TITLE 7.BANKING AND SECURITIES

Chapter 91. CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS

The Texas Credit Union Commission adopts an amendment to §91.701, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3013).

The amendment makes several nonsubstantive changes, which clarify certain provisions of the rule.

No comments were received regarding adoption of the amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304381

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.702

The Texas Credit Union Commission adopts an amendment to §91.702, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3013).

The amendment makes one change, which clarifies that loan documentation practices must be written.

No comments were received regarding adoption of the amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304380

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.704

The Texas Credit Union Commission adopts an amendment to §91.704, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3014).

The amendment makes several changes, which allows 30 year first lien home equity loans and clarifies several provisions under the subsection dealing with exceptions to loan to value limitations.

No comments were received regarding adoption of this amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304379

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.708

The Texas Credit Union Commission adopts amendments to §91.708 relating to lending powers without changes to the proposed text as published in the April 11, 2003 issue of the Texas Register (28 TexReg 3015).

The amendment makes several changes, which prescribe minimum standards for determining the market value of real estate loans with a transaction value of less than $250,000.

No comments were received regarding adoption of this amendment.

The amendment is adopted under the provision of the Texas Finance Code, Section 124.001, which provides the Credit Union Commission with the authority to adopt rules governing loans made to credit union members; and under the Texas Finance Code, Section 15.402, which authorizes the commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code.

The specific section affected by the adopted amendment is Texas Finance Code, Section 124.001.

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 July 21, 2003.

TRD-200304387

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.710

The Texas Credit Union Commission adopts an amendment to §91.710, relating to lending powers with one nonsubstantive change to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3015). On the seventh line the words "and interest" were deleted as the Commission determined they were not applicable.

The amendment rewrites the provision in its entirety to allow state chartered credit unions the same overdraft protection programs currently available to federally chartered credit unions.

No comments were received regarding adoption of this amendment.

The amendment is adopted under the provision of the Texas Finance Code, §124.001, which provides the Credit Union Commission with the authority to adopt rules governing loans made to credit union members; and under the Texas Finance Code, §15.402, which authorizes the commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code. These amendments are also adopted under §123.003, Finance Code. The Commission interprets this section as authorizing it, in conjunction with the exercise of its specific rulemaking authority, to adopt rules reflecting the statutory right of state chartered credit unions to engage in any activity, exercise any power, or make any loan or investment, that they could engage in, exercise, or make if they were chartered as federal credit unions.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

§91.710.Overdraft Protection.

A credit union may advance money to a member to cover an account deficit without having a credit application from the borrower on file if the credit union has a written overdraft policy. The policy must: set a cap on the total dollar amount of all overdrafts the credit union will honor consistent with the credit union's ability to absorb losses; establish a time limit not to exceed 45 calendar days for a member to either deposit funds or obtain an approved loan from the credit union to cover each overdraft; limit the dollar amount of overdrafts the credit union will honor per member; and establish the fee, if any, the credit union will charge members for honoring overdrafts.

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 July 21, 2003.

TRD-200304386

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.711

The Texas Credit Union Commission adopts an amendment to §91.711, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3016).

The amendment makes several changes, which clarify when a loan participation is an investment and specifically authorizes a credit union to sell or purchase the servicing of any loan in which it owns a participation interest.

No comments were received regarding adoption of this amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304385

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.712

The Texas Credit Union Commission adopts an amendment to §91.712, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3017).

The amendment makes several changes, which are technical corrections.

No comments were received regarding adoption of this amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304384

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.713

The Texas Credit Union Commission adopts an amendment to §91.713, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3017).

The amendment makes several changes, which clarify requirements regarding retail installment contracts.

One written comment was received from OnmiAmerican Credit Union in support of the amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304394

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.715

The Texas Credit Union Commission adopts an amendment to §91.715, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3018).

The amendment makes several changes, which clarify that standards of review and approval of exceptions to general loan policies should be written and make other review procedures mandatory.

No comments were received regarding adoption of this amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304393

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.718

The Texas Credit Union Commission adopts an amendment to §91.718, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3019).

The amendment makes one change which requires the commissioner to act in accordance with generally accepted accounting principals when determining value.

No comments were received regarding adoption of this amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304395

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

7 TAC §91.719

The Texas Credit Union Commission adopts amendments to §91.719, relating to lending powers without changes to the proposed text as published in the April 11, 2003, issue of the Texas Register (28 TexReg 3019).

The amendment makes two changes, which address the definition of immediate family and terminology in the subsection dealing with the limit on loans to officials and employees and their immediate families.

No comments were received regarding adoption of this amendment.

The specific section affected by the adopted amendment is Texas Finance Code, §124.001.

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 July 21, 2003.

TRD-200304392

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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

Subchapter O. TRUST POWERS

7 TAC §§91.6001 - 91.6015

The Texas Credit Union Commission adopts new §§91.6001 - 91.6015 concerning fiduciary powers with one nonsubstantive change to the proposed text as published in the April 11, 2003 issue of the Texas Register (28 TexReg 3020). A comma was removed from the last sentence of §91.6003 because it was grammatically incorrect.

The adopted rules establish standards governing fiduciary activities in order to ensure that credit union provide such services consistent with safe and sound credit union practices.

