Washington State Department of Financial Institutions

DIVISION OF CREDIT UNIONS

BULLETINS 2001

Part B- Bulletins 01-06 to 01-10

 

DCU Bulletin

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

PART C-BULLETINS 11-01 TO 15-01

February 23, 2001  
No. B-01-06

NCUA Issues Prohibition Order against
San Clemente Financial Group Securities, Inc.

The National Credit Union Administration (NCUA) has issued Prohibition Orders (Orders) against San Clemente Financial Group Securities, Inc. (San Clemente), Cooke B. Christopher and Thomas H. Sunderland.  Mr. Christopher and Mr. Sunderland are the CEO and Vice President of San Clemente and San Clemente Securities (SCS), respectively.  San Clemente and SCS, broker dealers in San Clemente, California, were in the business of marketing investments to federally insured financial institutions.

The NCUA Orders prohibit Messrs. Christopher and Sunderland and San Clemente from participating in any manner in the affairs of any federally insured credit union.  Note that the principals of San Clemente have operated similar brokerages under other names.

We understand that a Washington state-chartered credit union lost significant sums on the purchase of an out-of-state credit union’s CD that had been brokered by San Clemente.  The securities laws consider credit unions “sophisticated investors.”  Consequently, credit unions may have limited recourse against brokers.

Credit unions are strongly encouraged to exercise adequate due diligence and monitoring and take prudent precautions in their dealings with CD brokers.


 

DCU Bulletin

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

March 26, 2001  
No. B-01-07

Division Schedules Hearing on Proposed Rule On Increasing Assessments and Fees;
Comments Invited on Proposed Rule

The Division recently filed a CR-102 form to publish the Division’s proposed rule on increasing assessments and fees and to schedule a hearing on the proposed rule.  Enclosed is a copy of the CR-102, the text of the proposed rule, and the small business economic impact statement in regard to the rule.

Hearing time and location

The hearing on the proposed rule will be held on May 1, 2001, beginning at 10:00 a.m., in the First Floor Auditorium of the General Administration Building, located at 210 11th St. SW, Olympia, WA  98504. Please contact Diane Moye at the Division, at (360) 902-8791, if you would like a map to the hearing site.

Summary of Proposed Rule

In general, the proposed rule:

  1. Increases by 2.87% the rate of assessments and fees charged by the Division of Credit Unions, effective in June 2001.  The fiscal growth factor for the current fiscal year (July 1, 2000 to June 30, 2001) is 2.87%.
  2. Provides for an automatic annual rate increase in assessments and fees charged by the Division, on July 1, 2001, and every July 1 thereafter, up to the then current fiscal growth factor.
  3. Allows for the waiver of assessments and fees, if certain conditions are met.
  4. Clarifies assessments and fees charged to out-of-state and foreign credit unions.

The proposed rule amends Chapter 208-418 WAC.

Comments on the proposed rule

Persons wishing to comment on the proposed rule may present their comments at the hearing or submit their comments in writing prior to the close of business on April 30, 2001.

We are particularly interested in your comments if you believe that the proposed rule should be made less burdensome for small credit unions.  We are also interested in comments in response to the seven questions posed in Executive Order 97-02, listed on the following page.

Please submit your comments to:

Parker Cann
Director of Credit Unions
Division of Credit Unions
PO Box 41200
Olympia, WA 98504-1200
Phone: (360) 902-8778
Fax: (360) 704-6978
E-mail: pcann@dfi.wa.gov

 


Questions under Executive Order 97-02

  1. Need.  Is the rule necessary to comply with the statutes that authorize it? Is the rule obsolete, duplicative, or ambiguous to a degree that warrants repeal or revision? Have laws or other circumstances changed so that the rule should be amended or repealed? Is the rule necessary to protect or safeguard the health, welfare, or safety of Washington's citizens?
  2. Effectiveness and Efficiency. Is the rule providing the results that it was originally designed to achieve in a reasonable manner? Are there regulatory alternatives or new technologies that could more effectively or efficiently achieve the same objectives?
  3. Clarity. Is the rule written and organized in a clear and concise manner so that it can be readily understood by those to whom it applies?
  4. Intent and Statutory Authority. Is the rule consistent with the legislative intent of the statutes that authorize it? Is the rule based upon sufficient statutory authority? Is there a need to develop a more specific legislative authorization in order to protect the health, safety, and welfare of Washington's citizens?
  5. Coordination. Could additional consultation and coordination with other governmental jurisdictions and state agencies with similar regulatory authority eliminate or reduce duplication and inconsistency?
  6. Cost. Have qualitative and quantitative benefits of the rule been considered in relation to its cost?
  7.  Fairness. Does the rule result in equitable treatment of those required to comply with it? Should it be modified to eliminate or minimize any disproportionate impacts on the regulated community? Should it be strengthened to provide additional protection?

PROPOSED RULE MAKING
(RCW 34.05.320)

CR-102 (7/10/97)
Do NOT use for expedited adoption

Agency: Department of Financial Institutions 

x Original Notice

x Preproposal Statement of Inquiry was filed as WSR 01-03-146
p Expedited Adoption Proposed Rule Making notice was filed as WSR p       ; or
p Proposal is exempt under RCW 34.05.310(4).

p Supplemental Notice
      to WSR _____
p Continuance of WSR

(a) Title of rule: (Describe Subject)Increasing assessments and fees paid by credit unions and affiliated parties examined by the Division of Credit Unions
Purpose:  To provide additional revenue to the division

Other identifying information: _____

(b) Statutory authority for adoption: RCW 31.12.516; 43.320.040

Statute being implemented: Chapter 31.12.516; 31.12.555 RCW

(c) Summary:

  1. Increases by 2.87% the rate of assessments and fees charged by the Division of Credit Unions, effective in June 2001.
  2. Provides for an automatic annual rate increase in assessments and fees charged by the Division, on July 1, 2001, and every July 1 thereafter, up to the then current fiscal growth factor.
  3. Allows for the waiver of fees and assessments, if certain conditions are met.
  4. Clarifies assessments and fees charged to out-of-state and foreign credit unions.

Reasons supporting proposal: The Division needs significant additional revenues to pay for the operation of the Division and to maintain a reserve.

(d) Name of Agency Personnel Responsible for:

Office Location

Telephone

1. Drafting...............Parker Cann

210 11th St. SW Room 300 Olympia, WA 98504

360-902-8778

2. Implementation.... Same

Same

Same

3. Enforcement..........Same

Same

Same

(e)Name of proponent (person or organization): Division of Credit Unions

p Private
p Public
x Governmental

(f)   Agency comments or recommendations, if any, as to statutory language, implementation, enforcement and fiscal matters:
 

(g) Is rule necessary because of:
Federal Law?
Federal Court decision
State Court Decision?



p
Yes
p Yes
p Yes



x   No
x  No
x  No


If yes, ATTACH COPY OF TEXT
Citation: ________   

(h) HEARING LOCATION:

Submit written comments to:

General Administration Building
Auditorium -- 1st Floor
210 11th St. SW
Olympia, WA 98504

Parker Cann, Assistant Director
Division of Credit Unions
PO Box 41200
Olympia, WA 98504-1200
FAX (360) 704-6978 By (date) Close of business April 30, 2001

Date: May 1, 2001 Time: 10:00 a.m.

