Washington State Department of Financial Institutions

DIVISION OF CREDIT UNIONS

OPINION LETTERS 1998

 

OPINION NUMBER 98-1

This opinion has been canceled.


OPINION NUMBER 98-2

 March 27, 1998

To: Opinion File

From: J. Parker Cann, Assistant Director

Subject: Requirement for submission of U.S. Department of Commerce, Bureau of the Census-Form FI 6002 (1997 Economic Census-Credit Unions)

The Division has reviewed the statutory requirement in 13 U.S.C. Section 224, for submission of the above noted form. It is our opinion that all credit unions that received this form are required to complete and return it on or before the due date. The Department of Commerce has the authority to levy a fine of $500 for failure to comply.


REDACTED OPINION NUMBER 98-3

April 1, 1998

"A"
"B" Credit Union

Subject: Investment in real property primarily for own use (RCW 31.12.438)

 Dear "A":

Thank you for your request regarding the purchase of a building for future credit union use. Below is the information we discussed.

Request: "B" wants to purchase a piece of land with two buildings on it. One building has 50,000 square feet and will be occupied 100% by the credit union upon purchase. The second building has 58,000 square feet and will be occupied by the credit union in five to seven years.

Relevant statute: RCW 31.12.438 (1) restricts credit unions to investment in real property primarily for their own use. Primarily is defined that 50% plus one of total square footage for each building that is owned and occupied by the credit union. In the above request, "B" will need to apply to the Division of Credit Unions for a waiver of the limitations of RCW 31.12.438 (2) in order to use the second building in five to seven years.

Question: What does primarily mean? Can a credit union add the square footage of all buildings owned and occupied to meet the "primarily" requirement or is "primarily" based on each building?

Answer: RCW 31.12.438 (1) requires credit unions to invest in the real property primarily for its own use. Primarily is defined that 50% plus one of total square footage for each building is owned and occupied by the credit union. In the above request, "B" will need to apply to the Division of Credit Unions for a waiver of the limitations of RCW 31.12.438 (2) in order to use the second building in five to seven years.


OPINION NUMBER 98-4

To: Opinion File

From: J. Parker Cann, Assistant Director

Subject: Summary of New Washington State Credit Union Act, Chapter 31.12 RCW, Effective January 1, 1998

New Washington State Credit Union Act - Background Information

Introduction. In 1997, the Washington State Legislature enacted extensive modernizing revisions to the Washington State Credit Union Act (Act), Chapter 31.12 of the Revised Code of Washington (RCW). These changes, enacted as Chapter 397 of the Laws of 1997, took effect on January 1, 1998, with a few exceptions, as discussed below.

In part, the new Act allows credit unions to exercise certain corporate governance powers, but only if they are set forth in the credit union’s bylaws. In effect, these provisions require credit unions that wish to take advantage of these powers to amend their bylaws.

Sections of the memo. This memo addresses the following:

  1. Bylaw amendments necessitated by Chapter 397.
  2. Section-by-section summary of the new Act.
  3. Sections repealed by Chapter 397.
  4. Disposition of former sections re-numbered by Chapter 397.

Effective date of the new Act. The new Act took effect on January 1, 1998, except for

Distribution of copies of new Act. A copy of the new Act was previously mailed to all credit unions. Additional copies of the Act are available from Tina at the Division. She may be reached at (360) 902-8718, or by e-mail at tphilippsen@dfi.wa.gov.

New Washington State Credit Union Act - Bylaw Amendments Necessitated by Chapter 397, Laws of 1997

Administration by the Division

Delegation of authority to Division to approve. Although the new Act and Division rules refer to action by the Director of the Department of Financial Institutions (Director), the Director has for the most part delegated his authority to the Assistant Director of the Division. Consequently, all correspondence, notices, applications, etc. which the statute requires to be submitted to the Director should be submitted instead to the Division for processing.

