Washington State Department of Financial Institutions





April 11, 1996

"A" Credit Union
"B" Credit Union
"C" Credit Union

Subject: Application of "D" Credit Union, to add business park area as a community to its field of membership ("‘D’s application"); Interpretation No. 96-1

Dear Gentlemen:

The purpose of this letter is to respond to the concerns you expressed individually regarding "D’s" application. For your information, I approved "D’s" application on February 20, 1996. I apologize for the delay in responding to your letters. Initially, I have provided some background below on our policies concerning community charters. Following this information, I have paraphrased your primary concerns and provided my response to each. Background Generally. The Washington State Credit Union Act ("Act") sets forth requirements on credit union field of membership ("FOM"). These requirements are fairly brief:

RCW 31.12.045.

  1. Membership in a credit union shall be limited to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district. The director may adopt rules:
  1. Reasonably defining "common bond"; and
  2. setting forth standards for the approval of charters.
  1. The director may approve the inclusion within the field of membership of a credit union a group having a separate common bond if the director determines that the group is not of sufficient size or resources to support a viable credit union of its own.
RCW 31.12.145. A credit union may admit to membership those persons qualified for membership as set forth in its bylaws upon the payment of a membership fee, if any, or the purchase of one or more shares, as provided in the bylaws. A fraternal organization, partnership, or corporation having a usual place of business in this state and comprised principally of persons who are eligible for membership in the credit union may become a member of the credit union. These provisions of the Act are implemented by the Division’s rules set forth at Chapter 419-72 WAC ("Rules"). In addition, the Division has developed Guidelines for submitting an application to add a community group to a credit union’s FOM. Types of FOMs. Pursuant to RCW 31.12.045, Washington state-chartered credit unions may include occupational groups, associational groups, or community groups in their FOM. Moreover, the Act does not prohibit a credit union ("CU") from having one (or more) of each of these types of groups in its FOM. See also WAC 419-72-012. Consequently, we allow a credit union to have different types of groups in its FOM. A CU may include more than one community in its FOM. These communities may be physically separate and distinct, or they may be contiguous. In order to receive our approval, an application for addition of a community must satisfy the requirements of WAC 419-72-065. As you know, under our policies, we will not grant approval if the area applied for has a population of more than 75,000 (not including the population of any communities previously approved). Overlaps. The wording of RCW 31.12.045(1) distinguishes between groups with a common bond (occupational and associational groups) and community groups. Accordingly, we have interpreted the reference in .045(2) to a "group having a separate common bond" to mean an occupational or associational group, and not a community group. The result here is that we have applied .045(2) to generally prohibit overlaps between occupational groups or associational groups, except in very limited circumstances. See WAC 419-72-025(3), -050(3). In addition, we have not applied the overlap Rules to overlaps between different types of FOM groups. That is, a CU may add an occupational group even though some of the group’s members are also eligible for membership in another CU because they are part of an associational group that is included in the FOM of the other CU. Based on this statutory interpretation, overlaps between communities are not subject to the overlap Rules. Consequently, the Division will permit a CU to add a community to its FOM even though other CUs have the same community in their FOM, or other CUs have occupational or associational groups in the community in their FOM. A community CU may take as a member any person who lives or works in the community. WAC 419-72-015(4). In addition, a CU with a community FOM may take as a member any business that is located in the community. See RCW 31.12.145. However, except as noted below in this paragraph, a community CU may not conduct direct marketing targeted at any occupational or associational group in the community that is part of the FOM of another CU. See WAC 419-72-065(8). We have taken the following positions on related issues:
  1. If an occupational or associational group in the community is served by a community CU, and the individual group is not expressly included in the CU’s FOM bylaw, the application of another CU to add the occupational or associational group to its FOM will be evaluated without regard to the overlap Rules.
  2. If the application is approved, both credit unions can serve the group and direct market to the group.
  3. Although a community CU may be permitted to serve individuals in an occupational or associational group in the community, the CU will not be allowed to add the group to its FOM bylaws. Otherwise, the CU would be able to effectively block other CUs from adding the occupational or associational group to its FOM because of the restrictive overlap Rules.
Concerns and Response 1. Concern. Shouldn’t both the federal and state credit union regulators be "on the same page" when approving expansion requests like "D’s"? Response: The nature of the federal-state dual chartering system is that each system develops its own set of policies, creating a competitive tension between the two. Free from some of the rigidity of the federal system, state charters are often better able to innovate to serve the needs of their members. The beneficiaries in this scenario are the credit unions and their members. Obviously, the state of Washington is not "on the same page" as the NCUA when it comes to FOM expansion. However, most credit unions strongly support the dual chartering system because it has better allowed them to serve and grow. 2. Concern. Approval of "D’s" application will have significant negative impact on the financial well being of our credit union. Response: Under WAC 419-72-075(7), one factor to be considered in approving an FOM expansion request is whether approval will threaten the viability of another credit union. In order to deny an application for this reason, the approval of the application must present an immediate threat to another credit union’s viability. In this case, there was no evidence presented of such a threat. 3. Concern. "D" is attempting to use the Division as a tool to avoid the policies and procedures as found in the NCUA manual. Response: The nature of the dual chartering system is that each credit union is free to choose the type of charter which is most advantageous for its intended operation. As a state-chartered credit union, "D" is now entitled to use its full powers under state law, whether or not federal credit unions would be permitted to do the same. See also the response to 1 above. 4. Concern. We feel that "D’s" application does not meet the Division’s guidelines for a community charter. We believe that the application is merely an expansion of "D’s" existing community, not a new and distinct community. The boundaries of the proposed community are a geographic extension of "D’s" existing community boundaries, and the area is not separate and distinct by any means. Response: The Act and Rules permit a credit union to add additional communities to its FOM, as long as each community application is supported by required documentation. New communities may be entirely separate and distinct from the CUs existing FOM community, or may be contiguous to it. 5. Concern. The "D" application is in form and substance an addition of a new community to "D’s" FOM. It is one which exceeds the charter guidelines of the Division. The resulting "community", should "D" be allowed to expand its geographic area, would be exceedingly large, and in violation of the Division’s internal policies as well as the section of WAC 419-72-015 that defines community size. Response: Our policies require that each community applied for have a population of no more than 75,000. The population limit does not apply to the aggregate population of all communities in the CU’s FOM. Upon review, "D’s" application satisfied these requirements, as well as the requirements of WAC 419-72-015. 6. Concern. We agree that competition is a healthy thing for the consumer and for the financial institution, however, with the attacks being made on credit unions by the banking industry concerning credit union uniqueness and tax issues, the approach the Division is taking to community charters does not serve us well. Response: I know that there is a fair amount of consternation among certain credit unions about the granting of community charters by the Division. However, we are charged by statute with the responsibility to administer the Act and its implementing Rules. We do not have the authority to deny applications which otherwise satisfy our regulatory framework because approval may lead to decisions by Congress that have an adverse impact on the movement. If you feel our approvals may lead to such adverse developments, perhaps credit unions should strive to reach a consensus on FOM issues that would reduce the amount of risk to the movement. 7. Concern. "D" has defined its boundaries in its community FOM to change as the boundaries of "E" change. This current request is outside of this boundary and enters into an area that is already served by another credit union with an existing community charter. There is no economic reason or economic advantage for overlapping community chartered credit unions. "D’s" application is a direct attempt to overlap another credit union’s geographic service area field of membership boundaries. Response: Approval of an FOM expansion application is not based on whether or not the application has economic "reason" or "advantage" among affected credit unions. The Act and Rules permit "overlapping" communities, whereas overlapping occupational or associational groups will not be approved except in limited circumstances. See WAC 419-72-025(3); -050(3). 8. Concern. In effect, the Division is granting, piece by piece, community charters that will eventually result in county or even state-wide community charters. This opens an avenue for the banking industry to bring suit against the Division for violating its own guidelines on community charters Response: In theory, our policies may permit a CU over time to piece together communities that in the aggregate encompass an entire county. Depending on the circumstances, it is possible that this could be done consistently with the Act and Rules. However, I think it is highly unlikely that a credit union’s FOM will be expanded to encompass the entire state, for two reasons: 1) When we review an application for addition of a community to a CU’s FOM, we look at service levels of its existing FOM, and ability to service the community applied for. As a CU gained a bigger and bigger FOM, reaching regional or state-wide proportions, it would have a more difficult time satisfying our requirements on these service issues.
  1. Very few CUs are interested in such a large FOM. See also my response to comment 6 above.