DATE OF INTENDED ADOPTION: June 4, 2001

Assistance for persons with disabilities: Contact
Tina Philippsen by close of business April 13, 2001

CODE REVISER USE ONLY

TDD (360) 664-8126  or (360) 902-8718

NAME (TYPE OR PRINT)
    John L. Bley

SIGNATURE

TITLE
Director

DATE

 

(j) Short explanation of rule, its purpose, and anticipated effects:

Explanation: The proposed rule –

  1. Increases by 2.87% the rate of assessments and fees charged by the Division of Credit Unions, effective in June 2001.

  2. Provides for an automatic annual rate increase in assessments and fees charged by the Division, on July 1, 2001, and every July 1 thereafter, up to the then current fiscal growth factor.

  3. Allows for the waiver of assessments and fees, if certain conditions are met.

  4. Clarifies assessments and fees charged to out-of-state and foreign credit unions.

  5. Purpose: To increase revenue to cover the operation of the Division and to maintain a reserve for the Division.

  6. Anticipated effects: To provide additional revenues to the Division and to increase assessments and fees paid by credit unions.


Does proposal change existing rules?       x YES      NO

If yes, describe changes.

 

The proposed rule:

  1. Amends WAC 208-418-040 and adds a new section to increase by 2.87% the rate of assessments and fees charged by the Division of Credit Unions, effective in June 2001.
  2. Adds a new WAC section to provide for an automatic annual rate increase in assessments and fees charged by the Division, on July 1, 2001, and every July 1 thereafter, up to the then current fiscal growth factor.
  3. Adds a new WAC section to provide definitions.
  4. Adds a new WAC section to allow for the waiver of assessments and fees, if certain conditions are met.
  5. Amends WAC 208-418-040 and –070 to clarify assessments and fees charged to out-of-state and foreign credit unions.
  6. Amends WAC 208-418-050 to clarify that the Division can pass through the costs of special counsel.
  7. Repeals WAC 208-418-060 (“One-time special assessment for fiscal 1997”).
  8. Amends WAC 208-418-020 to make clarifying and conforming changes.

 

Has a small business economic impact statement been prepared under chapter 19.85 RCW?
x  Yes.  Attach copy of small business economic impact statement.
         A copy of the statement may be obtained by writing to:
Tina Philippsen
Division of Credit Unions
210 11th St. S.W. Room 300
Olympia, WA 98504
telephoning: (360) 902-8718
faxing: (360) 704-6918
p No.  Explain why no statement was prepared
(l) Does section 201, chapter 403, Laws of 1995, apply to this rule adoption?       p Yes           x No
            Please explain: DFI is not a listed agency in section 201.

NEW SECTION

WAC 208-418-010  Definitions.  Unless the context clearly requires otherwise, as used in this chapter:

  1. "Credit union" includes a Washington credit union, an out-of-state credit union and a foreign credit union.
  2. "Foreign credit union" means a credit union organized and operating under the laws of another country or other foreign jurisdiction, that is operating a branch in Washington in accordance with RCW 31.12.471.
  3. "Hourly fee" means a fee of $57.42 per hour per examiner or other staff person of the division.
  4. "Out-of-state credit union" means a credit union organized and operating under the laws of another state or U.S. territory or possession, that is operating a branch in Washington in accordance with RCW 31.12.471.
  5. (a) "Total assets" of a Washington credit union includes all assets of the credit union as reported on the credit union's most recent form 5300 or similar financial report.
  1. "Total assets" of an out-of-state or foreign credit union is derived from the following fraction:

Total assets x in-state branch shares and deposits

Total shares and deposits

"Total assets" and "shares and deposits" include respectively all assets and shares and deposits as reported on the credit union's most recent form 5300 or similar financial report.

  1. "Washington credit union" means a credit union organized and operating under chapter 31.12 RCW.

AMENDATORY SECTION (Amending WSR 96-12-058, filed 5/31/96, effective 7/1/96)

WAC 208-418-020  Collection of fees.Chapter ((274, Laws of 1996,)) 31.12 RCW authorizes the director to charge fees to credit unions and certain ((related)) affiliated parties in order to cover the costs of the operation of the division of credit unions and to establish a reasonable reserve for the division.  As set forth in more detail in this chapter, the fees for this purpose shall consist of:

  1. Quarterly asset assessments charged to credit unions;
  2. Charges to a credit union for costs incurred by the division for certain types of attorney general assistance in regard to the credit union; and
  3. Certain other fees charged by the director.

((Fees must be paid no later than thirty days after their due date.))  The director may waive all or any portion of any fee payable by a credit union or other party ((based on the ability of the credit union or party to pay the fee)).

[Statutory Authority:  1996 c 274.  96-12-058, § 208-418-020, filed 5/31/96, effective 7/1/96.  96-06-011, recodified as § 208-418-020, filed 2/23/96, effective 6/1/96.  Statutory Authority:  RCW 31.12.535 and 31.12.545.  95-06-066, § 419-18-020, filed 2/28/95, effective 3/31/95.  Statutory Authority:  RCW 31.12.320.  83-20-027 (Order 83-4), § 419-18-020, filed 9/26/83; 82-13-016 (Order 82-5), § 419-18-020, filed 6/7/82.]

AMENDATORY SECTION (Amending WSR 96-12-058, filed 5/31/96, effective 7/1/96)

WAC 208-418-040  Quarterly asset assessments.

(1) The director will charge each credit union a quarterly asset assessment at the rate set forth in subsection (2) of this section.  Asset assessments will be due on January 1, April 1, July 1, and October 1.  Asset assessments must be paid no later than thirty days after their due date.  The assessments will be computed on total assets as of the prior June 30 for the October 1 and January 1 assessments, and as of the prior December 31 for the April 1 and July 1 assessments.  ((Quarterly asset assessments are charged for the calendar quarter that begins on the due date of the assessment.  No rebates will be made to credit unions that cease to be state-chartered during the quarter.))