Grace period for bylaw compliance for examination purposes. Although the new Act took effect on January 1, 1998, the Division has taken the position that credit unions will not be criticized for failing to amend their bylaws as required by the new Act, until after June 30, 1998. However, for other purposes, such as delegating Board duties, or creating a member expulsion procedure, credit unions may wish to act as soon as possible to amend their bylaws. As you know, only field of membership (FOM) Bylaw amendments need the prior approval of the Division.

Board of Directors

Delegation of duties (RCW 31.12.255). The Board may delegate the duties listed in RCW 31.12.255(2). The delegation should be stated in the credit union’s bylaws or a resolution adopted by the Board.

Qualifications (RCW 31.12.065, .235)

  1. If a credit union wants to establish qualifications (other than statutory qualifications) for members to serve on the Board, it must provide for such in its bylaws.
  2. If the credit union wants to allow officers and employees to serve on the Board, it must provide for such in its bylaws.

Vacancies (RCW 31.12.225). If the credit union wants to allow interim directors to serve only until the next annual membership meeting (rather than allowing them to serve out the unexpired term of the replaced director), it must provide for such in its bylaws.

Indemnification (RCW 31.12.065)

If provisions for the indemnification of directors, supervisory committee members, officers, and employees are not set forth in the credit union’s articles of incorporation, they must be set forth in the bylaws.

Members

Expulsion/reinstatement

Conditions (RCW 31.12.255). The Board must establish the conditions for expulsion of members for cause. These conditions should be set forth in the bylaws or in a Board resolution.

Delegation (RCW 31.12.255, .388). The Board may delegate its authority to expel and reinstate members to a committee, officer, or employee of the credit union. The delegation should be set forth in the bylaws or in a Board resolution.

Meetings

Annual (RCW 31.12.185). The Board must approve rules of procedure for conduct of annual membership meetings. These rules should be adopted by reference in the credit union’s bylaws or a Board resolution. Established rules of procedure should be utilized, such as Robert’s Rules of Order.

Special (RCW 31.12.195)

  1. If the credit union wants to allow special meetings to be held outside of the county in which the principal place of business of the credit union is located, it must provide for such in its bylaws.
  2. If the credit union wants to allow the Board secretary to give notice of a special meeting more than 10 days after the request for the meeting is received, it must provide for such in its bylaws.
  3. The Board must approve rules of procedure for conduct of special membership meetings. These rules should be adopted by reference in the credit union’s bylaws or a Board resolution. Established rules of procedure should be utilized, such as Robert’s Rules of Order.

Voting by minors (RCW 31.12.386). If the credit union wants to allow members younger than 18 to vote, it must provide for such in its bylaws.

Supervisory Committee

Directors on Committee (RCW 31.12.326). If the credit union wants to allow members to elect more than one director of the credit union to serve on the Supervisory Committee at the same time, it must provide for such in its bylaws.

Qualifications of members (RCW 31.12.065). If the credit union wants to establish qualifications (other than statutory qualifications) for members to serve on the Supervisory Committee, it must provide for such in its bylaws.

Vacancies (RCW 31.12.326). If the credit union wants to allow interim Supervisory Committee members to serve only until the next annual membership meeting (rather than allowing them to serve out the unexpired term of the replaced member), it must provide for such in its bylaws.

New Washington State Credit Union Act - Section by Section Summary
Significant Changes Effected by Chapter 397, Laws of 1997

Note: This summary explains only the significant wording changes in the new Act. This summary does not explain provisions of the old Act which were not amended and continue in effect.

 Board of Directors; Committee Members; Officers

Compensation of directors and committee members (RCW 31.12.365)

  1. The new Act continues to prohibit directors and committee members from receiving compensation. However, under the new Act directors and committee members may receive:
  • Incidental services provided to other employees generally; and
  • Gifts of minimal value. The Division has taken the position that gifts to individual directors and committee members from their credit union may not exceed $50 in the aggregate each year.
  1. A credit union may reimburse directors and their spouses for expenses related to the director’s Board and committee duties.

Duties of Board (RCW 31.12.255)

  1. The changes to this section clarify the delegable and non-delegable duties of the Board.
  2. This section was not intended as an exhaustive listing of all Board duties.
  3. The Board should use its prudent judgment in determining whether duties not listed in this section are delegable or non-delegable.

