TITLE banking-and-securities

Part VI. Credit Union Department

Chapter 91. Chartering, Operations, Mergers, Liquidations

The Texas Credit Union Commission adopts an amendment to §91.705, concerning loans to credit union officials, with changes to the proposed text as published in the October 31, 1997 issue of the Texas Register (22 TexReg 10594). No substantive change was made as proposed.

The amendment will increase the dollar amount of secured credit a credit union may extend to any one official without seeking prior approval from the board of directors, and will set a limit on the aggregate amount of loans to credit union officials as a whole that a credit union may have outstanding at any one time. Increasing the secured credit dollar threshold is warranted given current economic conditions and the higher price of automobiles and other tangible goods in today's market place. Instituting an aggregate limit for loans to officials will ensure that a credit union has the ability to meet its other members' lending needs. The amendment also allows the credit union to apply to the commissioner for a waiver from the aggregate limit, and establishes reporting requirements.

Comments generally in support of the amendment were received from the Texas Credit Union League and Dallas Teachers Credit Union. One comment received indicated that additional wording is needed to clarify the commission's intention of having the 20% aggregate limit apply to all loans made to all credit union officials and senior executive staff, along with loans made to those persons' immediate family members. Therefore, the commission added the word "all" to subsection (d) after the words "guaranteed by", made plural the proceeding nouns, and changed the wording "any such individual" to "all such individuals."

Another comment made relates to the commission requiring that the report described in subsection (e) include a statement regarding compliance with loan policies for each loan made under this rule. The commenting party believes the use of such boilerplate language will cause the requirement to lose its usefulness. Furthermore, as the board is responsible for developing loan policies in the first place, board members should know whether a reported transaction is compliant. Therefore, placing such a statement in the report could be perceived as encouraging less diligence on the board's part. The commission, however, disagrees with this comment. Because directors and senior executive staff have a responsibility to ensure that a credit union operates in a safe and sound manner and practices are in compliance with board and internal policies, it is imperative that loans made to those individuals withstand scrutiny. Unless a loan is in excess of the amounts contained in the rule, the board is merely being notified of the loans made to credit union officials and senior executive staff. The statement of compliance, therefore, will provide the board with a greater degree of comfort that those loans are above reproach, as well as make the board aware of any loans to officials that are out of policy compliance. Also in regard to subsection (e), a comment was made that it would be more appropriate to identify the type of collateral taken on the loan rather than the purpose of the loan as currently required for the report described in subsection (e). The commission believes that identification of the collateral type will allow the credit union to identify the loans that would require approval by the board prior to the loan being made, which was the original intent of requiring the purpose to be stated. The commission has reflected this recommendation in the final rule.

The amendment is adopted under the provisions of the Texas Finance Code, §124.201 and §124.202, which provide the Credit Union Commission with the authority to establish, by rule, lending conditions and limits for loans to directors, employees, and credit committee members.

The specific section affected by this amendment is Texas Finance Code, §124.202.

§91.705.Loans to Officials.

(a)

The rates, terms, conditions, and availability of any loan or extension of credit made to, or endorsed or guaranteed by, a director, employee, loan officer, credit manager, members of the credit committee or an immediate family member of any such individual shall not be more favorable than the rates, terms, conditions, and availability of comparable loans or credit to other credit union members.

(b)

Before making a loan, extending credit, or becoming contractually liable to make a loan or extend credit to a director, employee, loan officer, credit manager, members of the credit committee or members of their immediate families, the board of directors must approve the transaction if the loan or the extension of credit or aggregate of outstanding loans or extensions of credit to any one person, the person's business interests, and members of the person's immediate family is greater than $25,000 if unsecured credit or $75,000 if secured credit, plus pledged shares and deposits. A loan secured by a lien on improved residential real estate which is the homestead and is actually occupied by the borrower shall not be subject to, or included in the aggregate amounts included in this section.

(c)

For purposes of this section, the term immediate family member includes a spouse or other family member living in the same household.

(d)

The aggregate of all outstanding loans or extensions of credit made to, or endorsed or guaranteed by all directors, committee members, senior executive staff, and immediate family members of all such individuals shall not exceed 20% of the credit union's total assets. The requirements described in this subsection shall apply unless waived in writing by the commissioner for good cause shown.

(e)

The president shall make a report to the board of directors on all loans approved since the previous board meeting for any director, committee member, senior executive staff or immediate family members of such individual. The report shall consist of at least the official's loan number, the amount of the loan, the type of collateral securing the loan, if applicable, the aggregate amount of indebtedness to the credit union, and a statement regarding compliance with loan policies. The board of directors must review this loan approval report at each regular monthly board meeting.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 28, 1998.

TRD-9801289

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: February 17, 1998

Proposal publication date: October 31, 1997

For further information, please call: (512) 837-9236

Chapter 97. Commission Policies and Administrative Rules

General Provisions

7 TAC §97.103

The Texas Credit Union Commission adopts new §97.103, concerning recusal and disqualification of commission members, with changes to the proposed text published in the October 31, 1997, issue of the Texas Register (22 TexReg 10595).

Adoption of the rule is necessary to comply with new statutory requirements enacted by the passage of Senate Bill 358, effective September 1, 1997, 75th Legislature, Chapter 338, 1997 Texas Session Law (to be codified at Texas Finance Code Annotated, §15.208), which requires the Commission to adopt rules for recusal by its members. The new rule requires a member who has a personal or private interest in a matter to disqualify him- or herself from any participation in the decision.

