economic benefit in
connection with a conversion of the credit union as described in
subparagraph (A), other than--
(I) director fees; and
(II) compensation and other benefits paid to directors
or senior management officials of the converted institution
in the ordinary course of business.
(ii) Senior management official.--For purposes of this
subparagraph, the term ``senior management official'' means a
chief executive officer, an assistant chief executive officer, a
chief financial officer, and any other senior executive officer
(as defined by the appropriate Federal banking agency pursuant
to section 1831i(f) of this title).
(G) Consistent rules.--
(i) In general.--Not later than 6 months after August 7,
1998, the Administration shall promulgate final rules applicable
to charter conversions described in this paragraph that are
consistent with rules promulgated by other financial regulators,
including the Office of Thrift Supervision and the Office of the
Comptroller of the Currency. The rules required by this clause
shall provide that charter conversion by an insured credit union
shall be subject to regulation that is no more or less
restrictive than that applicable to charter conversions by other
financial institutions.
(ii) Oversight of member vote.--The member vote concerning
charter conversion under this paragraph shall be administered by
the Administration, and shall be verified by the Federal or
State regulatory agency that would have jurisdiction over the
institution after the conversion. If either the Administration
or that regulatory agency disapproves of the methods by which
the member vote was taken or procedures applicable to the member
vote, the member vote shall be taken again, as directed by the
Administration or the agency.
(3) Except with the prior written approval of the Board, no insured
credit union shall merge or consolidate with any other insured credit
union or, either directly or indirectly, acquire the assets of, or
assume liability to pay any member accounts in, any other insured credit
union.
(c) Considerations for waiver or enforcement of restrictions
In granting or withholding approval or consent under subsection (b)
of this section, the Board shall consider--
(1) the history, financial condition, and management policies of
the credit union;
(2) the adequacy of the credit union's reserves;
(3) the economic advisability of the transaction;
(4) the general character and fitness of the credit union's
management;
(5) the convenience and needs of the members to be served by the
credit union; and
(6) whether the credit union is a cooperative association
organized for the purpose of promoting thrift among its members and
creating a source of credit for provident or productive purposes.
(d) Prohibition
(1) In general
Except with prior written consent of the Board--
(A) any person who has been convicted of any criminal
offense involving dishonesty or a breach of trust, or has agreed
to enter into a pretrial diversion or similar program in
connection with a prosecution for such offense, may not--
(i) become, or continue as, an institution-affiliated
party with respect to any insured credit union; or
(ii) otherwise participate, directly or indirectly, in
the conduct of the affairs of any insured credit union; and
(B) any insured credit union may not permit any person
referred to in subparagraph (A) to engage in any conduct or
continue any relationship prohibited under such subparagraph.
(2) Minimum 10-year prohibition period for certain offenses
(A) In general
If the offense referred to in paragraph (1)(A) in connection
with any person referred to in such paragraph is--
(i) an offense under--
(I) section 215, 656, 657, 1005, 1006, 1007,
1008,\1\ 1014, 1032, 1344, 1517, 1956, or 1957 of title
18; or
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\1\ See References in Text note below.
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(II) section 1341 or 1343 of such title which
affects any financial institution (as defined in section
20 of such title); or
(ii) the offense of conspiring to commit any such
offense,
the Board may not consent to any exception to the application of
paragraph (1) to such person during the 10-year period beginning
on the date the conviction or the agreement of the person
becomes final.
(B) Exception by order of sentencing court
(i) In general
On motion of the Board, the court in which the
conviction or the agreement of a person referred to in
subparagraph (A) has been entered may grant an exception to
the application of paragraph (1) to such person if granting
the exception is in the interest of justice.
(ii) Period for filing
A motion may be filed under clause (i) at any time
during the 10-year period described in subparagraph (A) with
regard to the person on whose behalf such motion is made.
(3) Penalty
Whoever knowingly violates paragraph (1) or (2) shall be fined
not more than $1,000,000 for each day such prohibition is violated
or imprisoned for not more than 5 years, or both.