Fiduciary duties of directors and officers (RCW 31.12.267). This section confirms the fiduciary duties of directors and officers. Credit union directors and officers (whether board officers or corporate officers) owe a fiduciary duty to the credit union. The wording of this section follows the description of the fiduciary duties of general business corporation directors and officers set forth in RCW 23B.08.300 and .420.

Oath (RCW 31.12.225). Directors, principal operating officers, and committee members no longer have to swear an oath of office.

Officers (RCW 31.12.265). The Board must elect board officers and designate operating officers. Note the distinction between Board officers and corporate officers, as indicated in the definition section, RCW 31.12.005.

Qualifications of directors (RCW 31.12.235)

  1. A credit union must set forth in its bylaws any qualifications (other than statutory qualifications) for individuals to serve on the Board.
  2. Officers and employees of a credit union may serve on the credit union’s Board, but only if the credit union’s bylaws so provide. The officers and employees on the Board must constitute less than a majority of the full Board.

Suspension by Board (RCW 31.12.285). The Board may for cause suspend a director or Supervisory Committee member until a membership meeting is held, but a two-thirds vote of the Board is no longer required to suspend. A simple majority of the Board will suffice.

Vacancies (RCW 31.12.225)

  1. The Board must appoint an interim director to fill a vacancy on the Board, unless the interim director would serve a term of fewer than 90 days.
  2. Interim directors serve out the unexpired term of the director they replace, unless the credit union’s bylaws provide that interim directors may serve only until the next annual membership meeting.

Corporate Governance

Articles of Incorporation  

Amendments (RCW 31.12.105). The Division must approve or deny applications for articles amendments within 60 days after receipt of the complete application.

 Information on directors and incorporators (RCW 31.12.055). A credit union may delete its directors’ and incorporators’ occupations and addresses from its articles of incorporation.

Bylaws

Amendments (RCW 31.12.115)

  1. The Board of Directors must approve a bylaw amendment by at least a majority vote. No longer is a two-thirds vote required. Certain other notice requirements for approval of bylaw amendments have been deleted.
  2. The Division must approve or deny applications for FOM bylaw amendments within 60 days after receipt of the complete application.

Indemnification (RCW 31.12.065). A credit union must set forth provisions on indemnification of directors, Supervisory Committee members, officers, and employees in its bylaws if they are not set forth in the credit union’s articles of incorporation.

Definitions (RCW 31.12.005)

The following terms are redefined or defined for the first time:

Enforcement

Cease and desist orders (RCW 31.12.585). The changes to this section clarify the Division’s authority to issue a notice of charges preliminary to the entry of a cease and desist order (C&D).

Conservatorship and receivership (RCW 31.12.637). This section establishes grounds for the Division to put a credit union under supervisory direction, or appoint a conservator or receiver for a credit union.

Removal of directors, supervisory committee members, officers, and employees (RCW 31.12.575). The Division may remove a credit union director, Supervisory Committee member, officer, or employee, if certain grounds exist. This section replaces the Division’s existing authority to remove a director or principal operating officer.

Examination and supervision

Exam reports and other confidential information (RCW 31.12.565). Exam-type confidentiality is extended to:

GAAP requirements (RCW 31.12.569). Credit unions must comply with generally accepted accounting principles (GAAP) as identified by rule of the Division. The Division may not put such rules into effect before January 1, 1999. The Division may take into consideration whether such rules should be phased in for small credit unions. However, this section was not intended to eliminate any current GAAP requirements established by the Division as a matter of safety and soundness (SFAS 115, allowance for loan loss, etc.).

General authority of the Director (RCW 31.12.516). The Director is granted broad administrative discretion to interpret the Act.

Regular reports to the Director (RCW 31.12.567). Credit unions must file financial reports with the Division at least semi-annually, consistent with current filing practice (5300S reports).

Regular reserves (RCW 31.12.445). The changes to this section confirm that the regular reserve requirements apply only to credit unions whose shares and deposits are not federally-insured, such as WCUSGA members. NCUA-insured credit unions must comply with the reserving requirements in NCUA rules at Part 741.