April 16, 1996


Re: Request about requirements for out-of-state credit union to do business in Washington (Interpretation 96-2)

Dear Sir:

I have been asked to respond to your letter to Parker Cann, Assistant Director, requesting approval for "B" credit union to do business in the state of Washington. The requirements for an out of state credit union to operate in this state are contained in Revised Code of Washington (RCW) 31.12.526. Enclosed is a copy of the Washington Credit Union Act containing this section.

In order to do business in this state, the credit union must submit and receive our approval of an application under RCW 31.12.526. The application must include at least the following:

  1. A letter from the credit union’s board of directors requesting approval to do business in the state of Washington.
  2. A copy of the most recent financial statements (balance sheet and year to date income statement).
  3. A copy of the most recent statutory examination report.
  4. Information as to the credit union’s surety bond and fidelity bond coverage.
  5. Information as to whether the credit union’s share and/or deposit accounts are privately or federally insured.
  6. A copy of the credit union’s current field of membership and information as to the field of membership that will be served in the state of Washington, for example: employees of ABC Company of Washington.
  7. A complete copy of the current state statute and rules governing the operation of the credit union.
  8. A written representation that the credit union agrees to pay our costs for reviewing the application. We currently charge an hourly fee of $55.82 per staff member for such review.
  9. A written representation that the credit union agrees to pay our costs of examination and supervision. RCW 31.12.526 (4) authorizes the Division of Credit Unions to charge for the examination and cost of supervising an out-of-state credit union. Such credit unions must pay an hourly examination fee of up to $55.82 per examiner, plus a semi-annual asset assessment. Starting July 1, 1996, the Division of Credit Unions is changing to quarterly asset assessment fees and, for on-site examinations of out-of-state credit unions, an hourly exam fee of $55.82 per examiner. The asset assessments will be based on in-state assets, calculated by multiplying the credit union’s total assets by a fraction, the numerator of which is the total deposits at the in-state branches, and the denominator of which is the total deposits of the credit union.
  10. .A written representation that the credit union will comply with Chapter 31.12 RCW and Chapters 208-418 to 208-480 of the Washington Administrative Code (WAC), including without limit RCW 31.12.526(1)(c).

During its 1996 session, our legislature repealed the Washington private share insurance system for credit unions, effective December 31, 1998. Consequently, we will not approve the credit union to do business in this state if its shares are privately insured.


May 3, 1996

"A" Credit Union

Subject: Interpretation WAC 419-14-070

Dear _____:

Thank you for your phone call regarding the above rule. WAC 419-14-070 (Loans to directors, officers, and employees - maximum amount) is applicable to Washington state chartered savings and loan associations, not credit unions.

Some of the credit union statutes and rules which may apply to loans to directors and committee members are: RCW 31.12.317, RCW 31.12.365, WAC 208-464-050, WAC 208-464-080, WAC 208-464-090, and NCUA Rule 701.21(h)(2)(iii)(A). For your information, the Division’s WAC rules applicable to credit unions have been moved to Title 208 WAC, effective June 1, 1996. Enclosed is a copy of our rules with the new numbering.


