Washington State Department of Financial Institutions

DIVISION OF CREDIT UNIONS

BULLETINS 2002

 

DCU Bulletin

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

January 18, 2002  
No. B-02-01

List of Division Opinions Issued in 2001

From time to time, the Division issues written opinions in response to questions about how a statute or rule should be applied to a particular factual situation.  In order to make these opinions available generally to credit unions, we will publish a list of new opinions twice a year.  The Division will provide “redacted” copies of the opinions upon request.  Enclosed is a list of opinions issued in 2001.  Opinions are also available on our web site at www.dfi.wa.gov/cu

Please be aware that the opinions are limited to their facts; we may reach a different conclusion if presented with different facts or conditions.

Please call or fax your request to Diane Moye (at the Division office at the numbers above) if you would like a copy of an opinion from the enclosed list.

DCU 2001 Opinions List

Number

Subject

Date

O-01-1 State Credit Unions May Issue Shares to and Receive Deposits from Members in the Form of Revocable Living Trust Accounts January 16, 2001
O-01-2 A State Credit Union May Accept Federal Public Funds, But May not Accept State Public Funds February 13, 2001
O-01-3 Summary of Major Differences Between Washington’s MBL Rule (As Approved by NCUA Board) and NCUA’s MBL Rule February 22, 2001
O-01-4 Credit Unions May Use Electronic Voting Methods To Elect Directors and Supervisory Committee Members, As Permitted By Their Bylaws May 24, 2001
O-01-5 Bond Coverage Which Meets Minimums Established in NCUA Rules Is Generally Adequate Under Washington State Credit Union Act June 4, 2001
O-01-6 #1 Non-US Citizens In A Credit Union’s Field of Membership May Join The Credit Union #2 Credit Union CUSOs May Serve Non-Member IRnet Customers, Subject to RCW 31.12.436(8) August 3, 2001
O-01-7 Summary of HB 1366 (Chapter 83, Laws of 2001), Effective July 22, 2001 September 19, 2001
O-01-8 Credit Unions Possess Incidental Powers through Two Sources -
  1. The State Parity Provision (RCW 31.12.404); and
  2. The State Incidental Powers Provision (RCW 31.12.402(23))
November 2, 2001

 

DCU Bulletin

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

January 24, 2002  
No. B-02-02

New Reporting Requirement

The Division’s new Member Business Loan ((MBL) rule allows a new category of unsecured MBL.  See WAC 208-460-060(1)(b).  The new MBL rule allows unsecured MBLs that individually do not exceed $100,000 and that in total do not exceed 10% of net worth.  A credit union cannot make such loans if its net worth ratio is below 7%.  These loans are referred to below as Subsection (1)(b) MBLs.

This Bulletin applies only to those credit unions that have made Subsection (1)(b) MBLs. 

Reporting Requirement
Each credit union that has made Subsection (1)(b) MBLs must complete and submit the attached MBL Report with its 5300 Call Report to the Division.  WAC 208-460-060(1)(b)(iv).  The MBL Report will help to assure the Division that credit unions are in compliance with Subsection (1)(b).

Credit unions do not need to submit the MBL Report if they do not have any Subsection (1)(b) MBLs.

If you have questions about the requirements for reporting supplemental information on Subsection (1)(b) MBLs, please call Doug Lacy-Roberts at (360) 902-0507.

MBL Report

Unsecured Member Business Loans under WAC 208-460-060(1)(b)

[Due to the Division of Credit Unions at the same time 5300 Call Reports are due]

A. Credit Union Date

B. Submitted by Phone number

C. Signature

 

D. In connection with our Call Report for the period ending:

E. Number of Subsection (1)(b) MBLs outstanding:

F. The aggregate amount of Subsection (1)(b) MBLs (balances plus commitments):  $

G. The average amount of Subsection (1)(b) MBLs [F/E]:  $

H. The credit union’s net worth under NCUA’s PCA rules:  $

I. The aggregate amount of Subsection (1)(b) MBLs as a percentage of net worth [F/H]: %

J. The percentage of Subsection (1)(b) MBLs more than 60 days delinquent%

K. Total charge-offs on Subsection (1)(b) MBLs for the calendar year-to-date:  $
 


 

DCU Bulletin

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

February 13, 2002  
No. B-02-03

 

New FOM Rules
On February 5, 2002, the Division finalized the changes to its field of membership (FOM) rules.  Enclosed is a copy of the CR-103 form that the Division filed with the Code Reviser for this purpose.

The new FOM rules will take effect on March 8, 2002.

Technical Assistance Sessions
The Division has scheduled the following sessions to explain how to comply with the new FOM rules:

March 12, 2002 Yakima Catholic Credit Union 1:00 - 3:00 p.m.
March 19, 2002 Spokane Numerica Credit Union 10:00 a.m. - Noon
March 28, 2002 Federal Way Washington CU League 10:00 a.m. - Noon

Please RSVP with the number of attendees to Tina Philippsen at (360) 902-8718 or by e-mail at tphilippsen@dfi.wa.gov by March 4, 2002.

Regulatory Relief for Small Credit Unions
RCW 31.12.516(3) authorizes the Director to adopt rules providing regulatory relief for small credit unions - credit unions with up to $10 million in total assets.  The rules may provide relief from state statutory and regulatory provisions.  The League’s Small Credit Union Task Force made recommendations to the Division last year identifying several provisions that create significant regulatory burdens for small credit unions.

On February 13, 2002, the Division filed a CR-101 form with the Code Reviser to begin the process to adopt rules to provide regulatory relief for small credit unions.  A copy of the CR-101 form is enclosed.  The Division will consider the Task Force’s recommendations through the rule making process.

RULE-MAKING ORDER
(RCW 34.05.360)


CR-103 (7/22/01)

 

Agency:   Department of Financial Institutions

x Permanent Rule
p Emergency Rule

  1. Date of adoption:   February 5, 2002

p Expedited Rule Making

  1. Purpose: To update and streamline the Division’s rules on the addition of groups to a credit union’s field of membership.

 

  1. Citation of existing rules affected by this order:

Repealed: 208-472-012, -041, -045, -050, -060, -065, -070, -075, -080
Amended: 208-472-010, -015, -020, -025                 
Suspended:

  1. Statutory authority for adoption:  RCW 31.12.382; 31.12.516(2), (4); 43.320.040
              Other Authority:                 

PERMANENT RULE ONLY (Including Expedited Rule Making)
Adopted under notice filed as WSR  02-01-103   on 12-17-01 .
Describe any changes other than editing from proposed to adopted version: Based on comments received, the Division changed the rule in its final version to require notice to other credit unions only if the FOM group to be added exceeds 500 persons.  The proposed rule would have required such notice for every FOM group, no matter the size.

EMERGENCY RULE ONLY
           
Under RCW 34.05.350 the agency for good cause finds:

  1. p 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.
  2. p 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:         

  1. (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:           
  1. 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)
Mark Thomson

Signature

Title
Acting 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 2 Amended 4 Repealed 9

The number of sections adopted in order to clarify, streamline, or reform agency procedures:

New 2 Amended 4 Repealed 9

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 208-472 WAC

CREDIT UNION FIELD OF MEMBERSHIP ((EXPANSION))

AMENDATORY SECTION (Amending WSR 96-06-011, filed 2/23/96, effective 6/1/96)

WAC 208-472-010  ((Purpose.)) Authority.  ((This chapter is adopted by the director for the purpose of establishing the application process for a credit union to include in its field of membership a separate group:

(1) With a common bond of occupation or association; or

(2) That constitutes a community.)) A credit union may admit to membership those persons qualified for membership who are within its field of membership as stated in its bylaws.  A credit union may amend its field of membership bylaws to add one or more occupational groups, associational groups and communities to its field of membership, as approved by the director pursuant to this chapter.  The FOM groups may be located inside or outside the state.

The director may waive any provision of this chapter as the director deems appropriate to facilitate credit union service to low and moderate income persons.

In addition to the field of membership powers or authorities reflected in this chapter, a credit union has the field of membership powers and authorities granted pursuant to RCW 31.12.404.

AMENDATORY SECTION (Amending WSR 96-17-070, filed 8/20/96, effective 9/20/96)

WAC 208-472-015  Definitions.  Unless the context clearly requires otherwise, as used in this chapter:

  1. "Affiliate" of an enterprise or organization means a person that controls, is controlled by, or is under common control with, the enterprise or organization.  "Control" means twenty-five percent or greater stock ownership.
  2. (("Common bond of association" means a current, unifying factor among a group of natural persons, that is based on membership in a bona fide organization whose primary purpose is other than providing eligibility for credit union services.  Such an organization must be primarily composed of natural persons who are eligible to participate in the organization's activities.  Such an organization also must have clearly defined membership eligibility and must hold regular meetings at least once each year.
    Matriculating students of an accredited college or university, who are members of an identified organization, other than general members of the applicant's credit union, are deemed to have a common bond of association.  The organization need not satisfy the requirements set forth in the prior paragraph.

"Common bond of occupation" means a current, unifying factor among a group of natural persons that is based on employment by or a work-related relationship with an enterprise.  The group may include only the following categories of persons:

  1. Employees of the enterprise, and their family members;
  2. Employees of any subsidiaries of the enterprise, and their family members;
  3. Employees of the affiliates of the enterprise, and their family members;
  4. Nonemployee officials of the enterprise, and their family members; and
  5. Natural persons under contract to work regularly for the enterprise, and their family members.

Each of these categories may be included if they are separately identified in the credit union's bylaws.

  1. "Community" means a current unifying factor among a group of natural persons, that is based on residence or employment within a well-defined and relatively limited geographic area, with a relatively limited population, that is recognized by those who live or work there as a neighborhood, community, or rural district.
    For example, the city of Seattle and King County do not constitute a community for this purpose, because they do not have a relatively limited population.  On the other hand, the city of Chelan and Chelan school district are within a well-defined and relatively limited geographic area, with a relatively limited population, and may constitute a community if they are recognized by those who live or work there as a neighborhood, community or rural district.  (These examples are based on circumstances existing on December 1, 1994.)
  2. )) "Associational group" is a group with a common bond of association related to membership in an organization, or a portion of such a group.  The organization must satisfy each of the following criteria:
  1. The organization's primary purpose must be other than providing eligibility for credit union services;
  2. The organization's membership must be primarily composed of natural persons; and
  3. The organization's organizational documents must define membership eligibility.