Members

Expulsion/reinstatement

Conditions for expulsion (RCW 31.12.255). The Board must establish the conditions for expulsion of members for cause. These conditions should be set forth in the bylaws or in a Board resolution.

Delegation (RCW 31.12.255, .388). The Board may delegate its authority to expel and reinstate members to a committee, officer, or employee of the credit union. The delegation should be set forth in the bylaws or in a Board resolution.

Process (RCW 31.12.388). The process for expulsion of a member, and the obligations of an expelled member, are clarified.

Meetings

Annual (RCW 31.12.185). A credit union must conduct its annual membership meetings in accordance with rules of procedure approved by the Board. These rules should be adopted by reference in the credit union’s bylaws or a Board resolution. Established rules of procedure should be utilized, such as Robert’s Rules of Order.

Special (RCW 31.12.195)

  1. A credit union may conduct special membership meetings outside of the county in which the principal place of business of the credit union is located, but only if the credit union’s bylaws so provide.
  2. A credit union may allow the Board secretary to give notice of a special meeting more than 10 days after the request for the meeting is received, but only if the credit union’s bylaws so provide.
  3. A credit union must conduct its special membership meetings in accordance with rules of procedure approved by the Board. These rules should be adopted by reference in the credit union’s bylaws or a Board resolution. Established rules of procedure should be utilized, such as Robert’s Rules of Order.

Voting (RCW 31.12.386)

  1. Credit union members may not vote by proxy at membership meetings.
  2. The Board may permit members younger than 18 to vote, but only if the credit union’s bylaws so provide.

Mergers (RCW 31.12.461). The disappearing credit union in a merger may submit the merger proposal to its members at an annual or special membership meeting. Previously, the credit union had to submit the proposal for a vote at a special membership meeting.

Out-of-state and foreign credit unions (RCW 31.12.471)

  1. Foreign credit unions (organized under the laws of other countries) may conduct business in Washington State, subject to the same requirements as out-of-state credit unions, with two additional requirements:

  • That a treaty with the country in which the foreign credit union is organized requires the Division to permit the credit union to conduct business here; and
  • That the foreign credit union has substantially the same characteristics as Washington State-chartered credit unions.
  1. The Division may enter into agreements with out-of-state and foreign credit union regulators concerning the Washington laws that apply to such credit unions’ Washington branches, and the laws of other states and countries that apply to branches of Washington credit unions in those states or countries.

 Powers of credit unions

Generally (RCW 31.12.402)

  1. In general, the powers of credit unions are clarified, and cross-references to sections dealing with specified powers have been added.
  2. A credit union’s outstanding aggregate borrowings may not exceed 50% of its total shares, deposits, and net capital.
  3. A credit union may not sell all or substantially all of its assets without the prior approval of the Division. Previously, a credit union could not sell more than 10% of its assets without the prior approval of the Division.
  4. The existing implied authority of credit unions is confirmed in several areas, including the authority to:
  • Procure for or sell to members group life, accident, health, and credit life and disability insurance.
  • Enter into agreements with other credit unions to foster their development.
  • Make charitable contributions in the communities in which they do business.

Investments (RCW 31.12.436)

  1. Credit unions may invest in the listed investments, as long as they are deemed prudent by the Board.
  2. The authority of credit unions to buy loans from other lenders is clarified. Note that NCUA rules at Part 741 restrict the purchase of certain loans by NCUA-insured credit unions.
  3. A credit union may invest an amount up to 5% of its capital in organizations owned by the Washington Credit Union League.
  4. A credit union may invest in credit union service organizations (CUSOs), whether or not the CUSO’s ownership or membership is limited primarily to credit unions, as long as the primary purpose of the CUSO is to serve credit unions and their members. A credit union may invest in CUSOs an amount up to 2% of its assets (1% in CUSO stock; 1% in loans to the CUSO).
  5. A credit union may invest in key person insurance, if the proceeds from the policy inure exclusively to the credit union.