May 8, 1996

"A" Credit Union

Subject: Payment of State Business and Occupation taxes; Interpretation No. 96-4

Dear _____:

You indicated that the state Department of Revenue ("DOR") recently sent "A" a notice for the payment of business and occupation ("B&O") taxes. In a follow-up phone call, DOR personnel indicated to you that the notice was based on WAC 458-20-146 ("Section 146"). You have raised the question whether a Washington state-chartered credit union such as "A" is required to pay state B&O taxes. My conclusion is that "A" is not required to pay such taxes, as explained below. Section 146 states in effect that banks, savings and loan associations and "certain other financial institutions" must pay B&O tax. Section 146 does not by its terms expressly apply to credit unions. Although a credit union may be viewed in a general sense as a type of financial institution, I am not aware of a definition of the quoted phrase in the WAC that would indicate definitively that a credit union is another type of financial institution subject to B&O tax. More importantly, however, RCW 82.04.405 expressly exempts credit unions (both state- and federally-chartered) from the provisions of Chapter 82.04 RCW, the statute which provides for the B&O tax. Even if Section 146 were interpreted to apply to credit unions, normal rules of statutory construction would dictate that the statutory exemption of RCW 82.04.405 would override an inconsistent agency rule (Section 146). Accordingly, state- and federally-chartered credit unions are not subject to the payment of B&O taxes. I have confirmed my conclusion with Mr. Kerry Breen, Counsel, Legislative and Policy Division, DOR. If you have any further questions about this matter, please don’t hesitate to give me a call.


May 9, 1996

"A" Credit Union

Subject: Interpretation 96-5 on WAC 208-472-015 and WAC 208-472-041

Dear _____:

Thank you for your letter requesting interpretation on certain field of membership rules. Although we have discussed this information by phone, you requested a copy in writing.

For your information, the Division’s WAC rules applicable to credit unions have been moved to Title 208 WAC, effective June 1, 1996. Enclosed is a copy of our rules with the new numbering.

Below are your questions and the interpretation:

Under WAC 208-472-015 (formerly WAC 419-72-015), issue #3 (a), regarding employees of the enterprise and their family members:

Does this mean that if we serve ABC Company, we also serve those employees’ family members immediately. Therefore, any of those family members could come into the credit union and say, "I am a family member of Joe who works at ABC Company" and the information alone qualifies them for membership.

Yes, a family member of an employee included in the field of membership qualifies whether or not the employee has already joined. In other words, family member (brother Joe) can join before the employee (brother Fred) has joined. The family member may verbally verify that he/she is eligible for membership through an employee included in the field of membership. However, documentation (such as the information that the member is related to brother Fred, employee at ABC Company) should be noted on the membership application and held at the credit union to show how the member qualified for membership.

Under WAC 208-472-041 regarding the SOG (small occupational group) under the streamlined procedure:

Does this mean that if there is an overlap of membership qualification with another credit union, every effort must be made to obtain a letter of non-objection from the other credit union. These documents must then be sent to the state (Division of Credit Unions) for approval.

Yes, the fact that the employees of an enterprise do have credit union service available based on such employment disqualifies that enterprise from being approved through the SOG streamlined procedure. The applicant credit union would be required to provide all documentation under WAC 208-472-025 (formerly 419-72-025) and send that documentation to the Division of Credit Unions for approval.


May 13, 1996

"A" Credit Union

Subject: Your letter of May 7, 1996, regarding servicemarks; Opinion No. 96-6

Dear _____:

The Director of the Department of Financial Institutions ("DFI") examines and supervises credit unions pursuant to the Washington State Credit Union Act ("Act"), Chapter 31.12 of the Revised Code of Washington ("RCW"). As part of the Director’s duties, the Director approves applications for new credit union charters and for an amendment to a credit union’s articles of incorporation to change its name, in accordance with RCW 31.12.075 and .105, respectively. Although we would probably counsel an applicant to rethink its name choice if we were aware of a clearly problematic situation, we do not have the authority to disapprove a new charter or name change because another credit union has the right to use the name. Consequently, we do not have the authority to undertake the servicemark protections you have requested in the second sentence of your letter. For your further information, the DFI does not administer the Washington laws regarding trademarks, trade names, servicemarks, or similar matters. See, for example, Chapter 19.77 RCW on trademarks, and Chapter 19.80 RCW on tradenames. Chapter 19.77 is administered by the Washington Secretary of State, whose office can be reached at (360) 753-7115; Chapter 19.80 is administered by the Washington Department of Licensing, which can be reached at (360) 902-3600 or (900) 463-6000 (for name search service).


June 6, 1996 "A" Credit Union Subject: Application of RCW 31.12.365 Dear _____: Through Stacy Augustine of the Washington Credit Union League, you recently requested our view on the following issue:

The director of a Washington state-chartered credit union is a college or community college professor or teacher. The director must miss a class that she or he teaches in order to participate in board matters. The director is required to hire a substitute to teach the class missed, at the director’s own expense. The director’s salary at the college is not reduced for missing the class. The amount paid by the director to hire the substitute is less than the prorata amount of her or his salary attributable to the class. The director seeks reimbursement from the credit union for the out-of-pocket expense to hire the substitute. Is this permissible under RCW 31.12.365?
In response to your request, I have reached the conclusion that such reimbursement does not constitute prohibited compensation to the director under RCW 31.12.365. Consequently, reimbursement is not prohibited by this section.