(2)

Credit Union’s
Total Assets

Quarterly
Asset Assessment

over $500M

 $((18,357)) 18,883 .+ ((.000015)) 0.00001543 x total assets over $500M

over $100M up to $500M

 $((5,104)) 5,250 .+ ((.000033134)) 0.00003408 x total assets over $100M

over $((20)) 25M up to $100M

  ((.000051035)) 0.00005250 x total assets

over $10M up to $((20)) 25M

  $((1,125)) 1,157

over $2M up to $10M

$((750)) 771

over $((200)) 500K up to $2M

  $((500)) 514

up to $((200)) 500K

$0

((Corporate Centrals

  .0000252 x total assets))

M .= Million    K .= Thousand

(3) Quarterly asset assessments are charged for the calendar quarter that begins on the due date of the assessment.  No rebates will be made to credit unions that cease to be state-chartered during the quarter.  A credit union converting to state charter will pay a prorated quarterly asset assessment for the quarter during which the conversion is completed.

(4) (( For the purpose of this chapter, "total assets" includes all assets held by a Washington chartered credit union whether held within this state or a branch in another state, and assets of foreign credit unions held through branches within the state of Washington, as reported on the credit union's form 5300 or similar financial report.  However, the director may waive any assessment on assets held by Washington chartered credit unions

through branches in other states based upon reciprocal agreements with the other state's regulatory authority.  As used in this chapter, "foreign credit union" means a credit union chartered under the laws of another state or a foreign country.)) From time to time, the director may determine that asset assessments on an out-of-state credit union or foreign credit union are inappropriate relative to the level of examination and supervision of that credit union by the division.  In that event, the director may charge the credit union hourly fees for examination and supervision of the credit union, including, but not limited to, off-site monitoring, in  lieu of asset assessments.Such fees are due upon receipt of billing from the division.

[Statutory Authority:  1996 c 274.  96-12-058, § 208-418-040, filed 5/31/96, effective 7/1/96.  96-06-011, recodified as § 208-418-040, filed 2/23/96, effective 6/1/96.  Statutory Authority:  RCW 31.12.535 and 31.12.545.  95-06-066, § 419-18-040, filed 2/28/95, effective 3/31/95; 91-06-062, § 419-18-040, filed 3/1/91, effective 4/1/91.  Statutory Authority:  RCW 31.12.545(1).  85-07-008 (Order 85-2), § 419-18-040, filed 3/8/85.  Statutory Authority:  RCW 31.12.320.  83-20-027 (Order 83-4), § 419-18-040, filed 9/26/83; 82-13-016 (Order 82-5), § 419-18-040, filed 6/7/82.]

AMENDATORY SECTION (Amending WSR 96-12-058, filed 5/31/96, effective 7/1/96)

WAC 208-418-050  Pass through of attorney general costs.

  1. The director will charge each credit union the actual cost incurred by the division of credit unions for certain legal assistance rendered by an assistant attorney general or special counsel in regard to the credit union.  Legal assistance includes legal assistance rendered in connection with:  Supervisory committee meetings and board meetings; receiverships, conservatorships, liquidations and declarations of insolvency; enforcement agreements or actions; collection actions; administrative hearings; and ((written)) opinions requested by a credit union or the division of credit unions.  Charges are due upon receipt of billing from the division.
  2. The division will notify a credit union before the division incurs expense for legal assistance which may be charged to the credit union under this section.

[Statutory Authority:  1996 c 274.  96-12-058, § 208-418-050, filed 5/31/96, effective 7/1/96.  96-06-011, recodified as § 208-418-050, filed 2/23/96, effective 6/1/96.  Statutory Authority:  RCW 31.12.535 and 31.12.545.  95-06-066, § 419-18-050, filed 2/28/95, effective 3/31/95; 91-06-062, § 419-18-050, filed 3/1/91, effective 4/1/91.  Statutory Authority:  RCW 31.12.320.  83-20-027 (Order 83-4), § 419-18-050, filed 9/26/83.]

AMENDATORY SECTION (Amending WSR 96-12-058, filed 5/31/96, effective 7/1/96)

WAC 208-418-070  Other fees.

  1. The director will charge hourly fees as follows:
  1. An hourly fee will be charged to a party other than a credit union or a subsidiary of one or more credit unions for each electronic data processing examination of the party by the division of credit unions.
  2. An hourly fee will be charged to a credit union for the processing of the credit union's application to add a community group to its field of membership.
  3. An hourly fee will be charged to a credit union for a fraud investigation of the credit union and/or its related parties by the division.
  4. An hourly fee will be charged to ((a)) an out-of-state or foreign credit union for ((an on-site)) examination and supervision by the division under WAC 208-418-040(4).
  5. An hourly fee will be charged to ((a)) an out-of-state or foreign credit union for the processing of the credit union's application to ((do business)) operate a branch in this state.
  6. An hourly fee will be charged to other divisions or agencies for examinations, investigations, or similar undertakings performed on their behalf by the division.

(2) ((As used in this section, "hourly fee" means a fee of $55.82 per hour per examiner or other staff person of the division.

(3))) In addition, the director will charge a credit union for the actual cost incurred by the division for an examination or investigation of the credit union and/or its related parties performed under personal services contract by third parties.

(((4))) (3) Charges under this section are due upon receipt of billing from the division.

[Statutory Authority:  1996 c 274.  96-12-058, § 208-418-070, filed 5/31/96, effective 7/1/96.  96-06-011, recodified as § 208-418-070, filed 2/23/96, effective 6/1/96.  Statutory Authority:  RCW 31.12.535 and 31.12.545.  95-06-066, § 419-18-070, filed 2/28/95, effective 3/31/95; 91-06-062, § 419-18-070, filed 3/1/91, effective 4/1/91.  Statutory Authority:  RCW 31.12.545(1).  85-07-008 (Order 85-2), § 419-18-070, filed 3/8/85.  Statutory Authority:  RCW 31.12.320.  83-20-027 (Order 83-4), § 419-18-070, filed 9/26/83.]

NEW SECTION

WAC 208-418-090  Rate increase.

  1. On July 1, 2001, and each July 1 after that date, the fee and assessment rates under WAC 208-418-040 and 208-418-070, as increased in the prior fiscal year, will increase by a percentage rate equal to the fiscal growth factor for the then current fiscal year.  As used in this section, "fiscal growth factor" has the same meaning as the term is defined in RCW 43.135.025.
  2. The director may round off a rate increase under subsection (1) of this section.  However, no rate increase may exceed the applicable fiscal growth factor.
  3. By June 1 of each year, the director will make available a chart of the new rates that will take effect on the immediately following July 1.

NEW SECTION

WAC 208-418-100  Waiver of fees.  The director may waive any or all of the fees and assessments imposed under WAC 208-418-040 and 208-418-070, in whole or in part, when he or she determines that both of the following factors are present:

  1. The credit union examination fund established in RCW 43.320.120 (or its successor) exceeds the projected acceptable minimum fund balance level approved by the office of financial management; and
  2. That such course of action would be fiscally prudent.

REPEALER

The following section of the Washington Administrative Code is repealed:

WAC 208-418-060

One-time special assessment for fiscal 1997.