Loans (RCW 31.12.426)

  1. The requirement that credit unions document their loans in writing is eliminated. This change will allow for the use of document imaging and other technology. However, credit unions must ensure that loan documentation continues to be sufficient to support enforcement and collection of the loan, as well as review of the loan by the Division. Inadequate loan documentation may create safety and soundness issues.
  2. Credit unions are no longer required to retain a percentage of loans that they sell.

Loans-to-one-borrower limit (RCW 31.12.428). Effective beginning July 1, 1998, a credit union cannot make a loan to a borrower if the aggregate of all loans (consumer and business) to the borrower will exceed an amount equal to 25% of the credit union’s capital (a defined term). This provision applies only to loans made on or after July 1, 1998. There are certain exceptions to this limit - a credit union may make a loan to a borrower if the aggregate loans to the borrower do not exceed:

  1. $10,000; or
  2. An amount which has been approved in advance by the Division.

Until July 1, 1998, the loans-to-one-borrower limit will continue to be 2.5% of assets. See pre-existing RCW 31.12.317.

Note that there is a separate loans-to-one-borrower limit on member business loans, which will continue in effect. See WAC 208-464-050. Consequently, member business loans must also satisfy this WAC limit.

Real property (RCW 31.12.438). The changes to this section confirm that a credit union may purchase property primarily for use in conducting its business. In addition, a credit union must put property purchased for future expansion into primary use within 3 years.

Statutory lien on member shares and deposits (RCW 31.12.416). The changes to this section confirm that credit unions have a statutory lien on shares and deposits for member obligations.

Supervisory Committee 

Directors on Committee (RCW 31.12.326). A credit union’s members may elect no more than one director of the credit union to serve on the Supervisory Committee at the same time, unless provided otherwise by the credit union’s bylaws.

Duties 

Attending Board meetings (RCW 31.1.335). At least one Supervisory Committee member may attend each Board meeting.

No more reports on special member meetings (RCW 31.12.195). Supervisory Committees no longer have to make a report to the Director of Department of Financial Institutions (DFI) on the outcome and conduct of special membership meetings.

Qualifications (RCW 31.12.065). A credit union must set forth in its bylaws any qualifications (other than statutory qualifications) for individuals to serve on the Supervisory Committee. 

Suspension by Supervisory Committee (RCW 31.12.345). The Supervisory Committee is no longer authorized to suspend officers. 

Vacancies (RCW 31.12.326)

  1. The Supervisory Committee must appoint an interim member to fill a vacancy on the Committee, unless the interim member would serve a term of fewer than 90 days.
  2. Interim members serve out the unexpired term of the member they replace, unless the credit union’s bylaws provide that interim members may serve only until the next annual membership meeting.

New Washington State Credit Union Act – Sections Repealed by Chapter 397, Laws of 1997

 Section 88 of Chapter 397 repealed various RCW sections:

  • RCW 31.12.095
  • RCW 31.12.165 - However, the substance of this section was added to RCW 31.12.402.
  • RCW 31.12.206 - This section permitted members to petition the Director of DFI to remove a majority of the Board.
  • RCW 31.12.315 - This section required the credit committee or a loan officer to approve loan applications. Repeal will allow the prudent use of automated loan approval programs.
  • RCW 31.12.355
  • RCW 31.12.376 - In essence, this section defined "capital" to include all shares and deposits. The term has been redefined in the definition section (RCW 31.12.005) to include reserves, undivided earnings, and the allowance for loan loss.
  • RCW 31.12.395 - However, the substance of this section was added to RCW 31.12.255.
  • RCW 31.12.415
  • RCW 31.12.455
  • RCW 31.12.475 - However, the substance of this section was added to RCW 31.12.448.
  • RCW 31.12.495 - However, the substance of this section was added to RCW 31.12.402.
  • RCW 31.12.506 - This section limited operating expenses to a set percentage of assets.
  • RCW 31.12.535 – However, the substance of this section was added to RCW 31.12.516.
  • RCW 31.12.645 – However, the substance of this section was added to RCW 31.12.850.
  • RCW 31.12.903
  • RCW 31.12.904
  • RCW 31.12.905
  • RCW 43.320.125 – However, the substance of this section was added to RCW 31.12.516.