June 19, 1996

"A" Credit Union

Subject: Incentive pay for share and deposit accounts

Dear _____:

Thank you for your letter dated May 28, 1996 written to Parker Cann, Assistant Director. The Division of Credit Unions has no objection to the incentive payment plan outlined in your letter. As we understand it, the credit union will pay employees $5.00 for referring a potential member who subsequently opens a share or deposit account with the credit union. However, it is important that the credit union have adequate procedures to check the referred individuals for eligibility for membership under the credit union’s field of membership bylaws. Our examiners may review new account procedures for the method of documenting membership qualification and review internal audit procedures for checking compliance of new membership qualification.


August 22, 1996

"A" Credit Union Subject: Imaging of Documents Dear _____: In follow-up to our recent phone conversation, enclosed is a copy of the following:
  1. Discussion of electronic imaging systems from the Information Systems Examinations Handbook of the FFIEC.
  2. FFIEC issuance SP-10, entitled "Control and Security Risks in Electronic Imaging Systems".
Although these pronouncements have not been formally adopted by the Division, I believe they provide a good (but somewhat brief) explanation of the primary risks associated with the use of an imaging system. As we discussed, some of the most important risks here are the legal ones - questions about the admissibility of electronic images in court, as well as whether such images satisfy record retention requirements in various federal and state laws. A knowledgeable attorney could help sort through these legal issues. Any credit union that is interested in using an imaging system should give full consideration to the risks outlined in SP-10 and this letter.


August 26, 1996


Subject: "B Credit Union" proposed TravelAccount and Rebate Option Programs Dear _____: This letter is in response to your letter dated July 12, 1996, on behalf of your client, "B Credit Union". Your letter requested our opinion on the applicability of WAC 208-440-020, -030, and -050 to the proposed TravelAccount and Rebate Option Programs (collectively, "Programs") that "B Credit Union" intends to offer to its members. My conclusions are as follows. Inapplicability of WAC 208-440-030 ("Section -030") On August 20, 1996, the Department adopted a final rule repealing Section -030. A copy of the filing is enclosed. The repeal takes effect on September 20, 1996. Although it is unclear from your letter when the Programs were intended to be implemented by "B Credit Union", I would not consider Section -030 applicable to the Programs if they were implemented after August 20, 1996. No action to assert violation of WAC 208-440-020, -050 ("Sections -020 and -050") Based on the facts and reasoning presented in your letter, and other considerations, I have determined not to take any action against "B Credit Union" to assert a violation of Sections -020 and -050 for offering the Programs in accordance with your letter. Please be aware that a change in the facts as presented in your letter may require a different conclusion.


September 6, 1996

Sharon A. Ruth
Assistant General Counsel
Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, CA 94105

Subject: Your letter of August 27, 1996

Dear Ms. Ruth:

This letter is in response to your above-noted letter, in which you requested my opinion whether Washington state-chartered credit unions ("Washington credit unions") may serve as Treasury tax and loan depositories and depositories of federal taxes under 31 C.F.R. Section 203.3(b) and applicable Treasury Department regulations. More specifically, you have requested my opinion whether Washington credit unions:
  1. Possess under their charters and regulations issued by the state-chartering authority either general or specific authority permitting the maintenance of an open-ended interest bearing account, the balance of which is payable on demand without previous notice of intended withdrawal, and
  2. Possess under their charters and regulations issued by the state-chartering authority either general or specific authority to pledge collateral to secure funds in an open-ended interest bearing note account (if applicable) and a Treasury tax and loan account; and
  3. Are otherwise eligible under 31 C.F.R. Section 203.3(b)(1).
You have indicated in your letter that federally-chartered credit unions ("federal credit unions") do satisfy these three requirements, based on applicable rules set forth at 12 C.F.R. Section 701.37. NCUA Insurance and WCUSGA Guarantee As we discussed, Washington credit unions currently have an option regarding their share and deposit insurance. Section 31.12A.040(4) of the Revised Code of Washington ("RCW"). Their shares and deposits may be
  1. Insured by the administrator of the National Credit Union Administration ("NCUA") through the National Credit Union Share Insurance Fund ("NCUSIF"), or
  2. Guaranteed by the Washington Credit Union Share Guaranty Association ("WCUSGA") pursuant to Chapter 31.12A RCW (copy enclosed).
At present, of the 103 Washington credit unions, 33 are insured by the NCUSIF ("NCUSIF credit unions") and 70 are guaranteed by WCUSGA ("WCUSGA credit unions"). By legislation adopted in 1996, the Washington State legislature concluded that the private WCUSGA guarantee system should be phased out. Chapter 5, Washington Laws of 1996 (copy enclosed). All Washington credit unions must have NCUSIF insurance by December 31, 1998. Section 5, Chapter 5, Washington Laws of 1996. Enclosed for your information is a copy of the legislative staff’s Bill Analysis for Substitute Senate Bill 6579, the bill that was enacted as Chapter 5. Analysis and Conclusion My conclusions vary, depending on the type of credit union.

NCUSIF credit unions

My conclusion is that NCUSIF credit unions satisfy the three requirements above. First two requirements. NCUSIF credit unions satisfy the first two requirements above by virtue of RCW 31.12.136(1), commonly known as the "parity provision." This provision grants Washington credit unions the powers and authorities that were conferred on federal credit unions as of December 31, 1993, notwithstanding any other provision of law. My understanding is that federal credit unions satisfy the first two requirements above, by virtue of 12 C.F.R. Section 701.37. My research indicates that this section has not been amended since 1989. Consequently, all Washington credit unions, including both NCUSIF and WCUSGA credit unions, possess the requisite authority to satisfy the first two requirements above.

Third requirement. NCUSIF credit unions satisfy the third requirement by virtue of their NCUSIF insurance. 31 C.F.R. Section 203.3(b)(1)(iii).

WCUSGA credit unions

My conclusion is that WCUSGA credit unions satisfy the first two requirements, but it is unclear whether they are able to satisfy the third requirement above.

First two requirements. For the reasons previously explained, WCUSGA credit unions satisfy the first two requirements above.