 

Division of Credit Unions’

SMALL BUSINESS ECONOMIC IMPACT STATEMENT (“SBEIS”)
Concerning Rule to Increase Assessments and Fees

Subject: Rule proposed by the Division of Credit Unions (“Division”) of the Washington State Department of Financial Institutions (DFI) to revise Chapter 208-418 of the Washington Administrative Code (WAC) to increase assessments and fees.

By:  Parker Cann, Director of Credit Unions
Date:  March 21, 2001

Introduction

The Division has prepared this SBEIS in compliance with Chapter 19.85 of the Revised Code of Washington (RCW), the Regulatory Fairness Act (RFA).  The Preproposal Statement of Inquiry (form CR-101) in connection with the proposed rule was filed at WSR 01-03-146.

Background For Proposed Rule

State credit unions pay assessments and fees to the Division of Credit Unions to pay for the operation of the Division and to establish a reserve for the Division.  RCW 31.12.516.  For the most part, the Division is funded by quarterly assessments based on asset size.  WAC 208-418-040.  The Division also charges miscellaneous fees for, among other things, the processing of community field of membership applications.  WAC 208-418-070.

The Division needs significant additional revenues to pay the cost of its operation and to maintain its reserve.  Under state law, the Division cannot increase its assessment and fee rates in any one fiscal year by more than the “fiscal growth factor” for the year.  The fiscal growth factor for the current fiscal year is 2.87%.  In order to generate significant additional revenues, the proposed rule provides for an immediate increase of 2.87% in the rate of assessments and fees, and provides for an annual increase every July 1 up to the amount of the fiscal growth factor for that fiscal year.  The rule also provides that assessments and fees may be waived if certain conditions are met.

Other technical changes are made by the rule concerning assessments and fees paid by out-of-state and foreign credit unions operating a branch in Washington.

Description Of Proposed Rule

The proposed rule:

·Increases assessment and fee rates by 2.87%, effective in June 2001.

·Provides for the increase of assessment and fees rates on July 1, 2001, and every July 1 thereafter, up to the amount of the then current fiscal growth factor.

·Provides for a waiver of assessments and fees, if certain conditions are met.

·Clarifies assessment of out-of-state and foreign credit unions.

REQUIRED ELEMENTS OF SBEIS

The elements of the SBEIS required by the RFA are set forth below.

ELEMENT 1.  A brief description of the reporting, record keeping, and other compliance requirements of the proposed rule and the kinds of professional services that a small business is likely to need in order to comply with the requirements.

RESPONSE:

The only substantive change in the proposed rule is the increase in fee and assessment rates paid by credit unions.  See “Description of Proposed Rule” above for a brief description of the requirements of the proposed rule.  The proposed rule does not change the reporting, recordkeeping or compliance requirements of the current rule, or the kinds of professional services that a small business is likely to need to comply with the proposed rule.

ELEMENT 2.  An analysis of the costs of compliance for identified industries, including costs of equipment, supplies, labor and increased administrative costs.

RESPONSE:

The proposed rule increases assessment and fees rates and provides for an automatic annual increase in such rates.  The proposed rule should not increase any of the compliance costs associated with the payment of such assessments or fees, including costs for equipment, supplies, labor, or other administrative costs.

ELEMENT 3.  Whether compliance with the proposed rule will cause business to lose sales or revenue.

RESPONSE:

The annual increases will be fairly small.  The reason is that the annual rate increases are limited to the amount of the fiscal growth factor (FGF), and the FGF is currently running less than 3%.  Consequently, it is very doubtful that the increase in cost will prevent or delay credit unions from bringing new products or services to market or cause them to lose market share.

ELEMENT 4.  A comparison of the compliance costs for the small business segment and large business segment of the affected industry(ies), and whether the impact on the small business segment is disproportionate.

RESPONSE:

Under the proposed rule, all assessment and fee rates are increased by the fiscal growth factor, so all credit unions, regardless of size, will face the same percentage increase in their assessments or fees.  Any existing disproportionality in assessment or fee rates will be maintained, but no additional disproportionality will be introduced.

ELEMENT 5.  Steps taken by the agency under RCW 19.85.030(3) to reduce the costs of the proposed rule on small businesses, or reasonable justification for not doing so, addressing the specified mitigation steps.

RESPONSE:

We have reviewed the six steps under RCW 19.85.030(3)(a) through (f).  Our analysis is as follows:

(a) Reducing, modifying, or eliminating substantive regulatory requirements

We believe that the proposed rule is necessary to ensure that the Division has sufficient funds to operate and is, in the final analysis, necessary to ensure the safety and soundness of credit unions, regardless of size.  Consequently, we believe that the rule’s requirements should not be reduced for small credit unions.

(b) Simplifying, reducing, or eliminating recordkeeping and reporting requirements

The proposed rule does not increase recordkeeping or reporting requirements.

(c) Reducing the frequency of inspections

The proposed rule does not provide for inspections.

(d) Delaying compliance timetables

The proposed rule does not change the timing of payment of assessments and fees.

(e) Reducing or modifying fine schedules for noncompliance

The proposed rule does not impose new fine schedules.

(f) Any other mitigation techniques.

We are not aware of other mitigation techniques.  However, we welcome comments from small credit unions on how to make the proposed rule less onerous for them.

Consequently, as discussed above, we do not believe that it is legal or feasible to reduce the costs of the proposed rule on small businesses.

ELEMENT 6.  A description of how the agency will involve small business in the development of the proposed rule.

RESPONSE:

All credit unions, including smaller credit unions, will be provided with a copy of the proposed rule and an opportunity to provide comment on the proposal.  Credit unions are encouraged to contact the Division to comment on the rule.  Small credit unions in particular are welcome to provide comments on how the rule could be made less onerous for them.

ELEMENT 7.  A list of the industry(ies) affected by the proposed rule.

RESPONSE:

The industry affected by the proposed rule is state credit unions, standard industrial classification 6062.


 

DCU Bulletin

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

April 9, 2001  
No. B-01-08

Correction to Bulletin No. B-01-07
(Hearing on Proposed Rule to Increase Assessments)

On March 26, 2001, we distributed Bulletin No. B-01-07 to advise you that we filed a form CR-102 concerning a proposed rule change to increase assessments and fees charged by the Division.  The adoption date of the proposed rule was incorrectly stated as June 4, 2001.  Please note that the adoption date in the published CR-102 is May 1, 2001.

In addition, in the second paragraph of the Bulletin, we noted that the hearing on the MBL rule will be May 1, 2001.  The Bulletin should have stated that the hearing on the proposed rule to increase assessments and fees will be May 1, 2001.

We regret any inconvenience these errors may have caused.