In regard to an associational group within a credit union's FOM bylaws, the credit union may admit to membership:

  1. Members of the organization;
  2. Directors, employees, volunteers and retirees of the organization or its subsidiaries or affiliates;
  3. Natural persons under contract to work for the organization or its subsidiaries or affiliates;
  4. Family members (as determined by the credit union) of any of the above-described natural persons;
  5. The spouse of any of the above-described natural persons if the person qualified for membership at the time of his or her death;
  6. The organization and its subsidiaries and affiliates;
  7. Organizations and enterprises more than half of whose owners, members or employees are eligible to be members of the credit union; and
  8. Other persons approved by the director.

Students of a school, college or university are deemed to be members of an organization that constitutes an associational group.  In regard to such an associational group within a credit union's FOM bylaws, the credit union may admit to membership the students of the school, college or university as well as the family members (as determined by the credit union) of the students.

  1. "CAMEL" means the CAMEL rating system used by the division, or a successor rating system used by the division.
  2. "Community" is a well-defined geographic area that is recognized by those who live or work there as a neighborhood, community, or rural district, or a portion of such an area.

In regard to a community within a credit union's FOM bylaws, the credit union may admit to membership:

  1. Natural persons who live, work, worship or go to school in the community;
  2. Enterprises and organizations that have offices within the community, and natural persons under contract to work for the enterprises or organizations;
  3. Directors, employees, volunteers and retirees of the above-described enterprises or organizations;
  4. Family members (as determined by the credit union) of any of the above-described natural persons;
  5. The spouse of any of the above-described natural persons if the person qualified for membership at the time of his or her death;
  6. Enterprises and organizations more than half of whose owners, members or employees are eligible to be members of the credit union; and
  7. Other persons approved by the director.
  1. "Credit union" means a credit union organized (or chartered) and operating under chapter 31.12 RCW, and an out-of-state or foreign credit union operating in this state in accordance with RCW 31.12.471.
  2. "Director" means the director of ((the Washington state department of)) financial institutions.
  3. (("Number of potential members" means the sum of:
  1. The number of actual members of the applicant credit union; and
  2. The number of employees or members (as appropriate) of the group applied for.
  1. "Required number" means:
  1. If the number of employees or members (as appropriate) of the specified group is two thousand one or more, the required number is at least five percent of the number of these individuals (rounded up to the nearest whole number).
  2. If the number of employees or members (as appropriate) of the specified group is from three hundred thirty to two thousand, the required number is at least one hundred of these individuals.
  3. If the number of employees or members (as appropriate) of the specified group is three hundred twenty-nine or less, the required number is at least thirty percent of the number of these individuals (rounded up to the nearest whole number).)) "Division" means the division of credit unions of the Washington state department of financial institutions.
  1. "FOM" means field of membership.
  2. "FOM groups" includes occupational groups, associational groups and communities.
  3. "Occupational group" is a group with a common bond of occupation related to employment by, or work for, an enterprise, or a portion of such a group.  The group must be primarily composed of natural persons.

In regard to an occupational group within a credit union's FOM bylaws, the credit union may admit to membership:

  1. Employees of the enterprise;
  2. Directors, employees, volunteers and retirees of the enterprise or its subsidiaries or affiliates;
  3. Natural persons under contract to work for the enterprise or its subsidiaries or affiliates;
  4. Family members (as determined by the credit union) of any of the above-described natural persons;
  5. The spouse of any of the above-described natural persons if the person qualified for membership at the time of his or her death;
  6. The enterprise and its subsidiaries and affiliates;
  7. Enterprises and organizations more than half of whose owners, members or employees are eligible to be members of the credit union; and
  8. Other persons approved by the director.
  1. "Primarily" or "primary" means more than one-half.
  2. "Qualified associational group" means an associational group located wholly or partly in the state.  However, if the members of the organization in Washington exceed 6,299, the group will not be considered qualified unless the group is within the FOM bylaws of another credit union or federal credit union.

An associational group that does not satisfy this definition is considered to be a nonqualified associational group.

  1. "Qualified community" means a community in the state that constitutes a:
  1. School district;
  2. City; or
  3. County with a population of no more than 75 people per square mile.

A community that does not satisfy this definition is considered to be a nonqualified community.

  1. "Qualified occupational group" means an occupational group located wholly or partly in the state.  However, if the members of the enterprise in Washington exceed 6,299, the group will not be considered qualified unless it is within the FOM bylaws of another credit union or federal credit union.
    An occupational group that does not satisfy this definition is considered to be a nonqualified occupational group.
  2. "SOG" means a small occupational group added pursuant to a SOG enabling amendment approved by the director prior to  . . . . . . . . (the effective date of the 2002 revisions to this chapter).

AMENDATORY SECTION (Amending WSR 96-17-071, filed 8/20/96, effective 9/20/96

WAC 208-472-020  ((Inclusion of a group with a common bond of occupation.)) FOM bylaws; addition of FOM groups.  ((Except as permitted by WAC 208-472-041, if a credit union wants to include a separate group with a common bond of occupation in its field of membership, it must make application to the director to amend its bylaws in accordance with RCW 31.12.115.  The application must be submitted to the director in duplicate and must include the information as required by WAC 208-472-025.))

  1. General.  Each credit union must keep its FOM bylaws substantially in the form of the model FOM bylaws prescribed by the division.  Credit unions that have not converted to the model FOM bylaws prior to  . . . . . . . . (the effective date of the 2002 revisions to this chapter) must do so by December 31, 2002.  Each credit union must maintain accurate, complete and up-to-date FOM bylaws.
  2. CAMEL 1s and 2s.

A credit union rated a composite CAMEL 1 or 2 by the division:

  1. May add qualified occupational groups, qualified associational groups and qualified communities to its field of membership bylaws if the credit union satisfies each of the following:
  1. If the FOM group has more than 500 employees, members or residents, as applicable, in Washington, the credit union has, before its board of directors approves the amendment, mailed or otherwise provided notice of the addition to each credit union and federal credit union headquartered in the county(ies) in Washington in which the FOM group is primarily located; and
  2. The credit union's board has approved the amendment, which names the underlying enterprise, organization or community, as applicable, and indicates the date that the board approved the amendment.

Additions made in accordance with this subsection (2)(a) are deemed approved by the director; and

  1. May not add nonqualified occupational and associational groups and nonqualified communities to its field of membership bylaws without the prior approval of its board of directors and the prior written approval of the director under WAC 208-472-025.
  1. CAMEL 3s, 4s and 5s.  A credit union rated a composite CAMEL 3, 4 or 5 by the division may not add the following FOM groups to its field of membership bylaws without the prior approval of its board of directors and the prior written approval of the director under WAC 208-472-025:
  1. Occupational groups, except for SOGs;
  2. Associational groups; and
  3. Communities.

In general, the director will not approve:

  1. The addition of a community to a credit union's bylaws if the credit union is rated a composite CAMEL 3 by the division; or
  2. The addition of an occupational or associational group or a community to a credit union's bylaws if the credit union is rated a composite CAMEL 4 or 5 by the division.
  1. Other changes.  A credit union may, upon approval of its board of directors, amend its FOM bylaws to:
  1. Delete exclusionary clauses;
  2. Delete FOM groups that no longer exist;
  3. Delete its SOG enabling amendment;
  4. Revise its SOG enabling amendment to delete the SOG requirements other than the limitation on the number of employees, which is 500 per SOG;
  5. Aggregate communities into a larger community.  For example, if a credit union has added each of the school districts within a county as communities, it may amend its FOM bylaws to designate the county as a community rather than listing each of the school districts as a community; and
  6. Make nonsubstantive changes.

The board may delegate the authority to delete FOM groups that no longer exist.

In amending its FOM bylaws under this subsection (4), other than deletions, the credit union must indicate in its bylaws the date that the board approved the amendment.

  1. A person that is a member of a credit union may continue to be a member even though the person is no longer within the field of membership bylaws of the credit union, subject to the credit union's right to terminate the person's membership.  The family members (as determined by the credit union) of a credit union member continue to be eligible to join the credit union, even though the credit union member is no longer within the FOM bylaws of the credit union.

AMENDATORY SECTION (Amending WSR 96-17-071, filed 8/20/96, effective 9/20/96)

WAC 208-472-025  ((Application to include a separate occupational group.)) Application for addition of FOM groups‑-Approval of director. 

  1. ((The application to include a separate group with a common bond of occupation must include at least the following information:
  1. The name of the applicant credit union;
  2. Evidence that the applicant's board of directors has complied with the notice and voting requirements of RCW 31.12.115;
  3. A description of the enterprise including its name, number of employees, and the geographic location of those employees.  The categories of persons specified in WAC 208-472-015(2) that are included in the group must be separately identified;
  4. A statement from an officer of the enterprise:
  1. That the enterprise desires membership for its employees in the applicant; and
  2. Whether its employees are currently eligible for membership, based upon such employment, in another state or federally chartered credit union.  If the employees of the enterprise are eligible for membership in another credit union based upon such employment, the applicant must make best efforts to provide a statement of non­ob­jec­tion from the other credit union.
  1. In addition, the application must also include the following information if applicable:
  1. If the number of potential members of the applicant exceeds one hundred twenty percent of the number of its actual members, then the following information must also be submitted:
  1. A copy of the applicant's most recent monthly financial statement;
  2. A copy of the applicant's plan or other document demonstrating its ability and intent to provide service to the new group and specific plans relating anticipated growth to capital levels.
  1. If the number of employees of the enterprise exceeds five hundred, then the following must also be submitted:
  1. An analysis whether the group has sufficient size and resources to form a credit union of its own;
  2. Documentation concerning compliance with plans on penetration and service submitted with previously approved applications for inclusion of a group in the applicant's field of membership;
  3. Documentation that the applicant has given written notice to all other credit unions headquartered in this state, both state and federally chartered, that have a staffed office in any county in which the offices of the enterprise are located.  Credit unions entitled to receive the notice will be given twenty days following receipt of the notice to submit to the department any comments on the application.
  1. If the applicant cannot obtain the letter of non­ob­jec­tion described in subsection (1)(d) of this section, after having made a best efforts attempt to do so, it must submit documentation that:
  1. The required number of employees of the enterprise desire membership in the applicant; or
  2. The other credit union has failed to adequately serve the group after a reasonable period of time, and how the applicant plans to improve this service.