Third requirement. However, it is unclear whether WCUSGA credit unions satisfy the third requirement above: eligibility under 31 C.F.R. Section 203.3(b)(1). Paragraph (1) requires, in the case of WCUSGA credit unions, that the deposits or accounts of these credit unions be "insured by a State or agency thereof, or by a corporation chartered by a State for the sole purpose of insuring deposits or accounts of such [credit unions]." 31 C.F.R. Section 203.3(b)(1)(iv). Under Chapter 31.12A RCW, WCUSGA is a non-profit, unincorporated legal entity, created by statute, for the purpose of guaranteeing shares and deposits held by WCUSGA-member credit unions. See RCW 31.12A.005, 31.12A.020. It is not clear how the wording of Section 203.3(b)(1) should be applied in this circumstance. Consequently, I am not able to determine with confidence whether WCUSGA credit unions satisfy the third requirement above.


September 20, 1996


Subject: Using streamlined procedure for small occupational groups (SOGs) across state lines

Dear _____:

Thank you for your phone call of September 18th regarding the streamlined procedure for small occupational groups (SOGs) which was approved on September 13th. One of the streamlined procedure requirements is that eligible SOGs are restricted to those enterprises located within 25 miles from your credit union which is in "B", Washington. This 25-mile radius would go across the Washington state line into Oregon. You inquired whether you could take in members from occupational groups in which the occupational group was located in Oregon, using the SOG procedure.

First, your bylaw amendment was approved for SOGs in "C" County, Washington. You will need to apply with another SOG bylaw amendment for approval with the changes as indicated.

Second, the Oregon credit union regulator should approve of your taking Oregon occupational groups through the SOG procedures. I did call Sharlyn Rayment, Supervisory Examiner for Finance and Corporate Securities Division, the Oregon credit union regulator (503-378-4140). On September 18th, she me left a message that Oregon has no objection to your field of membership expansion into Oregon. However, I would recommend that you obtain Ms. Rayment’s written approval.

Once you have obtained both approvals for SOGs in Oregon, we do not object to your adding Oregon SOGs to your field of membership as long as the SOGs fit all of the criteria as listed in your bylaw amendment and you maintain the required SOG log.


September 23, 1996


Subject: Removal of Streamlined Senior Groups from FOM

Dear _____:

As you are aware, the streamlined senior provision in our WAC rules was deleted effective September 20, 1996. This provision deemed groups of retired persons and persons at least age 50 to be an "associational group" for purposes of adding these streamlined senior groups to a credit union’s field of membership.

Our records indicate that your credit union amended its field of membership bylaws to include a streamlined senior group(s). This letter is intended to provide clarification on the effect of the deletion of the authority for these groups.

Eligibility for membership

Your members who joined before September 20, 1996 under a streamlined senior group may continue their membership in your credit union, if your FOM bylaws provide that "once a member, always a member". However, after September 20, you may not qualify individuals as new members based solely on their membership in a streamlined senior group.

Amending your FOM bylaw

In order to "clean up" your FOM bylaws, you should submit for our approval FOM bylaw amendments that delete all streamlined senior groups. These amendments should be approved by your Board in accordance with applicable requirements, and should be submitted to the Division by November 1, 1996.

Adding other senior groups

It should be noted that the Division will continue to approve the addition of groups of seniors to a credit union’s FOM if the groups meet the standard associational group requirements in WAC Chapter 208-472.


(Updated-See I-05-02)


October 29, 1996

"A" Credit Union

Subject: Sublease with "B" Travel

Dear _____:

This letter is in response to your letter dated October 4, 1996, concerning the proposed sublease of space in the lobby of "A" Credit Union (ACU) to "B" Travel. Our rules, at Chapter 208-440 WAC (copy enclosed), address these types of arrangements with other businesses. As we recently discussed, we have the following issues with the sublease:

  1. "ACU" may allow "B" Travel to use its space, facilities, or other property, as long as the property used is a small proportion of the property occupied by "ACU". WAC 208-440-040, -050. In this case, the space sublet to B Travel is about 8% of the space occupied by "ACU". This satisfies the "small proportion" requirement of the rule.
  2. "ACU" should make best efforts to include wording in the sublease to the effect that "B" Travel will hold "ACU" harmless from any claim arising out of the sale or use of "B’s" products and services. WAC 208-440-050.
  3. The term of the sublease should be reasonably limited, or subject to termination (with an appropriate notice period) without cause. In this case, a reasonable term would be no more than one year, not including any possible renewals.
  4. "ACU" may permit "B" Travel to contact "ACU’s" membership to offer products and services. WAC 208-440-050.
  5. Signs, flyers, newsletters, marketing materials, and the like may not imply that "B" Travel’s products and services are for sale directly by "ACU", or that "ACU" expressly endorses or vouches for "B’s" products and services. WAC 208-440-020, -040, -050. Moreover, these materials should be carefully drafted to:
  1. Include, if feasible, a disclaimer that "ACU" does not endorse or vouch for "B’s" products and services, and is not responsible for such products and services. (See related disclaimers in the enclosed page from the USPS "Mover’s Guide"); and
  2. Avoid any unnecessary implication that "ACU" is responsible for "B’s" products and services. For example, the word "partners" should be removed from the draft of the advertising you provided. Moreover, the phrase "hand-in-hand" should be reviewed by your attorney to see if this phrase too could create an unreasonable level of exposure for "ACU" from the arrangement with "B".
    "ACU" may pay its reasonable share of the cost of joint marketing materials. However, it may not pay for materials that market "B" Travel’s products and services solely. WAC 208-440-020, -050.
  1. "ACU" should inquire with its blanket bond carrier to ensure that coverage is not adversely affected by the arrangement with "B" Travel.

If you have any further questions about the regulatory requirements that may apply to the proposed sublease with "B", please contact me.