Comments generally supporting adoption of the rule were received from the Texas Credit Union League and from Dallas Teachers Credit Union. One comment related to the fact that there are two basic conflict of interest provisions in the Texas Finance Code for commission members, and the proposed rule does not make a distinction between them. One provision states that no commission member may act on matters under consideration which directly affect any credit union of which the member of the commission is an officer, director, or member. The second provision requires recusal of members who have a personal or private interest in a measure, proposal, or decision pending before the commission. In response, the commission has expanded subsection (a) to address both provisions. Even if the law might not expressly prohibit a member from participating in the discussion of a matter directly affecting a credit union with which the member is affiliated, participation in the discussion would allow the commission member to advocate a position which is basically what a vote entails. Therefore, the proposed rule precludes a member from both discussing and voting on such matters.

Another comment recommended deletion of the portion of the text in subsection (b) that states the term "personal or private interest" includes a direct personal or financial interest in a credit union which is the subject of commission action. The commenting party opines that, as written, a member having a small dollar balance in a credit union's share account would potentially need to recuse him-or herself from any discussion relating to that credit union specifically or to all credit unions in general. Should the commission not make the recommended change, the commenting parting suggests language should be added to further define the term "personal or financial interest." In response, the commission believes that a change to proposed subsection (b) is not necessary. The proposed rule references Section 572.058 of the Texas Government Code in defining what constitutes a "personal or private interest." The definition in that citation excludes an individual engaged in a profession, trade, or occupation from having a personal or private interest in a matter if the individual's interest is the same as all others similarly engaged in the profession, trade, or occupation. Therefore, a commission member whose interest in a matter before the commission is the same as that of other credit union members would not be considered to have a personal or private interest for the purposes of this rule. Furthermore, since the commission members must adhere to the provisions of Texas Government Code and have the benefit of any case law precedents related thereto, any additions to the proposed rule would be redundant.

Both parties commented that a commission member could potentially have an personal or private interest in a matter before the commission that is not credit union related, and that it may be appropriate to address such a circumstance in subsection (b). In response, the Commission has added language to subsection (b) to include a direct personal or financial interest in other matters subject to commission action.

The new section is adopted under Texas Finance Code, §15.402, which provides the Credit Union Commission with the authority to adopt reasonable rules; and under Section 9 of Senate Bill 358, effective September 1, 1997, 75th Legislature, Chapter 338, 1997 Texas Session Law (codified at Texas Finance Code Annotated, §15.208), which requires the Commission to adopt rules for recusal by its members.

§97.103.Recusal Or Disqualificaiton Of Commission Members.

(a)

A commission member may not vote on or otherwise participate in the deliberation or decision of a matter pending before the commission:

(1)

in which the commission member has a personal or private interest; or

(2)

which directly affects the credit union of which the commission member is an officer, director, or member.

(b)

The term "personal or private interest" shall be given the meaning as prescribed in Texas Government Code, §572.058, and includes a direct personal or financial interest in a credit union or other matter which is the subject of commission action.

(c)

A commission member who is disqualified under subsection (a) of this section shall publicly disclose the fact to the commission in a meeting called and held in compliance with the Open Meetings Act, Texas Government Code, Chapter 551. The disclosure shall be entered in the minutes of the meeting.

(d)

A commission member who is recused or disqualified will be counted in determining a quorum.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 28, 1998.

TRD-9801292

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: February 17, 1998

Proposal publication date: October 31, 1997

For further information, please call: (512) 837-9236

7 TAC §97.106

The Texas Credit Union Commission adopts new §97.106, concerning the methods by which members of credit unions are notified of the name, mailing address, and telephone number of the department for the purpose of directing complaints to the department, with only a minor, nonsubstantive change from the proposed text published in the October 31, 1997, issue of the Texas Register (22 TexReg 10596).

Adoption of the rule is necessary to comply with new statutory requirements enacted by the passage of Senate Bill 358, effective September 1, 1997, 75th Legislature, Chapter 338, 1997 Texas Session Law (to be codified at Texas Finance Code Annotated, §15.409), which requires the commission to adopt rules governing the methods by which credit union members will be notified that they may file complaints with the department. The commission selected the method of providing notification through signage in the place of business of each credit union regulated by the department.

Comments in support of the adoption of the rule were received from the Texas Credit Union League and from Dallas Teachers Credit Union. Dallas Teachers Credit Union recommended a minor technical change in the form of deleting the word "conspicuously" from subsection (a), based on the belief that the word is unnecessary given the requirements set forth in subsection (b). As a result of this comment, the Commission has omitted the word "conspicuously" from subsection (a).

The new section is adopted under Texas Finance Code, §15.402, which provides the Credit Union Commission with the authority to adopt reasonable rules; and under Section 13 of Senate Bill 358, effective September 1, 1997, 75th Legislature, Chapter 338, 1997 Texas Session Law (to be codified at Texas Finance Code Annotated, §15.409), which requires the Commission to adopt rules governing the methods by which credit union members will be notified that they may file complaints with the department.

§97.106.Complaint Notice.

(a)

Every credit union shall post, in its principal place of business and all other offices and service facilities, a public notice which provides the name, address, and telephone number of the department. The notice shall further inform members that complaints to the department may be directed to that address or telephone number.

(b)

The notice shall be printed in at least 14-point type or larger, and shall be clearly visible in a public entrance or lobby area. The commissioner shall prescribe the design and content of the notice to be used for this purpose.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 28, 1998.

TRD-9801293

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: February 17, 1998

Proposal publication date: October 31, 1997

For further information, please call: (512) 837-9236