The applicant must supply a copy of the information required in (a) and (b) of this subsection to the other credit union, which will be given sixty days following receipt of such information to submit to the department any comments on the overlap.

This subsection (3) does not apply to overlaps arising out of merger-type transactions between enterprises.)) In order to request the approval of the director to add an FOM group to its bylaws under WAC 208-472-020 (2)(b) or (3), a credit union must submit a written application in duplicate to the director.  The application must include the following items, and any other information and materials requested by the director:

  1. The name of the FOM group that the applicant desires to add to its bylaws;
  2. A copy of the resolution of its board of directors approving the bylaws amendment, certified by the board chairperson or secretary;
  3. A detailed description of the FOM group, including, but not limited to, location and number of employees, members or residents, as applicable, with supporting documentation;
  4. An explanation how the FOM group satisfies the definition of such a group in WAC 208-472-015;
  5. If the applicant is applying to add an associational group, an explanation of the qualifications for membership in the organization, and a copy of the organization's organizational documents;
  6. An explanation how the addition of the FOM group will affect the financial condition of the applicant.  In addition, if the applicant is applying for a community, three year pro forma income statements and balance sheets and key ratios (including, but not limited to, return on average assets, net worth, asset growth and share growth);
  7. If the applicant is applying to add a nonqualified occupational or associational group in excess of 6,299 employees or members, as applicable, a reasoned justification why the group does not have sufficient size or resources, including individual and sponsor support, and financial, physical and human resources, to support a viable credit union of its own; and
  8. If the group has more then 500 employees, members, or residents, as applicable, a statement that the applicant has mailed or otherwise provided notice of the application to each credit union and federal credit union headquartered in the county(ies) in Washington in which the FOM group is primarily located.

The director may waive any of the items in this subsection as the director deems appropriate, such as in the case of the addition of FOM groups located wholly out-of-state.

  1. An application filed pursuant to subsection (1) of this section is deemed complete when the director has received all of the information required by subsection (1) of this section.  If an incomplete application is received, the director will give written notice to the applicant no more than thirty days from the date the original application was received that additional information is necessary.  The applicant will be allowed thirty days after receipt of the notice to provide the requested information.  If the applicant fails to do so, the director will return the application and it will be deemed withdrawn.
  2. The director will give the applicant written notice of approval or denial within thirty days after the application is deemed complete.  The director's determination whether to approve an application will be based on consideration of the safety and soundness of the applicant and the applicant's compliance with this chapter.
  3. To add a separate FOM group located wholly out-of-state to its field of membership bylaws, a credit union should first contact the director to determine how to proceed with the application to the director and whether the credit union is required to file an application or notice with the credit union supervisory authority in the other state.

NEW SECTION

WAC 208-472-030  Direct marketing restriction.  A credit union may not conduct direct marketing targeted primarily at the persons in an occupational or associational group unless:

  1. The group was included in the FOM bylaws of the credit union prior to  . . . . . . . . (the effective date of the 2002 revisions to this chapter).  An occupational or associational group is "included" in the FOM bylaws of a credit union if the underlying enterprise or organization, as applicable, is named or within an industry described in the credit union's FOM bylaws.  A group that does not satisfy the prior sentence, but that is within a community in a credit union's FOM bylaws, is not considered "included" in the FOM bylaws of the credit union; or
  2. A management official of the underlying enterprise or organization has provided the credit union with a written statement, signed by the official, that the group desires service by the credit union.

NEW SECTION

WAC 208-472-035  Application.

  1. This chapter also applies to the conversion of an out-of-state, foreign or federal credit union to a credit union chartered and operating under chapter 31.12 RCW.
  2. This chapter does not apply to mergers where the continuing credit union is organized (or chartered) and operating under chapter 31.12 RCW.  The continuing credit union may amend its FOM bylaws to add the FOM groups of the merging credit union.
  3. This chapter does not restrict FOM groups added to a credit union's bylaws prior to  . . . . . . . . (the effective date of the 2002 revisions to this chapter).

REPEALER

The following sections of the Washington Administrative Code are repealed:

WAC 208-472-012         General requirement.
WAC 208-472-041         Streamlined procedure for small occupational groups.
WAC 208-472-045         Inclusion of a group with a common bond of association.
WAC 208-472-050         Application to include a separate associational group.
WAC 208-472-060         Inclusion of a community group.
WAC 208-472-065         Application to include a separate community group.
WAC 208-472-070         Application deemed complete.
WAC 208-472-075         Approval of application.
WAC 208-472-080         Special circumstances.

PREPROPOSAL STATEMENT OF INQUIRY
(RCW 34.05.310)

CR-101 (7/22/01)
Do NOT use for expedited rule making

Agency:   Department of Financial Institutions

Subject of possible rule making: Regulatory relief for small credit unions

(a) Statutes authorizing the agency to adopt rules on this subject: RCW 31.12.516(2), (3), (4); RCW 43.17.060; RCW 43.320.040

(b) Reasons why rules on this subject may be needed and what they might accomplish: To alleviate unnecessary regulatory burden on the smallest credit unions – those with no more than $10 million in assets.

(c) Identify other federal and state agencies that regulate this subject and the process coordinating the rule with these agencies: None

(d) Process for developing new rule (check all that apply):

p  Negotiated rule making
p  Pilot rule making
p    Agency study

x  Other (describe) Consultation with credit unions and their trade association.

(e) How interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication:
(List names, addresses, telephone, fax numbers of persons to contact; describe meetings, other exchanges of information, etc.)
 

Please provide comments and questions on the rules to:
 

Parker Cann, Director of Credit Unions
211 11th St. SW  Room 300
Olympia, WA 98504-1200

PO Box 41200
Olympia, WA 98504-1200
E-mail: pcann@dfi.wa.gov
Ph.:   360-902-8778
Fax:   360-704-6978
 

 

CODE REVISER USE ONLY

NAME (TYPE OR PRINT)
Mark Thomson

SIGNATURE

TITLE
Acting Director

DATE 
February 13, 2002


DCU Bulletin

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

February 20, 2002  
No. B-02-04

Division Distributes “Clean” Version of New FOM Rules

We understand that many of you have had difficulty in reading and understanding the “marked-up” version of the new FOM rules included with our Bulletin No. B-02-03.  (To make it even more difficult, pages 5 and 6 of the marked-up version were inadvertently switched.)  To help in this regard, we have attached a “clean” (but unofficial) version of the new rules.  The official Code Reviser version should be available by March 8, 2002.

We want to remind you that the Division has scheduled the following technical assistance sessions to explain how to comply with the new FOM rules:

March 12, 2002          Yakima           Catholic Credit Union                    1:00 - 3:00 p.m.
March 19, 2002          Spokane        Numerica Credit Union                    10:00 a.m. - Noon

March 28, 2002          Federal Way   Washington CU League                   10:00 a.m. - Noon

Please RSVP with the number of attendees to Tina Philippsen at (360) 902-8718 or by e-mail at tphilippsen@dfi.wa.gov by March 4, 2002.

 

CAUTION:

THIS DOCUMENT IS AN UNOFFICIAL VERSION OF THE NEW FOM RULES ADOPTED BY THE WASHINGTON STATE DIVISION OF CREDIT UNIONS(DCU).

THE OFFICIAL VERSION SHOULD BE AVAILABLE BY MARCH 8, 2002.

*****

Chapter 208-472 of the Washington Administrative Code (WAC) contains all of DCU’s field of membership rules.  Effective March 8, 2002, Chapter 208-472 WAC is amended to read as follows, in its entirety:

 

Chapter 208-472 WAC

CREDIT UNION FIELD OF MEMBERSHIP

WAC 208-472-010 Authority.  A credit union may admit to membership those persons qualified for membership who are within its field of membership as stated in its bylaws.  A credit union may amend its field of membership bylaws to add one or more occupational groups, associational groups and communities to its field of membership, as approved by the director pursuant to this chapter.  The FOM groups may be located inside or outside the state.
      The director may waive any provision of this chapter as the director deems appropriate to facilitate credit union service to low and moderate income persons.
      In addition to the field of membership powers or authorities reflected in this chapter, a credit union has the field of membership powers and authorities granted pursuant to RCW 31.12.40

WAC 208-472-015  Definitions.  Unless the context clearly requires otherwise, as used in this chapter:

  1. "Affiliate" of an enterprise or organization means a person that controls, is controlled by, or is under common control with, the enterprise or organization.  "Control" means twenty-five percent or greater stock ownership.
  2. "Associational group" is a group with a common bond of association related to membership in an organization, or a portion of such a group.  The organization must satisfy each of the following criteria:
  1. The organization's primary purpose must be other than providing eligibility for credit union services;
  2. The organization's membership must be primarily composed of natural persons; and
  3. The organization's organizational documents must define membership eligibility.

 

In regard to an associational group within a credit union's FOM bylaws, the credit union may admit to membership:

  1. Members of the organization;
  2. Directors, employees, volunteers and retirees of the organization or its subsidiaries or affiliates;
  3. Natural persons under contract to work for the organization or its subsidiaries or affiliates;
  4. Family members (as determined by the credit union) of any of the above-described natural persons;
  5. The spouse of any of the above-described natural persons if the person qualified for membership at the time of his or her death;
  6. The organization and its subsidiaries and affiliates;
  7. Organizations and enterprises more than half of whose owners, members or employees are eligible to be members of the credit union; and
  8. Other persons approved by the director.

Students of a school, college or university are deemed to be members of an organization that constitutes an associational group.  In regard to such an associational group within a credit union's FOM bylaws, the credit union may admit to membership the students of the school, college or university as well as the family members (as determined by the credit union) of the students.