November 25, 1996

"A" Credit Union

Subject: Application of "B" Credit Union to include community of "C" in its FOM

Dear _____:

This letter is in response to your two comment letters, dated June 12 and August 30, 1996, on the application of B to add the community of C to its field of membership (FOM). Considering the current financial strength of A, with over 10% capital, we have concluded that approval of B’s application does not present an immediate threat to the viability of A under WAC 208-472-075(7).

As we discussed the other day, we have approved B’s application. The following is a list of the major points (some in paraphrase) in your letters, followed by our response.

June 12, 1996 Letter

  1. Comment: The B expansion would constitute "an immediate threat to the viability" of A.

Response: WAC 208-472-075 provides certain criteria that the Division considers when processing FOM applications. The criterion stated in subsection (7) is: "Whether approval of the application might reasonably threaten the viability of another credit union." In normal usage, the word "threat" denotes some immediacy or urgency. For that reason, the letter sent out by FOM applicants requests comment whether approval will present an immediate threat to another credit union.

The comment letters received from A were the most detailed we have received on this issue to date, and caused us to spend some time sorting through the facts and considering our policies on "immediate threat to viability."

In considering the issue, we have concluded that the approval must threaten the viability of another credit union within a relatively short time period, such as six months. There is no question that A genuinely believes that approval of B’s application will have an adverse financial impact on A. However, there was no indication from your letters that the impact would be immediate. It would seem that a typical scenario for "immediate threat" would involve a credit union that was in a very weak capital position, perhaps a CAMEL 4 or 5. A currently enjoys a very strong capital position, in excess of 10%.

In looking at this issue, we also consulted some of the pertinent studies on credit union competition. A 1992 Filene Institute study on field of membership stated:

Perhaps the most serious unresolved field of membership issue is competition among credit unions. Traditionally, a strong anti-competitive nature was instilled in credit unions by their cooperative philosophy and by regulatory policies. Federal chartering policy is still officially stated in a strong anti-competitive manner. However, times have changed. Today’s financial service environment is one of intense competition. In such an environment only the most efficient survive, and competition forces efficiency. Restraints on field of membership expansion, solely because they result in competition with other credit unions, could lead to the death of both the credit union wishing to expand and the credit union wishing to have its field of membership protected. They could both die at the hands of a competitor - probably a commercial bank.

Albert E. Burger and Tina Dacin, Field of Membership: An Evolving Concept, page 49, Madison: Filene Research Institute (1992).

Another Filene study looked at the effect of the change in Utah’s FOM policy in the early 1980s. The change allowed Utah state credit unions to offer services to as broad a group of citizens as they chose. The study, conducted in 1994, concluded that the policy change did not lead to a few large credit unions driving smaller credit unions out of the market. At the time of the study, one-third of Utah credit unions had assets of $1 million or less. Ramon E. Johnson, Field of Membership and Performance: Evidence from the State of Utah, Madison: Filene Research Institute (1994).

Unlike the policies of the National Credit Union Administration, the Washington State Credit Union Act is not anti-competitive in its tenor. It does not require the Division to deny FOM expansions based on anti-competitive or protectionist notions. To the contrary, the Act charges the Division with the duty to "ensure that state-chartered credit unions remain viable and competitive in this state." RCW 31.12.015. Consistent with the Filene study quoted above, we believe that a policy of protecting credit unions from competition will not ensure their viability or their competitiveness. Our policies allow more than one credit union to include the same community in its FOM.

In October 1994, the Credit Union National Association (CUNA) issued a news release which provided:

Although overlap can be an emotional issue, CUNA’s Field of Membership Task Force believes there is only one way to examine it objectively. Rather than taking the perspective of credit unions or trade associations, the Task Force is taking the perspective of consumers.

From the consumers’ perspective, overlap is a non-issue. Access to more than one credit union simply provides a wider array of credit union services, and decreases many consumers’ need to use for profit institutions for certain financial services.

If we tried to protect consumers from overlaps, all we’d be doing is preventing them from receiving the services they want - and driving them to banks and other competitors instead of keeping them in the credit union movement.

As CUNA pointed out, by denying FOM expansion, based on protectionism, we would be effectively denying consumers another valuable choice in the marketplace.

Based on these considerations, we have concluded that approval of B’s application does not present an immediate threat to the viability of A under WAC 208-472-075(7).

For your information, our policies do provide some limited FOM protection, but only from direct overlaps in the same occupational or associational group, with certain exceptions. This long-standing policy originally grew out of a concern for the financial impact that such direct overlaps could have on small credit unions that were reliant on only one or two occupational or associational groups. This policy is still reflected in our current rules. See WAC 208-472-025, 050.

  1. Comment: The approval of B’s application by the Division constitutes the granting of an "unfair" competitive advantage to B.

Response: As you are aware, the dual chartering system offers credit unions a choice between a state and federal charter. The nature of the dual chartering system is that a competitive tension exists between the policies of the two systems. There are many similarities and many differences between the policies of each. There are also distinct advantages and disadvantages to each, depending on the business strategy of the credit union. It is generally agreed, however, that state charters are often better able to innovate to serve the needs of their members. Over the years, as the relative appeal of each charter has risen or fallen, we have experienced conversions in both directions. The beneficiaries of this scenario are the credit unions and their members.

In this instance, B is entitled to exercise its powers to the fullest extent permitted by state law, without regard to whether it may disadvantage other state or federal credit unions. To the extent you have concerns that policies established by Congress or NCUA may place federal credit unions at a competitive disadvantage, these concerns should be addressed to the policymakers in Congress or the NCUA.

  1. Comment: An approval by the Division of B’s application, which will create a complete overlap of A’s smaller, federally chartered "community" field of membership, would be unprecedented.