 

DCU Bulletin

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

May 7, 2001  
No. B-01-09

Division Adopts Final Rule on
Member Business Loans

On May 1, the Division adopted its final rule on member business loans (MBL), adding a new Chapter 208-460 WAC to its rules.  Enclosed is a copy of the CR-103 filed with the Code Reviser for this purpose, which includes the final version of the rule.  The rule takes effect on June 1, 2001.  From that date forward, Washington state-chartered credit unions will be subject to the Division’s MBL rule and not the NCUA’s MBL rule (Part 723 of NCUA rules).

Summary of Division’s final MBL rule
In general, the rule:

Also enclosed is a copy of the Division’s summary of the major differences between the Division’s MBL rule and the NCUA’s MBL rule.

Contact person at the Division on the rule:

Parker Cann, Director of Credit Unions
(360) 902-8778
pcann@dfi.wa.gov


RULE-MAKING ORDER
(RCW 34.05.360)


CR-103 (12/31/00)

Agency:   Department of Financial Institutions

x Permanent Rule

p Emergency Rule

(1)   Date of adoption:   May 1, 2001

p Expedited Repeal

(2)   Purpose:  To adopt a new rule on member business loans made by Washington State-chartered credit unions.

(3)   Citation of existing rules affected by this order:

Repealed:
Amended:
Suspended:

(4)   Statutory authority for adoption:              RCW 31.12.426(1), RCW 31.12.516(2), RCW 43.320.040

          Other Authority:    

PERMANENT RULE ONLY (Including EXPEDITED ADOPTION)

Adopted under notice filed as WSR  01-05-072 on February 15, 2001 (date).

Describe any changes other than editing from proposed to adopted version:     

EMERGENCY RULE ONLY

Under RCW 34.05.350 the agency for good cause finds:

p (a) That immediate adoption, amendment, or repeal of a rule is necessary for the preservation of the public health, safety, or general welfare, and that observing the time requirements of notice and opportunity to comment upon adoption of a permanent rule would be contrary to the public interest.

p(b) That state or federal law or federal rule or a federal deadline for state receipt of federal funds requires immediate adoption of a rule.

Reasons for this finding:       

EXPEDITED REPEAL ONLY

Under Preproposal Statement of Inquiry filed as WSR       on       (date)

(5.3)   Any other findings required by other provisions of law as precondition to adoption or effectiveness of rule?

p Yes x  No
If Yes, explain:     
   

(6)Effective date of rule:
Permanent Rules   
x 31 days after filing

p Other (specify) *


Emergency Rules
p Immediately

p Later (specify)    

CODE REVISER USE ONLY

*(If less than 31 days after filing, specific
finding in 5.3 under RCW 34.05.380(3) is required)

Name (Type or Print)
John L. Bley

Signature

Title
Director

Date
May 1, 2001

Note: If any category is left blank, it will be calculated as zero.
No descriptive text.

Count by whole WAC sections only, from the WAC number through the history note.
A section may be counted in more than one category.

 


The number of sections adopted in order to comply with:

 

Federal statute: New 0 Amended 0 Repealed 0
Federal rules or standards: New 0 Amended 0 Repealed 0
Recently enacted state statutes: New 0 Amended 0 Repealed 0

    The number of sections adopted at the request of nongovernmental entity:
New 0 Amended 0 Repealed 0

The number of sections adopted on the agency’s own initiative:
New 17 Amended 0 Repealed 0

The number of sections adopted in order to clarify, streamline, or reform agency procedures:
New 0 Amended 0 Repealed 0
The number of sections adopted using:
Negotiated rule making: New 0 Amended 0 Repealed 0
Pilot rule making: New 0 Amended 0 Repealed 0
Other alternative rule making: New 0 Amended 0 Repealed 0

 

Chapter 208-460 WAC

MEMBER BUSINESS LOANS

NEW SECTION

WAC 208-460-010  What is a member business loan?

  1. Definition of MBL.  "Member business loan" or "MBL" includes any loan, line of credit, letter of credit, or any unfunded commitment to make a loan, where the borrower intends to use the proceeds for any of the following purposes:
  1. Commercial;
  2. Corporate;
  3. Investment property;
  4. Business venture; or
  5. Agricultural.
  1. Exemptions.  The following are not member business loans:
  1. A business purpose loan fully secured by a lien on a one to four family dwelling that is the member's primary residence;
  2. A business purpose loan fully secured by shares or deposits in the credit union making the extension of credit or in other credit unions, or by deposits in other financial institutions;
  3. One or more business purpose loans to a member or any associated member which in the aggregate do not exceed the amount of 49,999 dollars.  The entire amount of such a loan that exceeds this figure, or that causes the aggregate to exceed this figure, is a MBL;
  4. A business purpose loan where a federal or state agency (or any political subdivision of a state) fully insures repayment, or fully guarantees repayment, or provides an advance commitment to purchase in full; or
  5. A loan granted by a corporate credit union to another credit union.
  1. Other definitions.  Certain other terms used in this chapter are defined in WAC 208-460-170.

NEW SECTION

WAC 208-460-020  What member business loans are prohibited?

  1. Who is ineligible to receive a member business loan?  You may not grant a member business loan to the following:
  1. Your chief executive officer (typically this individual holds the title of president or treasurer/manager);
  2. Any assistant chief executive officers (e.g., assistant president, vice-president, or assistant treasurer/manager);
  3. Your chief financial officer (comptroller); or
  4. Any associated member or immediate family member of anyone listed in (a) through (c) of this subsection.
  1. Equity agreements/joint ventures.  You may not grant a member business loan if any additional income received by the credit union or senior management employees is tied to the profit or sale of the business or commercial endeavor for which the loan is made.
  2. Loans to directors.  A credit union may not grant a member business loan to a director unless the board of directors approves granting the loan and the director is recused from the decision-making process.

 

NEW SECTION

WAC 208-460-030  What are the requirements for MBL development and construction lending?  Unless the director grants a waiver, a credit union that makes MBL development or construction loans is subject to the following requirements:

  1. The aggregate of all such loans may not exceed fifteen percent of net worth.  To determine the aggregate, you may exclude any portion of a loan that is:
  1. Secured by shares or deposits in the credit union making the extension of credit or in other credit unions, and by deposits in other financial institutions; or
  2. Insured or guaranteed, or subject to an advance commitment to purchase, by any federal or state agency (or any political subdivision of a state);
  1. The borrower on such loans must have a minimum of:
  1. Thirty percent equity interest in the project being financed if the loan is for land development; and
  2. Twenty-five percent equity interest in the project being financed if the loan is for construction or for a combination of development and construction;
  1. The funds for such loans may be released only after on-site inspections, documented in writing, by qualified personnel and according to a preapproved draw schedule and any other conditions as set forth in the loan documentation; and
  2. The credit union may not make such loans unless it utilizes the services of an individual with at least five years direct experience in development and construction lending.