(e) Security standards; reports; penalty
(1) The Board shall promulgate rules establishing minimum standards
with which each insured credit union must comply with respect to the
installation, maintenance, and operation of security devices and
procedures, reasonable in cost, to discourage robberies, burglaries, and
larcenies and to assist in the identification and apprehension of
persons who commit such acts.
(2) The rules shall establish the time limits within which insured
credit unions shall comply with the standards and shall require the
submission of periodic reports with respect to the installation,
maintenance, and operation of security devices and procedures.
(3) An insured credit union which violates a rule promulgated
pursuant to this subsection shall be subject to a civil penalty which
shall not exceed $100 for each day of the violation.
(f) Share draft accounts; maintenance, loans, etc.
(1) Every insured credit union is authorized to maintain, and make
loans with respect to, share draft accounts in accordance with rules and
regulations prescribed by the Board. Except as provided in paragraph
(2), an insured credit union may pay dividends on share draft accounts
and may permit the owners of such share draft accounts to make
withdrawals by negotiable or transferable instruments or other orders
for the purpose of making transfers to third parties.
(2) Paragraph (1) shall apply only with respect to share draft
accounts in which the entire beneficial interest is held by one or more
individuals or members or by an organization which is operated primarily
for religious, philanthropic, charitable, educational, or other similar
purposes and which is not operated for profit, and with respect to
deposits of public funds by an officer, employee, or agent of the United
States, any State, county, municipality, or political subdivision
thereof, the District of Columbia, the Commonwealth of Puerto Rico,
American Samoa, Guam, any territory or possession of the United States,
or any political subdivision thereof.
(g) Interest rates
(1) If the applicable rate prescribed in this subsection exceeds the
rate an insured credit union would be permitted to charge in the absence
of this subsection, such credit union may, notwithstanding any State
constitution or statute which is hereby preempted for the purposes of
this subsection, take, receive, reserve, and charge on any loan,
interest at a rate of not more than 1 per centum in excess of the
discount rate on ninety-day commercial paper in effect at the Federal
Reserve bank in the Federal Reserve district where such insured credit
union is located or at the rate allowed by the laws of the State,
territory, or district where such credit union is located, whichever may
be greater.
(2) If the rate prescribed in paragraph (1) exceeds the rate such
credit union would be permitted to charge in the absence of this
subsection, and such State fixed rate is thereby preempted by the rate
described in paragraph (1), the taking, receiving, reserving, or
charging a greater rate than is allowed by paragraph (1), when knowingly
done, shall be deemed a forfeiture of the entire interest which the loan
carries with it, or which has been agreed to be paid thereon. If such
greater rate of interest has been paid, the person who paid it may
recover, in a civil action commenced in a court of appropriate
jurisdiction not later than two years after the date of such payment, an
amount equal to twice the amount of interest paid from the credit union
taking or receiving such interest.
(h) Emergency merger
Notwithstanding any other provision of law, the Board may authorize
a merger or consolidation of an insured credit union which is insolvent
or is in danger of insolvency with any other insured credit union or may
authorize an insured credit union to purchase any of the assets of, or
assume any of the liabilities of, any other insured credit union which
is insolvent or in danger of insolvency if the Board is satisfied that--
(1) an emergency requiring expeditious action exists with
respect to such other insured credit union;
(2) other alternatives are not reasonably available; and
(3) the public interest would best be served by approval of such
merger, consolidation, purchase, or assumption.
(i) Emergency purchase of assets; conversion to insured deposits
(1) Notwithstanding any other provision of this chapter or of State
law, the Board may authorize an institution whose deposits or accounts
are insured by the Federal Deposit Insurance Corporation or the Federal
Savings and Loan Insurance Corporation to purchase any of the assets of
or assume any of the liabilities of an insured credit union which is
insolvent or in danger of insolvency, except that prior to exercising
this authority the Board must attempt to effect the merger or
consolidation of an insured credit union which is insolvent or in danger
of insolvency with another insured credit union, as provided in
subsection (h) of this section.