  1. "CAMEL" means the CAMEL rating system used by the division, or a successor rating system used by the division.
  2. "Community" is a well-defined geographic area that is recognized by those who live or work there as a neighborhood, community, or rural district, or a portion of such an area.

In regard to a community within a credit union's FOM bylaws, the credit union may admit to membership:

  1. Natural persons who live, work, worship or go to school in the community;
  2. Enterprises and organizations that have offices within the community, and natural persons under contract to work for the enterprises or organizations;
  3. Directors, employees, volunteers and retirees of the above-described enterprises or organizations;
  4. Family members (as determined by the credit union) of any of the above-described natural persons;
  5. The spouse of any of the above-described natural persons if the person qualified for membership at the time of his or her death;
  6. Enterprises and organizations more than half of whose owners, members or employees are eligible to be members of the credit union; and
  7. Other persons approved by the director.
  1. "Credit union" means a credit union organized (or chartered) and operating under chapter 31.12 RCW, and an out-of-state or foreign credit union operating in this state in accordance with RCW 31.12.471.
  2. "Director" means the director of financial institutions.
  3. "Division" means the division of credit unions of the Washington state department of financial institutions.
  4. "FOM" means field of membership.
  5. "FOM groups" includes occupational groups, associational groups and communities.
  6. "Occupational group" is a group with a common bond of occupation related to employment by, or work for, an enterprise, or a portion of such a group.  The group must be primarily composed of natural persons.

In regard to an occupational group within a credit union's FOM bylaws, the credit union may admit to membership:

  1. Employees of the enterprise;
  2. Directors, employees, volunteers and retirees of the enterprise or its subsidiaries or affiliates;
  3. Natural persons under contract to work for the enterprise or its subsidiaries or affiliates;
  4. Family members (as determined by the credit union) of any of the above-described natural persons;
  5. The spouse of any of the above-described natural persons if the person qualified for membership at the time of his or her death;
  6. The enterprise and its subsidiaries and affiliates;
  7. Enterprises and organizations more than half of whose owners, members or employees are eligible to be members of the credit union; and
  8. Other persons approved by the director.
  1. "Primarily" or "primary" means more than one-half.
  2. "Qualified associational group" means an associational group located wholly or partly in the state.  However, if the members of the organization in Washington exceed 6,299, the group will not be considered qualified unless the group is within the FOM bylaws of another credit union or federal credit union.

An associational group that does not satisfy this definition is considered to be a nonqualified associational group.

  1. "Qualified community" means a community in the state that constitutes a:
  1. School district;
  2. City; or
  3. County with a population of no more than 75 people per square mile.

A community that does not satisfy this definition is considered to be a nonqualified community.

  1. "Qualified occupational group" means an occupational group located wholly or partly in the state.  However, if the members of the enterprise in Washington exceed 6,299, the group will not be considered qualified unless it is within the FOM bylaws of another credit union or federal credit union.

An occupational group that does not satisfy this definition is considered to be a nonqualified occupational group.

  1. "SOG" means a small occupational group added pursuant to a SOG enabling amendment approved by the director prior to March 8, 2002.

WAC 208-472-020  FOM bylaws; addition of FOM groups.

  1. General.  Each credit union must keep its FOM bylaws substantially in the form of the model FOM bylaws prescribed by the division.  Credit unions that have not converted to the model FOM bylaws prior to March 8, 2002 must do so by December 31, 2002.  Each credit union must maintain accurate, complete and up-to-date FOM bylaws.
  2. CAMEL 1s and 2s.

A credit union rated a composite CAMEL 1 or 2 by the division:

  1. May add qualified occupational groups, qualified associational groups and qualified communities to its field of membership bylaws if the credit union satisfies each of the following:
  1. If the FOM group has more than 500 employees, members or residents, as applicable, in Washington, the credit union has, before its board of directors approves the amendment, mailed or otherwise provided notice of the addition to each credit union and federal credit union headquartered in the county(ies) in Washington in which the FOM group is primarily located; and
  2. The credit union's board has approved the amendment, which names the underlying enterprise, organization or community, as applicable, and indicates the date that the board approved the amendment.

Additions made in accordance with this subsection (2)(a) are deemed approved by the director; and

  1. May not add nonqualified occupational and associational groups and nonqualified communities to its field of membership bylaws without the prior approval of its board of directors and the prior written approval of the director under WAC 208-472-025.
  1. CAMEL 3s, 4s and 5s.  A credit union rated a composite CAMEL 3, 4 or 5 by the division may not add the following FOM groups to its field of membership bylaws without the prior approval of its board of directors and the prior written approval of the director under WAC 208-472-025:
  1. Occupational groups, except for SOGs;
  2. Associational groups; and
  3. Communities.

In general, the director will not approve:

  1. The addition of a community to a credit union's bylaws if the credit union is rated a composite CAMEL 3 by the division; or
  2. The addition of an occupational or associational group or a community to a credit union's bylaws if the credit union is rated a composite CAMEL 4 or 5 by the division.
  1. Other changes.  A credit union may, upon approval of its board of directors, amend its FOM bylaws to:
  1. Delete exclusionary clauses;
  2. Delete FOM groups that no longer exist;
  3. Delete its SOG enabling amendment;
  4. Revise its SOG enabling amendment to delete the SOG requirements other than the limitation on the number of employees, which is 500 per SOG;
  5. Aggregate communities into a larger community.  For example, if a credit union has added each of the school districts within a county as communities, it may amend its FOM bylaws to designate the county as a community rather than listing each of the school districts as a community; and
  6. Make nonsubstantive changes.

The board may delegate the authority to delete FOM groups that no longer exist.

In amending its FOM bylaws under this subsection (4), other than deletions, the credit union must indicate in its bylaws the date that the board approved the amendment.

  1. A person that is a member of a credit union may continue to be a member even though the person is no longer within the field of membership bylaws of the credit union, subject to the credit union's right to terminate the person's membership.  The family members (as determined by the credit union) of a credit union member continue to be eligible to join the credit union, even though the credit union member is no longer within the FOM bylaws of the credit union.

WAC 208-472-025  Application for addition of FOM groups--Approval of director.  In order to request the approval of the director to add an FOM group to its bylaws under WAC 208-472-020 (2)(b) or (3), a credit union must submit a written application in duplicate to the director.  The application must include the following items, and any other information and materials requested by the director:

  1. The name of the FOM group that the applicant desires to add to its bylaws;
  2. A copy of the resolution of its board of directors approving the bylaws amendment, certified by the board chairperson or secretary;
  3. A detailed description of the FOM group, including, but not limited to, location and number of employees, members or residents, as applicable, with supporting documentation;
  4. An explanation how the FOM group satisfies the definition of such a group in WAC 208-472-015;
  5. If the applicant is applying to add an associational group, an explanation of the qualifications for membership in the organization, and a copy of the organization's organizational documents;
  6. An explanation how the addition of the FOM group will affect the financial condition of the applicant.  In addition, if the applicant is applying for a community, three year pro forma income statements and balance sheets and key ratios (including, but not limited to, return on average assets, net worth, asset growth and share growth);
  7. If the applicant is applying to add a nonqualified occupational or associational group in excess of 6,299 employees or members, as applicable, a reasoned justification why the group does not have sufficient size or resources, including individual and sponsor support, and financial, physical and human resources, to support a viable credit union of its own; and
  8. If the group has more then 500 employees, members, or residents, as applicable, a statement that the applicant has mailed or otherwise provided notice of the application to each credit union and federal credit union headquartered in the county(ies) in Washington in which the FOM group is primarily located.

The director may waive any of the items in this subsection as the director deems appropriate, such as in the case of the addition of FOM groups located wholly out-of-state.

  1. An application filed pursuant to subsection (1) of this section is deemed complete when the director has received all of the information required by subsection (1) of this section.  If an incomplete application is received, the director will give written notice to the applicant no more than thirty days from the date the original application was received that additional information is necessary.  The applicant will be allowed thirty days after receipt of the notice to provide the requested information.  If the applicant fails to do so, the director will return the application and it will be deemed withdrawn.
  2. The director will give the applicant written notice of approval or denial within thirty days after the application is deemed complete.  The director's determination whether to approve an application will be based on consideration of the safety and soundness of the applicant and the applicant's compliance with this chapter.
  3. To add a separate FOM group located wholly out-of-state to its field of membership bylaws, a credit union should first contact the director to determine how to proceed with the application to the director and whether the credit union is required to file an application or notice with the credit union supervisory authority in the other state.

WAC 208-472-030  Direct marketing restriction.  A credit union may not conduct direct marketing targeted primarily at the persons in an occupational or associational group unless:

  1. The group was included in the FOM bylaws of the credit union prior to March 8, 2002.  An occupational or associational group is "included" in the FOM bylaws of a credit union if the underlying enterprise or organization, as applicable, is named or within an industry described in the credit union's FOM bylaws.  A group that does not satisfy the prior sentence, but that is within a community in a credit union's FOM bylaws, is not considered "included" in the FOM bylaws of the credit union; or
  2. A management official of the underlying enterprise or organization has provided the credit union with a written statement, signed by the official, that the group desires service by the credit union.

WAC 208-472-035  Application of chapter.

  1. This chapter also applies to the conversion of an out-of-state, foreign or federal credit union to a credit union chartered and operating under chapter 31.12 RCW.
  2. This chapter does not apply to mergers where the continuing credit union is organized (or chartered) and operating under chapter 31.12 RCW.  The continuing credit union may amend its FOM bylaws to add the FOM groups of the merging credit union.
  3. This chapter does not restrict FOM groups added to a credit union's bylaws prior to March 8, 2002.

DCU Bulletin

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

April 9, 2002  
No. B-02-05

Taking Real Estate Security on Personal Property Loans Triggers Consumer Compliance Requirements for Real Estate Loans

In recent exams, we have reviewed loans granted for the purpose of financing (or refinancing) the purchase of personal property where a security interest is also taken in real estate.  Most often, the real estate is a personal residence or dwelling.  The personal property may include vehicles, vessels, aircraft or other personal property.  The credit unions often state that the real estate is taken as security out of an abundance of caution.  In some cases, the credit unions market the fact that the interest on the loan may be tax deductible.