NEW SECTION

WAC 208-460-040  How do you implement a member business loan program? The board of directors must adopt specific member business loan policies and review them at least annually.  The credit union must utilize the services of an individual with at least two years direct experience with the type of lending the credit union will be engaging in, except as required by WAC 208-460-030(4).

Credit unions do not have to hire staff to meet the requirements of this section; however, credit unions must ensure that the expertise is available.  A credit union can meet the experience requirement through various approaches.  For example, a credit union can use the services of a credit union service organization, an employee of another credit union, an independent contractor, or other third parties.  However, the actual decision to grant a loan must reside with the credit union.

NEW SECTION

WAC 208-460-050  What must your member business loan policy address?  At a minimum, your member business loan policy must address the following:

  1. The maximum amount of your assets, in relation to net worth, that you will invest in a given type of MBL;
  2. The maximum amount of your assets, in relation to net worth, that you will loan to a member or associated members, subject to WAC 208-460-070;
  3. The qualifications and experience of personnel (minimum of two years) involved in making and administering the loans;
  4. A requirement for analysis and documentation of the ability of the borrower to repay the loan;
  5. Receipt and periodic updating of financial statements and other documentation, including tax returns;
  6. Documentation sufficient to support each request to extend credit, or increase an existing loan or line of credit, except where the board of directors finds that the required documentation is not generally available for a particular type of loan and states the reasons for those findings in the credit union's written policy.  At a minimum, the documentation must include the following:
  1. Collateral requirements, including:
  1. The interest rates and maturities of the loans;
  2. General MBL procedures which include:
  1. Loan monitoring;
  2. Servicing and follow-up; and
  3. Collection;
  1. Identification of those individuals prohibited from receiving member business loans; and
  2. Guidelines for purchase and sale of member business loans and loan participations, if the credit union engages in that activity.

The division recognizes that all of the provisions of the policy may not apply to every MBL.

 

NEW SECTION

WAC 208-460-060  What are the collateral and security requirements?Unless the director grants a waiver:

  1. All member business loans must be secured by collateral in accordance with this section, except the following:
  1. A credit card line of credit granted to nonnatural persons that is limited to routine purposes normally made available under such lines of credit; and
  2. A loan made by a credit union where the loan and the credit union meet each of the following criteria:
  1. The amount of the loan does not exceed one hundred thousand dollars;
  2. The aggregate of unsecured MBL under (b) of this subsection does not exceed ten percent of the credit union's net worth;
  3. The credit union has a net worth of at least seven percent; and
  4. The credit union submits reports to the division of credit unions with its NCUA 5300 reports, providing figures and other detail as may be requested by the director to demonstrate compliance with (b) of this subsection;
  1. In the case of a member business loan secured by collateral on which the credit union will have a first lien, you may grant the loan with a LTV ratio in excess of eighty percent only where the value in excess of eighty percent is:

Covered through acquisition of private mortgage or equivalent type insurance provided by an insurer acceptable to the credit union; or

Insured or guaranteed, or subject to advance commitment to purchase, by any federal or state agency (or any political subdivision of a state).

In no case may the LTV ratio exceed ninety-five percent;

  1. In the case of a member business loan secured by collateral on which the credit union will have a second or lesser priority lien, you may not grant the loan with a LTV ratio in excess of eighty percent; and
  2. In the case of member business loans secured by the same collateral:
  1. On which the credit union will have a first lien as well as other lesser priority liens, you may grant the loans with a LTV ratio in excess of eighty percent only if subsection (2)(a) or (b) of this section is satisfied.  In no case may the LTV ratio exceed ninety-five percent; and
  2. On which the credit union will have lesser priority liens but no first lien, you may not grant the loans with a LTV ratio in excess of eighty percent

 

NEW SECTION

WAC 208-460-080  How do you calculate the aggregate fifteen percent limit?

  1. Step 1.  Calculate the numerator by adding together the amount of the member business loans to the member and  associated members (if any).  From this amount, subtract any portion:
  1. Secured by shares or deposits in the credit union making the extension of credit or in other credit unions, or by deposits in other financial institutions; or
  2. insured or guaranteed, or subject to an advance commitment to purchase, by any federal or state agency (or any political subdivision of a state).

Step 2.  Divide the numerator by net worth.

NEW SECTION

WAC 208-460-090  What waivers are available?

You may seek a waiver for a type of member business loan in the following areas:

  1. Development and construction loan requirements under WAC 208-460-030;
  2. Loan-to-value ratios under WAC 208-460-060;

  3. Maximum loan amount to a member or associated members under WAC 208-460-070; and
  4. Appraisal requirements under Section 722.3 of NCUA rules.

NEW SECTION

WAC 208-460-100  How do you obtain a waiver?

  1. To obtain a waiver under WAC 208-460-090, a credit union must submit its request to the director.  The waiver request must contain the following:
  1. A copy of your member business loan policy;
  2. The higher limit sought (if applicable);
  3. An explanation of the need to raise the limit (if applicable);
  4. Documentation supporting your ability to manage this activity; and

An analysis of the credit union's prior experience making member business loans, including, as a minimum:

  1. The history of loan losses and loan delinquency;
  2. Volume and cyclical or seasonal patterns;
  3. Diversification;
  4. Concentrations of credit to a member and associated members in excess of fifteen percent of net worth;
  5. Underwriting standards and practices;
  6. Types of loans grouped by purpose and collateral; and
  7. The qualifications of personnel responsible for underwriting and administering member business loans.
  1. The director will:
  1. Review the information you provided in your request;
  2. Evaluate the level of risk to your credit union;
  3. Consider your credit union's historical CAMEL composite and component ratings;
  4. Notify you whenever your waiver request is deemed complete; and
  5. Notify you of the action taken within forty-five calendar days of receiving a complete request. 
  1. In connection with a waiver request under WAC 208-460-090 (1) through (3):
  1. The director will provide a copy of the waiver request to Region VI of the NCUA and will consult and seek to work cooperatively with Region VI in making his or her decision on the request;
  2. The waiver is not effective until the director approves it;
  3. If you do not receive notification within forty-five calendar days after the date the complete request was received by the director, the waiver request is deemed approved by the director; and
  4. The director will promptly notify Region VI of the NCUA of his or her decision on the request.
  1. In connection with a waiver request under WAC 208-460-090(4):
  1. If the director approves the request, the director will promptly forward the request to Region VI of the NCUA for decision under NCUA rules at 12 C.F.R. 723.12;
  2. The waiver is not effective until the regional director of the NCUA approves it in accordance with NCUA rules at 12 C.F.R. 723.12; and
  3. The credit union may appeal the regional director's decision in accordance with NCUA rules at 12 C.F.R. 723.13

NEW SECTION

WAC 208-460-110  How do I classify member business loans so as to reserve for potential losses?  Nondelinquent member business loans may be classified based on factors such as the adequacy of analysis and supporting documentation.  You must classify potential loss loans as either substandard, doubtful, or loss.  The criteria for determining the classification of loans are:

  1. Substandard.  A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  The loan must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  It is characterized by the distinct possibility that the credit union will sustain some loss if the deficiency is not corrected.  Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard;
  2. Doubtful.  A loan classified doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined.  Pending factors include: Proposed merger, acquisition, or liquidation actions; capital injection; perfecting liens on collateral; and refinancing plans; and
  3. Loss.  A loan classified loss is considered uncollectible and of such little value that its continuance as a loan is not warranted.  This classification does not necessarily mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future.