(2) For purposes of the authority contained in paragraph (1),
insured accounts of the credit union may upon consummation of the
purchase and assumption be converted to insured deposits or other
comparable accounts in the acquiring institution, and the Board and the
National Credit Union Share Insurance Fund shall be absolved of any
liability to the credit union's members with respect to those accounts.
(June 26, 1934, ch. 750, title II, Sec. 205, as added Pub. L. 91-468,
Sec. 1(3), Oct. 19, 1970, 84 Stat. 1002; amended Pub. L. 95-630, title
V, Sec. 502(b), Nov. 10, 1978, 92 Stat. 3681; Pub. L. 96-221, title III,
Sec. 305(d), title V, Sec. 523, Mar. 31, 1980, 94 Stat. 147, 166; Pub.
L. 97-320, title I, Sec. 131, 141(a)(8), title VII, Sec. 706(b), Oct.
15, 1982, 96 Stat. 1486, 1489, 1540; Pub. L. 100-86, title V,
Sec. 509(a), Aug. 10, 1987, 101 Stat. 635; Pub. L. 101-73, title IX,
Sec. 910(b), Aug. 9, 1989, 103 Stat. 478; Pub. L. 103-322, title XXXII,
Sec. 320606, Sept. 13, 1994, 108 Stat. 2119; Pub. L. 105-219, title II,
Sec. 202, Aug. 7, 1998, 112 Stat. 919.)
References in Text
Section 1008 of title 18, referred to in subsec. (d)(2)(A)(i)(I),
was repealed by Pub. L. 101-73, title IX, Sec. 961(g)(1), Aug. 9, 1989,
103 Stat. 500.
Amendments
1998--Subsec. (b)(1). Pub. L. 105-219, Sec. 202(1), substituted
``Except as provided in paragraph (2), no insured credit union shall,
without the prior approval of the Board'' for ``Except with the prior
written approval of the Board, no insured credit union shall''.
Subsec. (b)(2), (3). Pub. L. 105-219, Sec. 202(2), (3), added par.
(2) and redesignated former par. (2) as (3).
1994--Subsec. (d). Pub. L. 103-322 amended heading and text of
subsec. (d) generally. Prior to amendment, text read as follows:
``(1) Prohibition.--Except with the prior written consent of the
Board--
``(A) any person who has been convicted of any criminal offense
involving dishonesty or a breach of trust may not participate,
directly or indirectly, in any manner in the conduct of the affairs
of an insured credit union; and
``(B) an insured credit union may not permit such participation.
``(2) Penalty.--Whoever knowingly violates paragraph (1) shall be
fined not more than $1,000,000 for each day such prohibition is violated
or imprisoned for not more than 5 years, or both.''
1989--Subsec. (d). Pub. L. 101-73 amended subsec. (d) generally.
Prior to amendment, subsec. (d) read as follows: ``Except with the
written consent of the Board, no person shall serve as a director,
officer, committee member, or employee of an insured credit union who
has been convicted, or who is hereafter convicted, of any criminal
offense involving dishonesty or a breach of trust. For each willful
violation of this prohibition, the credit union involved shall be
subject to a penalty of not more than $100 for each day this prohibition
is violated, which the Board may recover for its use.''
1987--Pub. L. 100-86 repealed Pub. L. 97-320, Sec. 141. See 1982
Amendment note below.
1982--Subsec. (f)(2). Pub. L. 97-320, Sec. 706(b), inserted
provisions relating to deposits of public funds.
Subsecs. (h), (i). Pub. L. 97-320, Sec. 131, added subsecs. (h) and
(i).
Pub. L. 97-320, Sec. 141(a)(8), which directed that, effective Oct.
13, 1986, the provisions of law amended by section 131 of Pub. L. 97-320
shall be amended to read as they would without such amendment, was
repealed by Pub. L. 100-86, Sec. 509(a). See Effective and Termination
Dates of 1982 Amendment note and Extension of Emergency Acquisition and
Net Worth Guarantee Provisions of Pub. L. 97-320 note set out under
section 1464 of this title.