We have reviewed this matter and our conclusion is that such loans are subject to federal consumer compliance law requirements applicable to real estate-secured loans if:

  1. The real estate is a one-four family dwelling;
  2. The real estate is used as the borrower’s primary or secondary residence; and
  3. The real estate is legally at risk of foreclosure upon the borrower’s default. 

This conclusion applies without regard to:

The applicable federal laws may include, among others:

  • Right of Rescission
  • Home Equity Plan disclosures and restrictions (for open-end credit plans)
  • Consumer Handbook on Adjustable Rate Mortgages (for variable-rate loans)
  • Variable rate disclosures for loans secured by a principal dwelling (required at the time of loan application)
  • HUD-1 or 1A Settlement Statement
  • Good Faith Estimate
  • Mortgage Servicing Transfer Disclosure
  • Affiliated Business Relationship Disclosure
  • Anti-kickback provisions
  • Home Equity Brochure
  • Special Information Booklet

 

We understand that compliance with these laws will increase costs to the credit union and consumer, and may increase the time to process and close the loans.

  Please call Jane Johnson, at (360) 902-0508 if you have any questions about this Bulletin. 


DCU Bulletin

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

April 17, 2002  
No. B-02-06

New Direct/Targeted Marketing Restriction
Applies To All State Credit Unions

We have learned that some credit unions may not be aware of the direct/targeted marketing restriction in our new field of membership (FOM) rules.

Effective March 8, 2002, no state-chartered credit union may conduct direct marketing targeted primarily at persons in an occupational or associational group, unless one of two exceptions (discussed below) applies.
 

Exceptions

A state-chartered credit union (Credit Union A) may not conduct direct marketing targeted primarily at persons in an occupational or associational group unless:

  1. The group was included in the FOM bylaws of Credit Union A prior to March 8, 2002.  An occupational or associational group is “included” in the FOM bylaws of Credit Union A if the underlying enterprise or organization, as applicable, is named or within an industry described in the Credit Union’s FOM bylaws.  A group that does not satisfy the prior sentence, but that is within a community in Credit Union A’s FOM bylaws, is not considered “included” in the FOM bylaws of the Credit Union; or
  2. A management official of the underlying enterprise or organization has provided Credit Union A with a written statement, signed by the official, that the group desires service by the Credit Union.  The management official’s letter may be received before, on, or after March 8, 2002.

Effect of restriction

If Credit Union A wishes to conduct direct/targeted marketing to persons in an occupational or associational group, the Credit Union must assure itself that it satisfies one of the two exceptions noted above in regard to the group.  The exceptions were drafted so that credit unions could look to their own records to determine if an exception exists.

If, after reviewing its records, Credit Union A determines that it does not satisfy the first exception, it must obtain a written statement signed by a management official of the group, stating that the group desires the Credit Union’s service, before undertaking direct/targeted marketing to the persons in the group. 

In order to satisfy the second exception, Credit Union A may have to obtain a management official’s letter even though the Credit Union conducted direct/targeted marketing to the group prior to March 8, 2002.  For example, suppose Credit Union A was conducting direct/targeted marketing to an occupational group in a community in its FOM before March 8, 2002, but the group was not included in its FOM bylaws and the Credit Union did not

have a management official’s letter requesting service on file.  Under the new FOM rules, Credit Union A would have to obtain a management official’s letter before continuing with direct/targeted marketing to the persons in the group. 

Credit unions should maintain centralized documentation to support their direct/targeted marketing.

Why the restriction?

As we were receiving input on the preliminary rule draft, several credit unions expressed concern that some credit unions may, under the new rule, aggressively market to groups already served by another credit union.  These concerned credit unions urged the Division to add a direct marketing restriction to the rule.  In response to these concerns, we included the direct/targeted marketing restriction in the final rule.

As we began drafting the restriction, we realized that in fairness it should apply to all credit unions and , frankly, that it would become quite complicated if it did not.  So the final rule includes a prohibition on direct/targeted marketing applicable to all credit unions, with two exceptions.  The exceptions were drafted so that credit unions may look to their own records to determine if an exception exists. 

If you have questions about this Bulletin, please contact Sue Graham at (360) 902-8816 or sgraham@dfi.wa.gov .


DCU Bulletin

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

May 2, 2002  
No. B-02-07

Summary of New Field of Membership (FOM) Rules
on Division Web Site

An updated summary of the new FOM rules can be found on the Division of Credit Unions web site.  To access the summary, connect to www.dfi.wa.gov/cu and click on Bulletins and Opinions/Opinions 2002/Opinion O-02-04.  If you are unable to access the Internet, request a paper copy by calling Tina Philippsen at (360) 902-8718 or fax (360) 704-6918.


DCU Bulletin

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

May 7, 2002  
No. B-02-08

Division Schedules Hearing For Proposed
Rule On Regulatory Relief for Small Credit Unions

The Division recently filed a CR-102 form to publish the Division’s proposed rule on regulatory relief for small credit unions and to schedule a hearing on the proposed rule.  Enclosed is a copy of the CR-102, and the text of the proposed rule. 

Hearing time and location

The hearing on the proposed rule will be held on June 25, 2002, beginning at 1:00 p.m., in the Executive Conference Room of the Department of Financial Institutions, located at 210-11th St. SW, Room 300, Olympia, WA  98501.  Please contact Diane Moye at the Division, at (360) 902-8791, or email dmoye@dfi.wa.gov , if you would like a map to the hearing site.

Summary of Proposed Rule

In general, the proposed rule allows small credit unions:

  1. To schedule special meetings of members from 10 to 120 days after a request for a special meeting is received by the credit union’s secretary, as provided in the credit union’s bylaws. The current rule requires special meetings to be scheduled from 20 to 30 days after the request is received; and
  2. To hold as few as nine regular board meetings each calendar year, no more than eight weeks apart, as provided in the credit union’s bylaws.  The current rule requires regular board meetings to be held monthly.

Comments on the proposed small credit union regulatory reform 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 June 25, 2002. 

Please submit your comments to:

Linda Jekel
Program Manager
Division of Credit Unions
PO Box 41200
Olympia, WA 98504-1200
Phone: (360) 902-8753
Fax: (360) 704-6953
E-mail:  ljekel@dfi.wa.gov
Proposed Rule Making
Click to enlarge
Back
Click to enlarge

 

Chapter 208-424 WAC

REGULATORY RELIEF FOR SMALL CREDIT UNIONS

NEW SECTION

      WAC 208-424-010  Definition of small credit union.  For purposes of this chapter, a "small credit union" means a credit union with up to ten million dollars in total assets as of its most recently filed call report.

NEW SECTION

      WAC 208-424-020  Timing of special membership meetings of small credit unions.  In regard to timing of special membership meetings, the last sentence of RCW 31.12.195(3) states:

      "The designated time of the membership meeting must be no sooner than twenty, and no later than thirty days after the request is received by the secretary."

      A small credit union may vary from the last sentence of RCW 31.12.195(3) as provided in its bylaws, as long as it is a small credit union at the time the request for a special membership meeting is received by the secretary.  However, the designated time of the special membership meeting must be no sooner than ten, and no later than one hundred twenty days, after the request is received by the secretary.  In all other respects, a small credit union must comply with RCW 31.12.195.

NEW SECTION

      WAC 208-424-030  Frequency of regular meetings of board of directors of small credit unions.  In regard to timing of regular board meetings, RCW 31.12.225(5) states:

      "The board will have regular meetings not less frequently than once each month."

      A small credit union may vary from RCW 31.12.225(5) as provided in its bylaws.  However, a small credit union must have at least nine regular board meetings each calendar year, and consecutive regular board meetings must be no more than ten weeks apart.  In all other respects, a small credit union must comply with RCW 31.12.225.

 


DCU Bulletin

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

May 10, 2002  
No. B-02-09

Clarification to Bulletin No. B-02-08
(Division Schedules Hearing for Proposed Rule On Regulatory Relief for Small Credit Unions)

On May 7, 2002, we distributed Bulletin No. B-02-08 to advise you that we filed a form CR-102 concerning a proposed rule on regulatory relief for small credit unions.  There is a discrepancy between the proposed Chapter 208-424 WAC and the CR-102 form.

Discrepancy
In the proposed WAC 208-424-030 section, the second sentence of the last paragraph reads, “However, a small credit union must have at least nine regular board meetings each calendar year, and consecutive regular board meetings must be no more than ten weeks apart.”  The proposed new WAC section is correct. 

Section (j) of the CR-102 refers to regular board meetings eight weeks apart.  This is incorrect.  After the hearing on June 25, 2002, a CR-103 will be filed with the correct information.

Questions
If you have any questions regarding the discrepancy, please contact Tina Philippsen at 360-902-8718 (e-mail: tphilippsen@dfi.wa.gov ) or Linda Jekel at 360-902-8753 (e-mail: ljekel@dfi.wa.gov ).

We regret any inconvenience this error may have caused.

 


DCU Bulletin

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

May 28, 2002  
No. B-02-10

Electronic Submission of 5300 Reports

Beginning June 30, 2002, the Division of Credit Unions (DCU) will be accepting electronic submission of 5300 reports.  This step should make the process more efficient for both the credit unions and DCU.  The actual procedures for electronic submission are quite straight forward, involving an e-mail to our office with an attached file.  The procedures are included below as Appendix A. 

A test of these procedures was completed in May with three credit unions.  The credit unions found the process to work smoothly and results were very encouraging.  If the June submission goes well, we anticipate that we will be requiring the e-mail submission of 5300 reports by year-end 2002.  If you are unable to file the report electronically for technical reasons, please contact Sue Graham at DCU.  Otherwise, please use the new process beginning with the June 30, 2002 reporting cycle.

The electronic submission process will require the 5300 file to be error (but not warning) free.  The new process will eliminate the following items now used under the paper system:

It is important to note that RCW 31.12.567 does require the “principal operating officer” to certify the 5300 report.  This paper copy of the report and certification must be printed out and retained in the records of the credit union for review by the examiners. 

If you have questions about the new process, please contact Sue Graham at 360-902-8816 (cell phone 360-402-4636 or e-mail: sgraham@dfi.wa.gov) or Mike Delimont at 360-902-8790 (e-mail: mdelimont@dfi.wa.gov).