NEW SECTION

WAC 208-460-120  How much must I reserve for potential losses?  The following schedule sets the minimum amount you must reserve for classified member business loans:

Classification Amount Required
Substandard 10% of outstanding balance unless other factors (for example, history of such loans at the credit union) indicate a greater or lesser amount is appropriate.
Doubtful 50% of the outstanding balance.
Loss 100% of the outstanding balance.

NEW SECTION

WAC 208-460-130  What is the aggregate member business loan limit?  The aggregate limit on the amount of a credit union's member business loans is the lesser of:

  1. One and three quarters times the credit union's net worth; or
  2. Twelve and one quarter percent of the credit union's total assets.

NEW SECTION

WAC 208-460-140  Are there any exceptions to the aggregate MBL limit?

  1. Credit unions that meet any one of the following four criteria qualify for an exception from the aggregate member business loan limit in WAC 208-460-130:
  1. Credit unions that have a low-income designation;
  2. Credit unions that participate in the Community Development Financial Institutions program;
  3. Credit unions that are chartered for the purpose of making member business loans, as supported by documentary evidence, such as the credit union's charter, bylaws, business plan, field of membership, board minutes and loan portfolio; and
  4. Credit unions that have a recent history of primarily making member business loans, established by the fact that the outstanding balance of member business loans comprises:
  1. At least twenty-five percent of the outstanding balance of the credit union's loans; or
  2. The largest portion of the outstanding balance of the credit union's loans.

Such facts must be evidenced in an NCUA call report or any equivalent documentation, such as financial statements, for a period within two years before the date of application.  For example, a credit union qualifies for the exception under (d)(ii) of this subsection if, based on the outstanding balance of a credit union's loans, the credit union's loan portfolio is comprised of twenty-three percent member business loans, twenty-two percent first mortgage loans, twenty-two percent new automobile loans, twenty percent credit card loans, and thirteen percent total other real estate loans.

  1. Unless the director gives his or her prior consent, a credit union granted an exception from the aggregate MBL limit may not make MBL in excess of the greater of:
  1. Twelve and one quarter percent of the credit union's total assets; or
  2. Three times the credit union's net worth.

NEW SECTION

WAC 208-460-150  How do I obtain an exception?

  1. The exception under WAC 208-460-140 (1)(a) and (b) is effective upon written notice to the director of such designation or participation.
  2. To obtain an exception under WAC 208-460-140 (1)(c) or (d), a credit union must submit its request to the director.  An exception is not effective until it is approved by the director.  The exception request must include documentation demonstrating that the credit union meets the criteria for one of the exceptions.  The exception does not expire unless revoked for safety and soundness reasons by the director.
  3. The director will promptly notify Region VI of the NCUA of his or her decision on the request.

NEW SECTION

WAC 208-460-160  What are the recordkeeping requirements?  You must separately identify member business loans in your records and in the aggregate on your financial reports.

 

NEW SECTION

WAC 208-460-170  Definitions.  For purposes of this chapter, the following definitions apply:

  1. The "amount" of a MBL includes:
  1. Any unfunded commitment to make the loan;
  2. The outstanding balance of the loan; and
  3. Any undisbursed proceeds of the loan.
  1. A person is "associated" with another if they have a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor.
  2. A "business purpose" loan means a loan where the borrower intends to use the proceeds for any of the purposes listed in WAC 208-460-010(1).
  3.  "Development or construction loan" is a financing arrangement for acquiring real property or rights to real property, including land or structures, with the intent to develop or improve it for:
  1. Residential housing for sale;
  2. Income property;
  3. Commercial use;
  4. Industrial use; or
  5. Similar uses.
  1. "Immediate family member" is a spouse or other family member living in the same household.

  2. "Loan-to-value ratio" or "LTV ratio" is derived by dividing:

  1. The amount of all member business loans by the credit union and loans by other lenders secured by an item of collateral, by
  2. The market value of the item of collateral.
  1. "Member business loan" or "MBL" is defined in WAC 208-460-010.
  2. "NCUA" means the National Credit Union Administration.
  3. "Net worth" is retained earnings as defined under Generally Accepted Accounting Principles.  Retained earnings normally includes undivided earnings, regular reserves and any other appropriations designated by management or regulatory authorities.  Net worth does not include the allowance for loan and lease losses.

Summary of Major Differences
Between Washington’s MBL Rule
(As Approved by NCUA Board)
and
NCUA’s MBL Rule

To::      Washington Credit Unions
From:  Parker Cann, Director of Credit Unions
Date:   February 22, 2001
 

1. Definition of MBL clarified

Section 208-460-010(1)

One of the key components of an MBL has been slightly changed here - from how the borrower “uses” the proceeds for specified purposes to how the borrower “intends to use” the proceeds for such purposes.  I expect that this more closely reflects reality - that most credit unions actually look at what the borrower says he/she/it intends to do with the proceeds rather than monitoring the use of proceeds to determine after the fact whether they were actually used for business purposes.

2. Exemption from MBL definition clarified

Section 208-460-010(2)

The exemptions here should apply only to loans for commercial, corporate, etc. purposes (what the rule refers to as “business purpose” loans).  Otherwise the loans would not need an exemption.  Wording has been added to (2) to clarify this issue.  “Business purpose” is defined in the definitional section at the end

In addition, the changes make it clearer that a credit union must aggregate all business purpose loans to member A with any individual business purpose loans to other members who are associated with member A in order to determine if the business purpose loans exceed the $49,999 threshold

In some places, the NCUA MBL rule refers to the “outstanding balance” of an MBL and in some places it refers to the “outstanding balance including unfunded commitments.”  In order to clarify this issue, the rule identifies the outstanding balance and unfunded commitments as the “amount” of an MBL, to distinguish it from the “outstanding balance” of an MBL.  A definition has been added in the definitional section for the “amount” of an MBL.  In the context of this section - exemptions from the definition of MBL – it is appropriate to use the “amount” concept, and the changes so provide.

The sentence added at the end of paragraph (2)(c) incorporates an NCUA interpretation.

3. Restrictions on MBL to directors expanded

Section 208-460-020(3)

It is more appropriate for these requirements to apply to MBL to all directors, not just MBL to compensated directors, and the changes reflect this.  Consequently, the Washington rule is more restrictive in this respect than the NCUA rule.