New Washington State Credit Union Act - Disposition Chart for Former Sections of Chapter 31.12 RCW Renumbered by Chapter 397, Laws of 1997

Old Chapter 31.12 Section (as of 12/31/97)

New Chapter 31.12 Section (as of 1/1/98)

.037

.407

.039

.408

.045

.382

.125

.402

.136

.404

.145

.384

.155

.386

.215

.571

.295

.388

.306

.367

.317

.428 (effective January 1, 1999)

.385

.416

.406

.426

.425

.436

.435

.438

.465

.448

.485

.418

.526

.471

.635

.850

.655

.630

.665

.633

.675

.664

.685

.667

.695

.461

.705

.464

.715

.467

.720

.890

.725

.474

.735

.860

.740

.891


OPINION NUMBER 98-5

April 20, 1998

To: Opinion File

From: Linda K. Jekel, Program Manager

Subject: Signature guarantee program

Requirements for Signature Guarantee Program

Authority

Washington state chartered credit unions (credit unions) have the power to offer signature guarantees to their members under the incidental powers provision of RCW 31.12.402 (23).

Compliance

Credit unions offering signature guarantees to their members must be in compliance with RCW 62A.8.306 and other applicable state and federal laws.

Legal Opinion

Credit unions offering signature guarantees must obtain written legal advice as to whether the credit union has taken reasonable measures to limit its potential exposure from its signature guarantee program.

Policies and Procedures

The board must adopt written policies and procedures and review them at least annually. The policies and procedures, at a minimum, must:

  1. Restrict signature guarantees to the credit union’s members only;
  2. Require the credit union to maintain bond coverage for signature guarantees, such as the Securities Transfer Agents Medallion Program (STAMP);
  3. Limit the maximum individual signature guarantee to 15% of the credit union’s net capital or the signature guarantee surety bond limit (whichever is less);
  4. Provide qualifications and experience of personnel involved in making signature guarantees;
  5. Instruct how to determine whether the signature is genuine, the signer is the appropriate person, and the signer has the legal capacity to sign; and
  6. Require the credit union to verify compliance through their annual audit conducted by the supervisory committee, internal auditor, or outside auditor.
  7.  

OPINION NUMBER 98-6

June 24, 1998

Nancy M. Farrar, Account Representative
Progressive Casualty Insurance Company
747 Alpha Drive/PLG-A31
Highland Heights, OH 44143

Subject: Approval of Financial Institutions Fidelity Bond

Dear Ms. Farrar:

I apologize for the delay in responding to your May 19, 1998 letter concerning Progressive’s Financial Institution Bond for Credit Unions (Form No. 9993 (6/97)). I understand that the NCUA has approved the Form No. 9993 for use by federally insured credit unions, by letter dated July 23, 1997.

Effective retroactively to July 23, 1997, the Division of Credit Unions hereby approves the use, by Washington State-chartered credit unions, of Progressive Casualty Insurance Company Financial Institution Bond for Credit Unions (Form No. 9993 (6/97)). The form of the bond satisfies the requirements of the Washington State Credit Union Act. Section 31.12.367(1) of the Revised Code of Washington (RCW); RCW 31.12.404. Use of the bond by Washington credit unions is subject to all applicable statutory and regulatory requirements concerning such use, including but not limited to NCUA rules at 12 C.F.R. Sections 741.201(a) and 701.20, and RCW 31.12.367. Of course, sale of the bond is subject to all applicable statutory and regulatory requirements concerning such sale.


REDACTED OPINION NUMBER 98-7

April 23, 1998

"A"
"B"

Subject: Records Disclosure Requests by Law Enforcement

Dear "A":

You asked whether "B" is required to provide the police copies of requested financial documents concerning a member. You also asked which statute "B" must follow (state disclosure law or federal-Right to Financial Privacy).

The Right to Financial Privacy applies to all federal agencies and departments. Since the police are state, not federal, you would follow state law.