APPENDIX A

Directions for Electronic Submission of
5300 Call Reports

  1. Load the NCUA Call Report software onto your computer.  

PLEASE NOTE:  In the future, if corrections to the 5300 report are required, they could also be completed in electronic format.  When loading the software each quarter, do not accept the default directory, as it will over-write the prior quarter’s software program. Rather, create a separate directory for each quarterly report. Electronic corrections may be required as far back as the last DCU examination date.

  1. Enter all required 5300 data into the computer as you normally would.
  2. Confirm that the data causing “warning” conditions is accurate and correct all data relating to any error messages.
  3. Create a transmission file, saving the data to a diskette and/or hard drive. The transmission file will be named “fs5300.txt” by default.
  4. E-mail the text file to Sue Graham at wa04@ncua.gov as a file attachment. Sue will send a reply confirming receipt of the June 2002 report. Subsequently, notification will be sent only if the report is not received by the deadline.
  5. Maintain a paper copy of the 5300 report in the credit union files.  The file copy of the report must be certified by the credit union’s principal operating officer.

DCU Bulletin

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

June 7, 2002  
No. B-02-11

Focus on Liquidity

In 2001, credit unions experienced a large influx of deposits due to a variety of economic factors.  These deposits have caused many credit unions to carry a great deal of liquidity on the balance sheet without adequate plans for use of the funds.  As economic conditions change credit unions may experience an outflow of funds.  Because of these conditions, the examiners will analyze each credit union’s ability to meet the challenges.  The NCUA Letter to Credit Unions # 02-CU-05, Examination Program Liquidity Questionnaire, provides a copy of the questionnaire the examiner may use to evaluate your credit union’s liquidity.  It can also be a thought provoking document to guide your liquidity and funds management.  Your CAMEL rating for this component will, in part, be determined based on your ability to plan for and meet potential liquidity needs without adversely affecting daily operations.

The credit union liquidity management tools the examiners review will include, but are not limited to, the following:

Budget and Business Plan

Your budget and business plan must reflect your assumptions about the movement of funds in and out of the credit union, both on the asset and liability side of the balance sheet.  This will require a pro forma (forecasted) balance sheet in addition to the income statement budget.  Since the budget is a working document within the business plan, your liquidity concerns, goals, and strategies must be addressed in writing.

Liquidity Policies and Plans

Credit unions should develop policies and plans that address liquidity beyond simply the acquisition of lines of credit.  The policies and plans should also, when appropriate, develop procedures and criteria for balancing the credit union’s liability funding costs relative to its yield on assets.  Additionally, the credit union should develop controls that will ensure this activity falls within the stated goals identified in the business plan. 

In addition to the acquisition of funds, the policies and plans need to address what to do with excess funds.  Simply placing money in overnight accounts may not be the most effective use for those funds and has created situations in which a number of credit unions are paying more for deposits than they are earning on the resulting assets. 

Credit unions should periodically analyze, document, and report their liquidity positions as part of a sound funds management program.  Proper forecasting and planning help anticipate needs before they arise and provide for timely consideration of potential solutions.

Cash Flow Forecast

The examiners will review your forecasts of expected inflows and outflows of funds.  Many times examiners find cash flow forecasts consists only of balancing the bank account at the beginning of the day.  Your analysis needs be based on your detailed knowledge of anticipated changes in cash flow for the credit union.  As an example, successful forecasting includes but is not limited to the following:

Depending on the size and complexity of your operations you may need to forecast the cash flows daily, weekly, or monthly. 

For additional information please call either Jane Johnson at (360) 902-0508 or Mike Delimont at (360) 902-8790.


DCU Bulletin

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

June 11, 2002  
No. B-02-12

Fees Increase by Fiscal Growth Factor

Chapter 208-418-090 WAC provides for an automatic increase in assessments and fees for fiscal year 2003.  On July 1, 2002, assessments and fees will increase by the amount of the fiscal growth factor for fiscal year 2003.  The fiscal growth factor is determined by the state Office of Financial Management (OFM).  Fiscal growth factor information can be found on the OFM website: http://www.ofm.wa.gov/budget.htm.  For fiscal year 2003 the fiscal growth factor is 3.29%.  As provided in Chapter 208-418-090 WAC, the Division is making available a table of the new rates. 

Beginning July 1, 2002, DCU assessment and fee rates are as follows:

A. Hourly fee: $60.96  (A description of hourly fees can be found in Chapter 208-418-070 WAC  Other fees.)

B. Asset assessments:

Credit Union’s
Total Assets

Quarterly
Asset Assessment

over $500 Million (M)

$20,047 + .00001638 x total assets over $500M

over $100M up to $500M

$5,573 + .00003618 x total assets over $100M

over $25M up to $100M

.00005573 x total assets

over $10M up to $25M

$1,228

over $2M up to $10M

$818

over $500K up to $2M

$545

up to $500K

$0

         

M = Million
K =  Thousand
 

If you have any questions regarding the fee increases or the table, please contact William Taylor at (360) 902-8778 or Linda Jekel at (360)902-8718.


DCU Bulletin

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

July 3, 2002  
No. B-02-13

New Focus on Allowance for Loan and Lease Loss

In May 2002 the NCUA Board approved Interpretive Ruling and Policy Statement (IRPS) # 02-3, Allowance for Loan and Lease Losses Methodologies and Documentation for Federally-Insured Credit Unions.  It is important that all credit unions become aware of the contents of this IRPS.  NCUA has provided the new IRPS in Letter to Credit Unions 02-CU-09. 

In broad terms, the IRPS states that the board of directors of a federally-insured credit union is responsible for ensuring that the credit union has policies and controls in place to consistently determine its Allowance for Loan and Lease Losses (ALLL) in accordance with generally accepted accounting principles (GAAP) and ALLL supervisory guidance.  The IRPS discusses the documentation standards expected for determining the appropriate level of ALLL as well as the application of GAAP.

It appears this IRPS will have a significant impact on how some credit unions handle their ALLL.  The Division of Credit Unions anticipates beginning to review credit unions against this new standard in October 2002. 

We believe that it would be beneficial to discuss issues relating to the treatment of ALLL with credit union leaders prior to our implementation of the new IRPS standards.  Therefore, the Division has arranged with the Washington Credit Union League for the use of the McGinty room at the Credit Union Center in Federal Way from 1:00 to 4:00 on the afternoon of August 5 to meet with interested credit unions.  If your credit union is interested in having someone attend please e-mail us an RSVP at dcu@dfi.wa.gov.  If you have specific issues relating to the ALLL you wish to address, please summarize those issues in your e-mail as well.  Seating capacity is limited to 45 so please let us know as soon as possible.  At this point, we anticipate issuing another bulletin in early October with additional information about DCU’s approach to examinations using the new ALLL standards.

If you have any questions about the contents of this bulletin please contact Mike Delimont at 360 902-8790.


DCU Bulletin

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

July 9, 2002  
No. B-02-14

Division Adopts Final Rule on
Regulatory Relief For Small Credit Unions

On June 25, 2002 the Division adopted a final rule on regulatory relief for small credit unions, adding three new sections to Chapter 208-424 WAC.  Enclosed is a copy of the Form CR-103 filed with the Code Reviser on July 26, 2002, and includes the final version of the rule.  The rule takes effect July 27, 2002.

The rule allows small credit unions:

  1. To schedule special meetings of members from 10 to 120 days after a request for a special meeting is received by the credit union’s secretary, as provided in the credit union’s bylaws. The current rule requires special meetings to be scheduled from 20 to 30 days after the request is received; and
  2. To hold as few as nine regular board meetings each calendar year, no more than ten weeks apart, as provided in the credit union’s bylaws.  The current rule requires regular board meetings to be held monthly.

Contact person at the Division on the rule:

William Taylor, Acting Director of Credit Unions
(360) 902-8778
wtaylor@dfi.wa.gov

 

RULE-MAKING ORDER

(RCW 34.05.360)

 

CR-103 (7/22/01)

Agency:   Department of Financial Institutions Permanent Rule
Emergency Rule
Subject of possible rule making: Regulatory relief for small credit unions Expedited Rule Making
  1. Date of adoption:   June 25, 2002 
  1. Purpose:   To provide appropriate regulatory relief fro small credit unions (those with up to $10 million in total assets.)
  1. Citation of existing rules affected by this order:
    Repealed: 
    Amended: 
    Suspended:   
  1. Statutory authority for adoption: RCW 31.12.516(2), (3), (4); RCW 43.17.060; RCW 43.320.040
    Other Authority:
PERMANENT RULE ONLY (Including Expedited Rule Making)

Adopted under notice filed as WSR  02-11-010 on May 3, 2002 .
Describe any changes other than editing from proposed to adopted version:  The proposed rule required small credit unions to have at least nine (9) board meetings per year no more than eight weeks apart.  The final rule will require small credit unions to have at least nine (9) meetings per year no more than ten weeks apart. 

EMERGENCY RULE ONLY
Under RCW 34.05.350 the agency for good cause finds:
  1. 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.
  2. 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:

  1. (5.3) Any other findings required by other provisions of law as precondition to adoption or effectiveness of rule?:
            Yes          No          If Yes, explain:    
  1. Effective date of rule:

Permanent Rulesdays after filing
Other (specify))      *

Emergency Rules
Immediately
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)
Mark Thomson
SIGNATURE
TITLE
Acting Director

DATE 
6/25/2002

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 a nongovernmental entity:

 

New

0

 

Amended

0

 

Repealed

0

 

The number of sections adopted in the agency’s own initiative:

 

 

New

3

 

Amended

0

 

Repealed

0

 

The number of sections adopted in order to clarify, streamline, or reform agency procedures:

 

 

Neww

0

 

Amended

0

 

Repealed

0

 

The number of sections adopted using:

Negotiated rule making:

 

Neww

0

 

Amended

 

Repealed

0

 

Pilot rule making:

 

Neww

0

 

Amended

0

 

Repealed

0

 

Other alternative rule making:

 

Neww

0

 

Amended

0

 

Repealed

0

 

(COMPLETE REVERSE SIDE)

WAC 208-424-010  Definition of small credit union.  For purposes of this chapter, a "small credit union" means a credit union with up to ten million dollars in total assets as of its most recently filed call report...