1980--Subsec. (f). Pub. L. 96-221, Sec. 305(d), added subsec. (f).
Subsec. (g). Pub. L. 96-221, Sec. 523, added subsec. (g).
1978--Pub. L. 95-630 substituted ``Board'' for ``Administrator''
wherever appearing, and ``its'' for ``his'' where appropriate.
Effective Date of 1980 Amendment
Enactment of subsec. (f) by Pub. L. 96-221 effective at the close of
Mar. 31, 1980, see section 306 of Pub. L. 96-221, set out as an
Effective Date of 1980 Amendment note under section 371a of this title.
Section 525 of Pub. L. 96-221 provided that: ``The amendments made
by sections 521 through 523 of this title [amending this section and
enacting sections 1730g and 1831d of this title] shall apply only with
respect to loans made in any State during the period beginning on April
1, 1980, and ending on the date, on or after April 1, 1980, on which
such State adopts a law or certifies that the voters of such State have
voted in favor of any provision, constitutional or otherwise, which
states explicitly and by its terms that such State does not want the
amendments made by such sections to apply with respect to loans made in
such State, except that such amendments shall apply to a loan made on or
after the date such law is adopted or such certification is made if such
loan is made pursuant to a commitment to make such loan which was
entered into on or after April 1, 1980, and prior to the date on which
such law is adopted or such certification is made.''
Effective Date of 1978 Amendment
Amendment by Pub. L. 95-630 effective on expiration of 120 days
after Nov. 10, 1978, and transitional provisions, see section 509 of
Pub. L. 95-630, set out as a note under section 1752 of this title.
Transfer of Functions
Federal Savings and Loan Insurance Corporation abolished and
functions transferred, see sections 401 to 406 of Pub. L. 101-73, set
out as a note under section 1437 of this title.
Extension of Emergency Acquisition and Net Worth Guarantee Provisions of
Pub. L. 97-320
No amendment made by section 141(a) of Pub. L. 97-320, set out as a
note under section 1464 of this title, as in effect before Aug. 10,
1987, to any other provision of law to be deemed to have taken effect
before such date and any such provision of law to be in effect as if no
such amendment had been made before such date, see section 509(c) of
Pub. L. 100-86, set out as a note under section 1464 of this title.
No amendment made by section 141(a) of Pub. L. 97-320, set out as a
note under section 1464 of this title, as in effect on the day before
Oct. 8, 1986, to any other provision of law to be deemed to have taken
effect before such date and any such provision of law to be in effect as
if no such amendment had taken effect before such date, see section 1(c)
of Pub. L. 99-452, set out as a note under section 1464 of this title.
Section 141(a) of Pub. L. 97-320, set out as a note under section
1464 of this title, as in effect on the day after Aug. 27, 1986,
applicable as if included in Pub. L. 97-320 on Oct. 15, 1982, with no
amendment made by such section to any other provision of law to be
deemed to have taken effect before Aug. 27, 1986, and any such provision
of law to be in effect as if no such amendment had taken effect before
Aug. 27, 1986, see section 1(c) of Pub. L. 99-400, set out as a note
under section 1464 of this title.
Definition of ``State''
For purposes of subsec. (g) of this section, the term ``State'' to
include the several States, the Commonwealth of Puerto Rico, the
District of Columbia, Guam, the Trust Territories of the Pacific
Islands, the Northern Mariana Islands, and the Virgin Islands, see
section 527 of Pub. L. 96-221, set out as a note under section 1735f-7a
of this title.
Choice of Highest Applicable Interest Rate
In any case in which one or more provisions of, or amendments made
by, title V of Pub. L. 96-221, section 1735f-7 of this title, or any
other provisions of law, including section 85 of this title, apply with
respect to the same loan, mortgage, credit sale, or advance, such loan,
mortgage, credit sale, or advance may be made at the highest applicable
rate, see section 528 of Pub. L. 96-221, set out as a note under section
1735f-7a of this title.
Section Referred to in Other Sections
This section is referred to in section 1757 of this title.