Response: We disagree. We believe that in several other situations such complete overlaps have been approved by the Division or the NCUA.

  1. Comment: If federal or state credit union regulators begin to approve complete field of membership overlaps, that pit credit unions directly against each other, the very foundation of the credit union movement, that of mutual cooperation between credit unions, will be placed in severe jeopardy.

Response: Certainly, competitors probably won’t be too interested in cooperation. However, there is no reason credit unions generally cannot find ways for meaningful cooperation. The 1992 Filene study quoted above states (at page 49):

It is important that credit unions continue to acknowledge the importance of their founding ideals and embed them in the structure of the current credit unions. While competition will force individual credit unions to operate at a high rate of internal efficiency, it does not necessarily negate the benefits of cooperation. There is no reason for credit unions and their members to throw away the basic cooperative values of equality, equity, and mutual self-help. For example, through mutually beneficial cooperation, credit unions can achieve efficiencies with regards to the sharing of information, the diffusion of new innovations, and the sharing of services.

  1. Comment: A wishes also to challenge B’s application on the basis of WAC 208-472-015(4), the proper definition of a community. We are not challenging the definition as it applies to C as described in B’s application, but rather the implication that there is some sense of a continuous community between C and "D".

Response: Under our rules, B may have one or more communities in its FOM, whether or not contiguous. There is no requirement that the communities of C and D be one and the same community.

  1. Comment: A believes that a "community" FOM overlap cannot benefit the citizens of the communities of either C or D.

Response: We disagree. As discussed in our response to comment #1 above, competition between credit unions (and other financial institutions) enhances consumer choice in the marketplace, and makes credit unions more efficient, thereby providing additional consumer benefits.

August 30, 1996 Letter

  1. Comment: WAC 208-472 indicates that an application for a field of membership expansion that "reasonably threatens the viability of another credit union" or one which overlaps another credit union's field of membership as defined by employment or association may not be approved by the Division.

Response: We disagree. The criterion listed in WAC 208-472-075(7) is: "Whether approval of the application might reasonably threaten the viability of another credit union." In most cases we would deny an application that presented such a threat. However, Subsection -075 lists criteria for our consideration, and does not require us to deny an application if one or more of the criteria are present.

As noted above, there are certain restrictions on the approval of applications that present direct overlaps in the same occupational or associational group. However, even in these cases, an application presenting a direct occupational or associational overlap may be approved if it falls within one of three specified exceptions, e.g., if a certain percentage of the group desires service from the applicant credit union. WAC 208-472-025(3), -050(3).

  1. Comment: What are the circumstances that make up a "reasonable threat to the viability of an existing credit union", if not the circumstances in this case?

Response: Please see the response to comment #1 above,

  1. Comment: We contend that the approval by the Division of complete overlaps of the FOM of a smaller credit union by a significantly larger credit union will in itself present a threat to the continued viability of the smaller credit union.

The viability threat in this case is just much, much greater when the smaller credit union happens to be federal and operating under the laws governing federal community charter credit unions.

Response: Please see the response to comment #1 above,

  1. Comment: Nothing in WAC 208-472 indicates that a conscious decision has been made to grant complete overlaps of the FOM of an existing credit union.

Quite the contrary, WAC 208-472 seems to have been written presuming that there would be viability consequences to complete FOM overlaps and therefore it precludes their approval in many of its provisions.

Response: As noted above, our rules only restrict direct overlaps in the same occupational or associational group, with certain exceptions. Approval of other types of direct or indirect overlaps is not restricted under our rules.

  1. Comment: It is our position that the Division’s rules requires that a FOM expansion application comply with WAC 208-472-065(8). B’s application does not comply with this rule and therefore should not be approved. The application in order to comply with this rule must include a provision that B will not direct market to any occupational or associational group within C because they are all within the FOM of A.

Response: Credit unions with a community group in their FOM may take as a member any person that lives, works, or worships in the community. After the inclusion of a community in its FOM, a credit union may not direct market to occupational or associational groups (in the community) that are expressly part of the FOM bylaw of another credit union. WAC 208-472-065(8). This rule is an extension of the limited overlap protection afforded to occupational and associational based credit unions.

However, this rule does not apply in the current circumstance because A gave up all of its SEGs when it became a community charter credit union. If we widen the scope of the direct marketing restriction to apply in this case, I believe we would soon be faced with a multitude of different factual situations which would require us to sort out, based on some general notion of equity, in what circumstances the rule should and should not apply. We have chosen not to open up this Pandora’s box.

  1. Comment: Our contention here is in reference to the WAC 208-472 provision against a credit union applying for a field of membership simply to circumvent another credit union's marketing plans.

Response: I believe that you are referring to the criterion listed in WAC 208-472-075(8): "Whether the applicant is using the inclusion of the group as a marketing strategy to preempt expansion by other credit unions." Our concern here is that a credit union may add a new group in order to preempt another credit union from adding the group to its FOM, without any real intention of serving the group. This concern arises primarily with occupational or associational groups, where some measure of overlap protection is provided. B’s application is for a community, not an occupational or associational group. Moreover, Subsection (8) is inapplicable because C is already in the FOM of A.

  1. Comment: Another provision of WAC 208-472 is that the applicant credit union provide information whether the applied for FOM is large enough to have its own credit union.

Response: I believe that you are referring to the criterion listed in WAC 208-472-075(4):

"... whether the proposed new group has sufficient size and resources to form a credit union of its own." However, subsection (4) by its terms applies only to the inclusion of occupational or associational groups, and is therefore not applicable to the B’s application.

  1. 14. Comment: The fact that the Division required service and penetration plans to be submitted with B’s application and now is requiring documentation of the actual results attained, indicates that the Division expects a credit union to accomplish what it sets out to do in one area before promising to accomplish even more in another area.