NEW SECTION

WAC 208-424-020  Timing of special membership meetings of small credit unions..  In regard to timing of special membership meetings, the last sentence of RCW 31.12.195(3) states:

"The designated time of the membership meeting must be no sooner than twenty, and no later than thirty days after the request is received by the secretary."

A small credit union may vary from the last sentence of RCW 31.12.195(3) as provided in its bylaws, as long as it is a small credit union at the time the request for a special membership meeting is received by the secretary.  However, the designated time of the special membership meeting must be no sooner than ten, and no later than one hundred twenty days, after the request is received by the secretary.  In all other respects, a small credit union must comply with RCW 31.12.195

NEW SECTION

WAC 208-424-030  Frequency of regular meetings of board of directors of small credit unions.  In regard to timing of regular board meetings, RCW 31.12.225(5) states:

"The board will have regular meetings not less frequently than once each month."

A small credit union may vary from RCW 31.12.225(5) as provided in its bylaws.  However, a small credit union must have at least nine regular board meetings each calendar year, and consecutive regular board meetings must be no more than ten weeks apart.  In all other respects, a small credit union must comply with RCW 31.12.225.


 

DCU Bulletin

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

July 26, 2002  
No. B-02-15

DCU Incorporates Review of
Growth Strategy into Examination Process

The Division’s long-standing policy has been to allow well-managed and well-capitalized credit unions to define their own membership criteria within the limits of state law.  To further that policy, DCU revised its Field of Membership (FOM) rules to allow CAMEL 1- and 2-rated credit unions to expand their FOM via a streamlined process, providing that each addition to the FOM meets one of the requirements of a “qualified group” as defined in Chapter 208-472-015 WAC.  Since the new rule took effect on March 8, 2002, many credit unions have taken advantage of the streamlined process to significantly re-define their FOM.

Concerns About Rapid Growth

The new rule allows Camel 1- and 2-rated credit unions to make their own business decisions about membership criteria in accordance with overall business and strategic plans.  It also allows credit unions to provide competitive financial services to underserved communities.  However, too rapid and inadequately managed growth may significantly increase the credit union’s transaction, strategic, liquidity, credit, or interest rate risk.  An expansion to a credit union’s FOM is not of itself a threat to credit union safety and soundness.  Rather, DCU’s particular concern is whether a credit union has sufficient capital, management systems, business planning, long-term strategic planning, and budgeting processes to handle that increased risk. 

Reviewing Growth Strategies

The Division does not intend to discourage growth.  Instead it hopes to encourage planned and well-managed growth.  Therefore, as part of its on-going examination and off-site monitoring processes, DCU needs to identify and monitor growth in each credit union’s new and existing service markets.  For examinations beginning in September 2002, DCU will ask each credit union to provide the following additional information in its Questionnaire for Directors and Officers in preparation for scheduled exams:

A description of the credit union’s overall growth strategy for the near future, including where and how the credit union intends:
  1. A general description of the credit union’s planned new product and service offerings, and
  2. A list of relevant documents (such as business plans, branch and technology plans, budget, strategic goals, mission statements, etc.) that detail the credit union’s future growth plans. 

DCU will also continue to monitor share growth, earnings, net worth, delinquency, charge-offs and other financial performance indicators for early signs of inadequate management of expansion and growth. 

Summary

Solid business planning and growth management must accompany credit union growth.  In addition to managing growth of membership, assets, and products and service offerings, management must evaluate and provide for the additional risks of operating in new and more geographically diverse markets.

As part of its efforts to shift to a risk-focused exam, DCU will be looking more closely at the implementation and management of credit union plans for expansion and growth.  These conditions are reviewed during the normal examination, but credit unions with unsatisfactory performance indicators or trends may be asked to provide additional information outside of the regular exam cycle.  Credit unions with a significant weakness in any of the areas of capital, assets, management, earnings or liability management will fall under particularly close scrutiny. 

If you have questions or concerns regarding this Bulletin, please contact Linda Jekel at (360) 902-8753.


DCU Bulletin

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

July 29, 2002  
No. B-02-16

Risk Focused Exams Start in November

The Division of Credit Union (DCU) plans to begin risk-focused exams in early November 2002 for Washington state-chartered credit unions.  Examiners will be given risk-focus exam training in late August.   They will then perform three exams in September using risk-focused techniques to help refine certain exam procedures before implementing the process for all state-chartered credit unions November 4.

When fully implemented, the risk-focused examination process is intended to provide greater effectiveness through:

To support this effort, DCU will be assigning each credit union to an examiner to monitor for a period up to three years.  The examiner will generally be the EIC at the exams and will be in contact with the credit union as issues arise about credit union progress or new products offered.  The examiner will also be available to the credit union to answer questions throughout the year.

In order to help set the scope of a risk-focused exam, the EIC will need to review:

DCU has generally been providing advance notice of an examination 8 to 10 weeks prior to an exam.  The advance notice also included a Directors and Officers Questionnaire and a list of information the examiners need to access during the exam.  Because we are placing more emphasis on the planning phase of the exam, the advance notice letter will now be modified to identify items to be provided to the EIC fifteen business days prior to the scheduled start of the on-site exam work.  We strongly encourage credit unions to provide as many of those materials in electronic format as possible.  Examinations will typically use financial statements  “as of” the most recent quarter end, but examiners will incorporate in their analysis any significant changes that have occurred to the credit union since that quarter end.

National Credit Union Administration is also adopting a similar examination approach and has outlined their approach in Letter to Credit Unions 02-FCU-09, Risk Focused Examination Program.  The letter discusses the following types of risk for credit union in more detail:

Each of these seven risk types will be assigned a rating of high, medium, or low for scope-setting purposes to reflect the examiner’s evaluation of the current and prospective risk to the credit union in each area.  CAMEL ratings will continue to be assigned as well.

Credit unions are encouraged to provide comments or questions about the examination process to Jane Johnson (360) 902-0508 jjohnson@dfi.wa.gov or Mike Delimont (360) 902-8790 or mdelimont@dfi.wa.gov


DCU Bulletin

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

October 1, 2002  
No. B-02-17

Implementing IRPS 02-3 in Washington State

As we discussed in Bulletin B-02-13, National Credit Union Administration’s (NCUA) new interpretative ruling may require many credit unions to change the way they handle the allowance for loan and lease losses (ALLL). This Bulletin discusses key issues and explains how the Division of Credit Unions (DCU) intends to implement the changes in upcoming exams.

Under IRPS 02-3, “boards of directors of federally-insured credit unions are responsible for ensuring that their credit union has controls in place to consistently determine the ALLL in accordance with the credit union’s stated policies and procedures, generally accepted accounting principles (GAAP), and ALLL supervisory guidance.”

DCU understands this implementation may require some time to accomplish. However, we anticipate most credit unions examined after January 1, 2003 will have adopted appropriate ALLL and charge-off policies and have the process of documenting and monitoring the policy well underway. Given the complexity of this process, we also understand there may be some discussion with the examiner during the first examination or two to resolve questions specific to individual credit unions. Even in this transition period, however, credit unions are expected to appropriately fund an ALLL that reflects known risks in a loan portfolio.

Policies and Procedures
Adequate policies and procedures adapted to the unique situations of individual credit unions, and approved by the board of directors, are key elements for compliance with IRPS 02-3. Policies should:

  1. Define the roles and responsibilities of the credit union’s departments and personnel (including lending function, credit review, financial reporting, internal audit, senior management, audit committee, board of directors, and other, as applicable) who determine, or review, as applicable, the ALLL to be reported in the financial statements;
  2. Set forth the credit union’s accounting policies for recognizing loan losses, including the policies for charge-offs and recoveries and for estimating the fair value of collateral, where applicable;
  3. Describe the description of the credit union’s systematic methodology for determining its ALLL, which should be consistent with the credit union’s other accounting policies;
  4. Establish a system of internal controls used to ensure that the ALLL process is maintained in accordance with GAAP and supervisory guidance;
  5. Describe documentation requirements;
  6. Establish the validation process and person responsible for validating the ALLL methodology.

Charge-off Policy
It will be essential that credit unions have clear, reasonable, and consistently applied policies regarding charged off loans. DCU will be using the “uniform charge-off policy” adopted by FFIEC in 1999, and modified in 2000, as the starting point for an adequate charge-off policy. That “uniform charge-off policy” is available at http://www.fdic.gov/news/news/financial/2000/fil0040.html

In brief, the “uniform charge-off policy” states that open-end credit is charged off at 180 days delinquency and closed-end credit at 120 days delinquency. The policy also provides guidance regarding loans affected by bankruptcy, fraud, and death. It establishes guidelines for re-aging, extending, deferring or rewriting past due accounts.

It is important that qualifying loans be charged off in a timely manner. RCW 31.12.255 outlines the options for approval of loans to be charged off. In many instances the board of directors may be reviewing the charged-off loans after the actual accounting entry has occurred. Each credit union may wish to review its bylaws to ensure the bylaws allow adequate flexibility for charge off of loans in a timely manner.

A number of credit unions appear to believe that once a loan has been charged off, the credit union must discontinue all further collection efforts. That position is not correct. The decision to discontinue the collection effort is a management decision that is separate and distinct from the decision to charge off a loan.

Methodology
The methodology adopted by a credit union should be specific to that individual credit union. It should consider credit union size, loan portfolio characteristics, computer system capabilities, and management resources. Each credit union is encouraged to segregate its loan portfolio into various pools having common characteristics as distinct as is economically feasible. DCU recognizes there are trade-offs between information gained by analyzing many smaller pools of loans and the cost of managing that information. Each credit union should make a reasonable business decision about the number of loan pools to use in analyzing its ALLL. The categories on the loan-rate sheet for the credit union might be a reasonable starting point but other factors may also be considered.  

The methodology adopted should be consistently applied but may be subject to modification as the credit union offers new loan products, adjusts underwriting criteria, encounters economic changes to the field of membership, or other relevant factors change. Such changing circumstances must be adequately documented and explained.

The review of ALLL adequacy should be performed at least quarterly, prior to quarter end. It should include all loans, consider collateral values (less costs to sell), be based upon current and reliable data, and be performed by well-trained personnel.