Attached are the applicable state laws; be sure you read all. Be sure to follow RCW 30.22.240 (Records-Disclosure-Requests by law enforcement).


REDACTED OPINION NUMBER 98-8

July 9, 1998

"A"
"C"

Subject: Control of Non-profit Charitable Foundation by "C" Credit Union

Dear "A":

This letter is in response to your letter dated May 5, 1998 and follow-up e-mail dated May 19, 1998 on behalf of "C" Credit Union. Your letter requested our opinion regarding the power and authority of the credit union to exercise control over the policies and activities of a non-profit charitable foundation, the "D" Foundation (Foundation), originally sponsored and funded by the credit union.

Conclusion. Based on the facts set forth below and in your letter and e-mail, I have concluded that "C" may exercise control over the policies and activities of the Foundation as an incidental power necessary or convenient to enable "C" to conduct the business of the credit union. RCW 31.12.402(23). My conclusion is based on the analysis set forth below.

Facts. I understand that the Foundation is a non-profit corporation exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code as a public charity. The Foundation’s principal activities will be to award scholarships based on academic achievement and community service efforts. The Foundation’s current policy is to limit the award of such scholarships to members of "C" Credit Union ("C" ) who are recommended and approved by the Foundation Board of Directors. "C" has made a sponsoring endowment to the Foundation of $XX. This endowment will ensure permanent funding for at least 25 scholarships and cover certain administrative costs. The Foundation intends to raise additional funds by soliciting contributions from individual "C" members and from other private sources, in order to fund further scholarships and to maintain its public charity status under the Internal Revenue Code.

Analysis

Investments in the community through contributions to a non-profit. A state-chartered credit union is empowered to make "investments in the community through contributions to organizations that primarily serve either a charitable, social, welfare, or educational purpose, or are exempt from taxation pursuant to section 501(c)(3) of the Internal Revenue Code." RCW 31.12.402(20). The original endowment made by "C" to the Foundation is such an authorized investment in the community, since the Foundation is both a section 501(3)(c) public charity and the purpose of the Foundation’s activities is to further meet the educational needs of "C" membership.

Exercising control over non-profit. Investments in the community such as the endowment made by "C" to the Foundation are part of the business of a credit union, since such investments are specifically authorized by RCW 31.12.402(20). A credit union making such investments has a direct interest in ensuring that the recipients of its contributions maintain their tax-exempt status and that these investments are otherwise permissible under RCW 31.12.402(20).

Therefore, under RCW 31.12.402(23), we find that when a credit union makes authorized investments through contributions to a charitable non-profit organization, it is at least convenient, if not necessary, for the credit union to exercise some control over the policies and activities of the non-profit. This is particularly true if the credit union intends ongoing contributions to the non-profit and is willing to permit the non-profit to solicit further charitable contributions from the credit union’s members.

Depending on the structure of the non-profit organization, the credit union may exercise such control indirectly either through common overlapping directors or through corporate officers and employees that also serve as officers or directors of the non-profit organization. Alternatively, a credit union may exercise more direct control as voting members of the non-profit, if the non-profit is organized as a member controlled non-profit corporation under Chapter 24.03 RCW. Of course, depending on the exact nature of the relationship between "C" and the Foundation, "C" exercise of control over the Foundation may create some exposure for the credit union. I assume "C" will take appropriate precautions to minimize such exposure. * * * *

Please be aware that a change in the facts as presented in your letter and e-mail may require a different conclusion. If you have any further questions about these matters, please contact me at (360) 902-8778.


OPINION NUMBER 98-9

August 14, 1998

To: Opinion File

Subject: Taking Former Employees of Occupational Group as Members

A question has arisen whether individuals who have left a credit union’s occupational field of membership (FOM) group may join the credit union. For example:

Big Z Credit Union has the employees, retirees, and pensioners of ABC Printing in its field of membership(FOM), as well as former employees entitled to retirement or pension benefits from ABC Printing. Fred was a employee of ABC Printing but quit after two years. He did not join the Credit Union before quitting ABC. Because employees of ABC do not become vested in ABC’s pension plan until they have worked for five years, Fred is not entitled to any pension or retirement benefits from ABC. Is Fred eligible to join the Credit Union after quitting ABC?