Response: WAC 208-472-075(6) lists another criterion: "Whether the applicant has complied with plans on penetration and service submitted with previously approved applications for inclusion of a group in the applicant’s field of membership." Our concern here is that a credit union may add new groups to its FOM without intending to make real efforts to serve the groups. What we are looking for is an indication whether the applicant credit union is making bona fide efforts to serve the groups in its existing FOM.

However, we do not intend to dictate minimum penetration or service levels of existing groups which must be reached before a credit union is eligible for Division approval of the addition of new FOM groups.

Please contact me if you have any further questions about our decision on B’s application or our policies on FOM expansion.


December 3, 1996


Subject: Your letter dated November 22, 1996, requesting opinion on Chapter 208-440 WAC;

Dear _____:

By letter referenced above, you requested the answer to several questions regarding the application of Chapter 208-440 WAC. Chapter 208-440, initially adopted in 1979, is entitled "Rules On Credit Union Participation In Commercial Business Activities."

Your first question was whether Chapter 208-440 was invalidated in 1984 because the stated statutory authority for the Chapter, RCW 31.12.360, was repealed by Section 1(39), Chapter 31, Laws of 1984. In large part, RCW 31.12.360 specified procedures for the supervisor (predecessor to the Director of DFI) to remove a director or officer of a credit union. However, RCW 31.12.360 also included the following general wording, at the very end of the section:

The supervisor shall be charged with the administration and enforcement of this chapter, shall require each credit union to conduct its business in compliance therewith, and shall have power to commence and prosecute actions and proceedings to enforce the provisions of this chapter, to enjoin violations thereof, and to collect sums due the state of Washington from any credit union.

It appears that the supervisor determined that this wording provided the statutory basis for Chapter 208-440. This wording was substantially re-enacted as Section 53, Chapter 31, Laws of 1984, and is currently set forth in RCW 31.12.516. My conclusion therefore is that the 1984 repeal of RCW 31.12.360 did not invalidate Chapter 208-440.

However, as we agreed by telephone, I am returning your request in light of my desire to repeal Chapter 208-440 sometime around 1997 and replace it with general guidelines addressing safety and soundness issues. When I have developed a draft of the guidelines, I will forward them to you for comment.

As I mentioned in our conversation, enclosed is our Opinion 96-15 which we recently issued on Chapter 208-440. If you have any further questions concerning Chapter 208-440, feel free to contact me at (360) 902-8778.


This opinion has been canceled.


December 10, 1996


Subject: Telephone conference for board meetings

Dear _____:

You recently inquired whether a board meeting, regular or special, could be conducted if some or all of the directors participated from a remote site by telephone conference call. The statutory issues here are whether this arrangement constitutes a board meeting under RCW 31.12.255, and whether the remote director(s) participation constitutes their attendance under RCW 31.12.235(2). You should also review your articles and bylaws to ensure that this arrangement is permitted (or at least not prohibited) by any relevant provisions in these documents.

For the conference call arrangement to satisfy RCW 31.12.255 and .235(2), the following is required:

  1. The credit union should have telephone equipment that allows the remote director(s) to be both heard by all board members in attendance and to hear all board members' comments.
  2. The remote director(s) must receive the board packet in advance. All directors must have the same written information and the same amount of advance time to read the information.
  3. If additional written material is presented to the board, the remote director(s) should have immediate access to the same material by fax transmission.
  4. The telephone conference call should last for the entire period of the board meeting so the remote director(s) can hear all the discussion on the business conducted during the meeting. A phone call that is only long enough to ask for the remote director(s)' vote on pending motions does not satisfy the statutory requirements.

The remote director(s) will count toward a quorum for the meeting as long as all of the above requirements are fulfilled.


December 31, 1996


Subject: Counting mail ballots to reach quorum at membership meeting

Dear _____:

You have inquired how a quorum should be counted for a meeting of members. In your particular case, members will be voting on a merger proposal at a special meeting. They may vote by mail ballot or may attend the meeting in person to cast their vote. Your specific question is whether those members present in person as well as those voting by mail ballot should be counted for establishing a quorum.

The sections of state law which deal with special membership meetings and mergers are RCW 31.12.195 and .695, respectively. However, neither of these sections specify a minimum quorum level, let alone how a quorum should be counted.

Section 4, Article V of your Bylaws specifies quorum requirements for membership meetings. It states in part that if a quorum is not "present" at the appointed date of the meeting, the meeting may be recessed until a later date. However, like the statute, it also does not specify how a quorum should be counted.

In reviewing this issue, I looked to the analogous situation with general business corporations to see how they count a quorum for stockholder meetings. Stock corporations are permitted by general corporate law to count those persons voting by proxy as well as those persons present in person at a stockholders meeting to determine whether a quorum has been reached.

As noted above, there is no statutory direction in the Washington State Credit Union Act (Chapter 31.12 RCW) on this point. However, I believe that the general corporate law position is a rational one and that the same position should be adopted for credit unions. Accordingly, I have concluded that for the purpose of establishing a quorum at a membership meeting, you should count each member attending the meeting personally, as well as each member voting by mail ballot on an issue presented at the meeting.


December 17, 1996

To: File

Subject: Payment of membership fee or purchase of membership shares

I've had questions from two CUs recently whether, in order to join a CU, an eligible person must either pay a membership fee or purchase membership shares. That is, do they have to do one or the other in order to join? Looking at Ch. 31.12, particularly 31.12.065(1)(c) and .145., I conclude that as long as a person is within the FOM of the CU, and the Bylaws of the CU do not require payment of the fee or purchase of the shares, the CU may admit the eligible person without the payment or purchase. I think that the CU needs to set a policy on this, in its Bylaws or otherwise; members will not be happy about different treatment. Obviously, the policy cannot be applied in a discriminatory manner.