An internal control system for the all estimation process should:

  1. include measures to ensure the reliability and integrity of information and compliance with laws, regulations, and internal policies and procedures;
  2. reasonably ensure the credit union’s financial statements are prepared in accordance with GAAP and ALLL supervisory guidance; and
  3. include a well-defined loan review process.

Documentation
Each credit union will be expected to maintain appropriate written documentation regarding its ALLL analysis and surrounding issues. At a minimum, that documentation should include but not necessarily be limited to adequate:

  1. Policies and procedures covering
    1. the systems and controls for maintaining an appropriate ALLL
    2. the overall ALLL methodology
    3. periodic re-evaluation of loan pools and loss history as well as any member business loans (MBL) loan grading systems
  2. Summary or consolidation of the ALLL balance
  3. Validation of the ALLL methodology, and
  4. Explanations and justifications of periodic adjustments to the ALLL process

Validation of the Process
The board of each credit union will be responsible for arranging or providing an independent review of the ALLL methodology and its application in the credit union. This review must be documented with adequate work-papers. The board of directors will need to review the findings and document that review in the meeting minutes. When a CPA performs that validation, it must be clearly covered in the engagement letter. If an internal auditor performs this function, the persons involved in the validation process should not have other responsibility for the ALLL process.

Other Issues
Member Business Loans
The AICPA pronouncements do not establish dollar limits on the loans to be considered under FAS 114. Some literature has used the example of a $10 million loan as one that would be handled under FAS 114 rather than as part of a pool under FAS 5. That example should not be taken to imply all loans under $10 million must be handled as part of a pool under FAS 5.

Until they are changed, WAC 208-460-110 and 208-460-120 provide specific guidance for handling of MBLs. When a credit union has a limited number of MBLs, they will have the option to develop a pool for MBL plus any specific FAS 114 classification or to individually classify all of that limited number of MBLs.

ALLL for New Product Lines
When a credit union introduces new loan products, the credit union should identify appropriate industry or peer loss experience to be used as the basis for the credit union’s loss estimate until a suitable history within the credit union has been developed.

Handling of an Over-funded ALLL
The handling of an over-funded ALLL will depend upon circumstances at an individual credit union and the guidance given by its outside CPA firm. However, in general, DCU anticipates the over-funding will be handled in one or more of the following ways:

Any credit union that believes it has an over-funded ALLL and takes action to reduce it will be expected to have in place the necessary policies, methodology, and documentation outlined in IRPS 02-3. As with other issues, the examiner evaluation of earnings will be based upon the “core earnings,” prior to any one-time events that may benefit earnings for a single year.

Materiality
Accountants often define a material amount as the amount that makes it probable that the judgment of a reasonable person would have been changed. Clearly DCU is most interest in materiality as measured against two standards, earnings and net worth. The Securities and Exchange Commission suggests that a 5 percent change in earnings per share would be considered material. DCU will use the 5 percent of net earnings as the general test of material amounts in reviewing ALLL adequacy.  

The net-worth to total assets ratio is the determinant for a number of actions under Prompt Corrective Action (PCA). Any adjustment that would have pushed a credit union below 7% net-worth or any of the other trigger points under PCA would be considered material. On the other hand, the higher a credit union’s net-worth ratio is above the 7%, the greater will be the tolerance for “immaterial” adjustments.

Examiner Judgment
Throughout the review of ALLL, examiner judgment will continue to be an important factor. DCU reserves the right for examiners to exercise their judgment to determine the significance of particular issues with regard to the ALLL.

Additional Information
DCU has scheduled two opportunities for credit unions to discuss the ALLL with our staff. The meetings are scheduled as follows:

Please RSVP to Tina Philippsen at the Division by phone (360) 902-8718 or e-mail tphilippsen@dfi.wa.gov  by October 18, 2002.  Indicate which session and the number of people from your credit union who plan to attend. In addition, you may contact Jane Johnson (360) 902-0508 or Mike Delimont at (360) 902-8790 with questions about handling of the ALLL.


DCU Bulletin

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

October 14, 2002  
No. B-02-18

Allowance for Loan & Lease Loss
Meeting Location Change

There has been a great deal of interest in the meeting about the Allowance for Loan and Lease Losses scheduled for October 23 at the Washington Credit Union League office in Federal Way.  Given the level of participation, it was necessary to change the location for the meeting to:

Best Western Federal Way Executel
31611 20W Avenue South
Federal Way, Washington 98003
253-941-6000

The meeting schedule remains the same, from 1:00 to 4:00 pm.  The basis for the discussion will remain: NCUA’s Interpretive Ruling and Policy Statement # 02-3 and the Division of Credit Unions Bulletin 02-17.  Each of them focuses on the Allowance for Loan & Lease Losses.

Please inform those in your credit union who may be interested in attending this meeting of the changed location.  Further information can be obtained by calling Mike Delimont at 360-902-8790.  If you have not yet replied for either the Spokane or Federal Way meetings, please RSVP to Tina Philippsen at the Division by phone 360-902-8718 or e-mail tphilippsen@dfi.wa.gov  by October 18, 2002.


DCU Bulletin

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

December 17, 2002  
No. B-02-19

Waived Information Service & Technology (IS&T) Exam Fees

The Division of Credit Unions (Division) has determined that information services and technology examination fees will be waived for IS & T exams commenced during the period July 1, 2002 through June 30, 2003.  Credit unions with IS & T exams beginning during that period should not expect to be billed for separate hourly IS & T fees. 

The Division has been aware that many credit unions, particularly smaller credit unions, have been under significant earnings pressure over the past year.  Since assets held by state-chartered credit unions grew significantly beyond the conservative projections used for revenue estimates, the Division’s budget will allow for a one-time waiver of the IS & T fees during the current fiscal year.  After July 1, 2003, the Division will review anticipated asset assessments and expenses to determine whether we can continue the IS & T exam fee waiver program for another fiscal year (July 2003 through June 2004).  Credit unions will be notified of that decision by a subsequent Bulletin. 

The IS & T exams will continue to be conducted as previously outlined in our Bulletin number B-01-11.  Most credit unions have already been through one IS & T exam, where examiners focused primarily on development of appropriate policies and procedures for conducting electronic commerce and protecting information security.  We expect the second round of IS & T exams to focus largely on credit union compliance with these updated policies and procedures.

Credit unions requiring additional information on this issue may contact Linda Jekel at (360) 902-8778 or Mike Delimont at (360) 902-8753.


DCU Bulletin

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

December 24, 2002  
No. B-02-20

For Credit Unions Under $22 Million Total Assets, The Division has
Implemented a Temporary Reduction of the Asset Assessment Fee

The Director of Credit Unions (Division) has granted a temporary reduction of the amount of the quarterly assessments for each credit union under $22 million in assets, under the partial fee waiver provision in Chapter 208-418 WAC.  According to WAC 208-418-020, the Director may waive any portion of any fee payable by a credit union.  We estimate that the total savings for all credit unions under $22 million will be approximately $12,300 per quarter.  The Division will allow credit unions under $22 million to pay the lesser fee amount based on a multiplier of 0.00005573, instead of the fixed assessment fee amount.  The fixed assessment fee amounts for credit unions under $25 million were:

Asset Size Boundaries

Fixed Asset Assessment Fee

Over $10 million & up to $25 million $1,228
Over $2 million & up to $10 million $818
Over $500 thousand & up to $2 million $545


Examples

Based on asset size, the following table shows the fee amount before waiver (A.); the reduced fee based on a multiplier of total assets (B.); the lesser amount of (A.) or (B.) as the fee due on January 1, 2003; and the amount of the fee waiver (A. less B.):

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Asset Size

Fixed Assessment Fee (A.)
New Factor 0.00005573 times assets = Fee (B.) Fee Due on 1/30/03* Amount of Fee Waiver (A.-B.)
$22 million $1,228 $1,225 $1,225 $3
$17 million $1,228 $947 $947 $281
$10 million $818 $557 $557 $261
$5 million $818 $278 $278 $540
$2 million $549 $111 $111 $438

*whichever is less (A.) or (B.)

Credit unions with assets of $500 thousand or less

Credit unions with assets of $500 thousand or less will continue to have no asset assessment fee.


Credit unions with assets less than $22 million and greater than $500 thousand

For credit unions with $22 million total assets or less, this temporary fee reduction is implemented primarily for two reasons.  First, the Division’s intent is to make asset assessments more standardized across asset size categories.  Second, the Division has been aware that many credit unions, particularly smaller credit unions, have been under significant earnings pressure over the past year.   This temporary fee reduction makes the effective asset assessment ratio for credit unions under $22 million in assets[1] equal to the fee ratio of credit unions between $25 million and $100 million in assets and, at the same time, reduces the amount of the asset assessment fee for all credit unions under $22 million in assets.  All credit unions with assets under $22 million would have an effective asset assessment ratio of .00005573.


Credit unions with assets between $22 million and up to $25 million

According to our calculations, the five credit unions with assets at $22 million and up to $25 million would pay less by remaining at the flat assessment fee of $1,228 compared to a fee based on a multiplier of .00005573 to assets.  The asset assessment fee worksheets will show $1,228 due from credit unions between $22 million and up to $25 million.


Credit unions with assets greater than $25 million

Credit unions with assets greater than $25 million will continue to pay the full assessment fee based on WAC 208-418; the fees are calculated at a multiplier of .00005573 or less.  See Bulletin B-02-12 for details.


Effective Dates:  January 1, 2003 and April 1, 2003

This is only a temporary asset assessment fee reduction for the January 2003 and April 2003 quarterly assessments.  In July 2003, the Division will review its asset assessment revenue against its expenses to determine whether the Division will continue with the waiver of a portion of the asset assessment fee through June 2004.  We will send out a Bulletin before July 2003 notifying credit unions of our decision.

Questions?

If you have questions regarding this bulletin or need assistance in calculating your January 2003 quarterly assessment, please contact Linda Jekel at (360) 902-8778 or Mike Delimont at (360) 902-8753.

[1] For purpose of this paragraph, credit unions with assets less than $500,000 are excluded since they pay no asset assessment fee.


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