No. An individual must share a common bond with an occupational group in order to be included in the group. Former employees of a company who are not entitled to pension or retirement benefits, such as Fred, do not share a sufficient connection or similarity of interests with the company and its employees to be considered to have a common bond with the group. Consequently, credit unions may not take individuals such as Fred as members.

Moreover, credit unions should not advertise that former employees of an occupational group may join the credit union, without further qualification in the advertising. Instead, following the example described above, Big Z Credit union’s advertising should indicate that employees, retirees or pensioners of ABC, or former employees entitled to retirement benefits from ABC, may join the credit union.


OPINION NUMBER 98-10

August 14, 1998

To: Opinion File

From: J. Parker Cann, Assistant Director

Subject: Effective Date of Credit Union Mergers

Overview

If the surviving credit union in a merger is a Washington State-chartered credit union, when does the merger become legally effective? The Washington State Credit Union Act (Credit Union Act) is unclear on this point.

The effective date can impact whether another Division assessment is due and other significant matters. We believe that there would be value in providing more certainty for credit unions on the effective date of mergers.

Analysis

The Credit Union Act addresses certain aspects of mergers. RCW 31.12.461, .464(4), 467(3). However, the CU Act does not specify when a credit union merger becomes effective.

The NCUA form Merger Agreement (NCUA 6304) - that most credit unions use - provides that the merger will be effective on the date entered on the first line of the Agreement. The instructions on the second page of the form direct credit unions not to fill in the date or sign the Agreement until the merger is completed.

In analyzing this issue, we reviewed the parallel provisions under the Washington Business Corporation Act. The Business Corporation Act provides that a merger becomes effective when articles of merger are filed with the Washington Secretary of State, or at a later date as specified in the articles (not to exceed 90 days). RCW 23B.11.050, 23B.01.230. The rationale appears to be that the merger takes effect on the date provided in the public record maintained by the Secretary of State. In the credit union context, credit unions do not file articles of merger, but do file the signed merger agreement with the Secretary of State (through the Division).

Conclusion

In the absence of direction in the Credit Union Act, the Division has determined to adopt the rationale of the Business Corporation Act - that mergers become effective as provided in the public record maintained by the Secretary of State. Accordingly, credit union mergers will become legally effective on the date the Division files the merger agreement with the Secretary of State, or a later date as specified in the agreement itself (not to exceed 90 days).

Coordination with the Division

The credit union submitting the merger agreement to the Division should contact the Division prior to submission to coordinate the date inserted by the credit union in the first line of the agreement. The date should be the future date that the merging credit unions want the merger to take legal effect - either the date the Division will file the merger agreement with the Secretary of State, or a later date (not to exceed 90 days). The credit union should make sure that the merger agreement is received by the Division at least 5 business days before the date that the Division intends to file the agreement with the Secretary of State.

Merger of books

We have observed that in many cases the books of the credit unions are merged before the credit unions have submitted their signed merger agreement to the Division for filing with the Secretary of State. In the future, credit unions may merge their books no sooner than the legal effective date of the merger.


OPINION NUMBER 98-11

This opinion was canceled 5/23/2001.


OPINION NUMBER 98-12

To: Opinion File

Date: December 30, 1998

From: J. Parker Cann, Assistant Director

WAC 208-444-020 – Prohibited Fees

In general, Section 208-444-020 prohibits directors, volunteer committee members, and employees, and their immediate family members, from receiving compensation in connection with a loan made by their credit union.

We have received an inquiry regarding the definition of the term "volunteer committee." We have determined that as used in Section -020, this term includes the loan (or credit) committee and supervisory committee. Consequently, the rule prohibits the members of these committees from receiving compensation in connection with a loan made by their credit union.

Reference for Opinion List: WAC 208-444-020 - Definition of "voluntary committee"

Reference for Opinion Index: WACs