4. Regulatory decision-maker on waivers changed

Section 208-460-030(1)

DFI’s Director is named in the rule as the decision-making regulator on MBL waivers, instead of NCUA’s Regional Director. (As you know, the DFI Director has delegated such authority to the Director of Credit Unions.)  The one exception here is on waivers of the NCUA’s appraisal requirements in 722.3 – the decision-maker remains NCUA’s Regional Director.  Consequently, except for an appraisal waiver request, all requests will be approved/disapproved by the Division after consulting with NCUA’s Region VI on the request.  See also 208-460-090 and -100.

In regard to existing waivers, the Division has determined to grandfather MBL waivers previously granted by the NCUA, to the extent that they are still operative.  Some may not be operative, in whole or in part, because the Division’s MBL rule is less restrictive in certain respects than the NCUA’s MBL rule.

5. Required equity on development/construction loans decreased; required experience increased

Section 208-460-030(2), (4)

The rule reduces the minimum required equity from 35% to 30% for land development loans and from 35% to 25% for construction or combination development/construction loans.  We view these equity requirements as LTV requirements.

As an offset to these changes, the rule increases the experience requirement from 2 to 5 years of direct experience with development/construction lending, for credit unions that do this type of lending.  Consequently, the Washington rule is more restrictive in this respect than the NCUA rule.

6. Requirement for individual with direct experience on MBL clarified

Section 208-460-040

The rule has been changed to reflect that the MBL-experienced person is working for the credit union, not necessarily the Board of Directors.

The exception added at the end of the second sentence refers to the requirement in the prior section that if the credit union does development and construction lending, it must utilize a person with more than 5 years direct experience in this type of lending.

7. Reference to “category or type” of MBL clarified

Section 208-460-050

In some places the NCUA rule uses “category or type” and in some places it uses one word, either “category” or “type.”  To avoid confusion, the rule uses “type” in these situations throughout the rule.

8. Requirement for MBL policies clarified

Section 208-460-050(14)

This subsection was added to require credit unions to adopt policies on MBL participations if they engage in that activity.  In addition, a sentence was added at the end of the section as a regulatory recognition that every provision of the policy may not apply to every MBL.

9. New type of unsecured MBL allowed

Section 208-460-060(1)(b)

A new exception was added in paragraph (1)(b) to allow unsecured loans that individually do not exceed $100,000 and that in the aggregate do not exceed 10% of net worth.  The credit union cannot make such loans if its net worth is below 7%.  Credit unions making this type of MBL (referred to below as (1)(b) loans) must file supplemental reports with their 5300s to demonstrate compliance with the requirements of (1)(b).

The supplemental reports should include relevant figures for (1)(b) loans, including, as of the end of the reporting period:

  1. The number of these loans outstanding
  2. The aggregate commitment amount for these loans
  3. B/A
  4. PCA net worth
  5. B/D expressed as a percentage
  6. Delinquency on these loans
  7. Charge-offs YTD on these loans

The reports will be due with 5300s, starting with the 5300 for the second quarter of 2001.  Credit unions do not need to file the reports if they do not have any (1)(b) loans outstanding.  The reports may be in a letter format.

The first exception in 208-460-060(1)(a) is merely a restatement of the existing exception for credit card LOCs in the NCUA rule.

10. Minimum LTV ratios clarified

Section 208-460-060(2), (3), (4)

The NCUA rule uses a matrix to set forth loan-to-value requirements.  I felt that the matrix was confusing and have restated the LTV requirements of the matrix in the narrative in subsections (2), (3) and (4).  I did not intend to change the effect of these LTV requirements – only to restate them in more understandable form.

Subsection (2) deals with a first lien only situation; (3) deals with a second (or lesser) priority lien only situation; (4) deals with multiple priority liens on the same collateral.

11. Personal guarantee requirement eliminated

Section 208-460-060

The personal guarantee requirement has been deleted in its entirety

12. The term “associated members” clarified

Section 208-460-070

Use of the term “group of associated members” was somewhat confusing in the NCUA’s MBL rule.  It appears that the purpose of the NCUA provision is to apply the MBL-to-one-borrower limit to the aggregate of a member’s MBL and any MBL to individuals who are associated with the member.  I believe it is clearer to refer to MBL to “associated members” rather than MBL to a “group of associated members” in this respect and the rule has been so changed.  The latter wording implies that only MBL to the group or entity of associated members would be aggregated with the member’s MBL.

13. Aggregate state MBL limit added

Section 208-460-140(2)

Wording was added to establish a state MBL limit - 3 times net worth - for those credit unions excepted from CUMAA’s aggregate MBL limits.  Such a restriction does not exist in the NCUA’s MBL rule.  Consequently, the Washington MBL rule is more restrictive in this respect than the NCUA rule.

14. Aggregate limit exception for LICUs and CDCUs made automatic

Section 208-460-150(1)

The exception for LICUs and Community Development Credit Unions is automatic with notice to DFI’s Director.

15. Definitions added, clarified

Section 208-460-170

New definitions were added to:

Clarify the “amount” of an MBL

Define “business purpose”

Clarify “development or construction loan”

Clarify “loan-to-value ratio”

Clarify when one person is “associated” with another


 

DCU Bulletin

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

May 3, 2001 
No. B-01-10

Distribution of Division Opinions;
List of Division Opinions
Issued in 1999 and 2000

As you are probably aware, the Division issues written opinions from time to time.  We place the opinions on our web site, at www.dfi.wa.gov/cu, soon after they are issued.

The Division is happy to provide “redacted” copies of the opinions upon request.  Please call or fax your request to Diane Moye at one of the numbers listed above.

In order to notify credit unions and other interested parties more generally about the issuance of our opinions, each January we will publish a Bulletin with a list of new opinions issued in the prior year.

For your convenience, a list of opinions issued in 1999 and 2000 follows.

DCU 1999 Opinions List

Number Subject Date
O-99-1 Board Member Health Insurance March 16, 1999
O-99-2 Approval of CUMIS Corporate Credit Union Bond 150 October 4, 1999
O-99-3 Once a Member, Always a Member November 30, 1999
O-99-4 Family Members of Primary Members May Join Credit Union Even Though Primary Member Ceases To Be Part of FOM Group November 30, 1999

 

DCU 2000 Opinions List

Number Subject Date
O-00-1 "Spouses" as Used in RCW 31.12.365(2) includes Spousal Equivalents such as Domestic Partner March 31, 2000
O-00-2 State Credit Unions Can Convert or Merge Into State Mutual Savings March 31, 2000
O-00-3 Credit Unions May Accept Deposits from Nonmember Credit April 14, 2000
O-00-4 Corporate Governance October 24, 2000

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