The adopted rules impose new requirements on a credit union to ensure that credit unions providing trust services do so in a safe and sound manner. These requirements include making a credit union: give the Department notice of its intent to exercise trust powers; establish written trust policies and procedures; perform certain mandatory reviews; keep trust records separate from credit union records; arrange for an annual audit of the trust business; create specially designated accounts for trust funds; and secure bond and errors and omission insurance. The rules also prohibit employees involved in trust activities from receiving certain types of compensation, gifts, or bequests.

Three written comments were received from OmniAmerican Credit Union. The first comment requested that the term "agent" be added to the list of fiduciary capacities in §91.6002. The Commission determined that since there can be agency relationships that do not constitute fiduciary relationships that it should not be added to that section. The second comment addressed §91.6012 suggesting some minor term changes and increasing one standard by changing "or" to "and". The Commission felt that the proposed term changes were inconsequential and that the word "or" created a less restrictive standard and was more in line with the intent of the section. The third comment suggested that the standard for review of trust assets should be changed from "promptly" to "sixty days". The Commission felt that timing issues affecting different assets that could be held in a trust varied greatly and that in some instances 60 days could be considered prompt and in other instances it would not be prompt.

The rule is adopted under the Texas Finance Code, §15.402 and §123.207. The Commission interprets §15.402 to authorize the Commission to adopt reasonable rules necessary for administering Subtitle D, Title 3, Texas Finance Code.

The specific section affected by this adopted rule is Texas Finance Code, §123.207.

§91.6001.Fiduciary Duties.

A credit union must conduct its trust operations in accordance with applicable law, and must exercise its fiduciary powers in a safe and sound manner. All fiduciary activities shall be under the direction of the credit union's board of directors. In carrying out its responsibilities, the board may assign, by action duly entered in the minutes, any function related to the exercise of fiduciary powers to any director, officer, employee, or committee thereof.

§91.6002.Fiduciary Capacities.

A credit union is subject to this chapter if it acts in a fiduciary capacity. A credit union acts in a fiduciary capacity when it acts in any of the following capacities:

§91.6003.Notice Requirements.

(a) Intent. A credit union is required to notify the commissioner in writing of its intent to exercise fiduciary powers, at least 31 days prior to the anticipated commencement date of such fiduciary activities. The notice must contain:

(1) A statement describing the fiduciary powers that the credit union will exercise;

(2) An opinion of counsel that the proposed activities do not violate law, including citations to applicable law;

(3) A statement that the capital of the credit union is not less than the capital required by law of other financial institutions exercising comparable fiduciary powers;

(4) Sufficient biographical information on proposed trust management personnel to enable the Department to assess their qualifications; and

(5) A description of the locations where the credit union will conduct fiduciary activities.

(b) Prior Activity. A credit union that has initiated trust activities prior to the effective date of this rule shall file the notice prescribed in subsection (a) by October 1, 2003.

§91.6004.Exercise of Fiduciary Powers.

(a) Supervisory Review. Unless otherwise notified by the department, a credit union may exercise its fiduciary powers on the 30th day after the credit union receives written confirmation from the Department that the notice required under §91.6003 of this title (relating to Notice Requirements) is complete and accepted for filing. The Department will consider the following factors when reviewing such a notice:

(1) The credit union's financial condition.

(2) The credit union's capital and whether that capital is sufficient under the circumstances.

(3) The credit union's overall performance.

(4) The fiduciary powers the credit union proposes to exercise.

(5) The availability of legal counsel.

(6) The experience and expertise of proposed trust management personnel.

(7) The needs of the members to be served.

(8) Any other facts or circumstances that the Department considers appropriate.

(b) Written Notice. Prior to expiration of the 30 day period referred to in subsection (a), the commissioner may give the credit union written notice of denial or consent, subject to certain conditions.

(c) Acceptance of Conditions. Commencement of the exercise of fiduciary powers constitutes confirmation of acceptance of all conditions imposed by the commissioner under subsection (b) and shall be considered an enforceable agreement against the credit union for all purposes.

§91.6005.Exemption from Notice.

A credit union does not need to provide notice under §91.6003 (relating to notice requirements) to act as a trustee or custodian of any form of retirement, pension, profit sharing or deferred income accounts for its members, pension funds of self-employed individuals eligible for membership and pension funds of a company or organization whose employees are eligible for membership in the credit union if acting as such will only involve holding the funds on deposit and reporting information to the account holders and government agencies. All contributions to such fiduciary accounts, however, must be initially made to a share or deposit account in the credit union and the credit union may not directly or indirectly provide any investment advice for such fiduciary accounts.

§91.6006.Policies and Procedures.

A credit union exercising trust powers shall adopt and follow written policies and procedures adequate to maintain its fiduciary activities in compliance with applicable law. Among other relevant matters, the policies and procedures should address, where appropriate, the credit union's:

(1) Brokerage placement practices;

(2) Methods for ensuring that fiduciary officers and employees do not use material inside information in connection with any decision or recommendation to purchase or sell any security;

(3) Methods for preventing self-dealing and conflicts of interest;

(4) Selection and retention of legal counsel who is readily available to timely review trust instruments or other documents creating the credit union's fiduciary status and advise the credit union and its fiduciary officers and employees on all fiduciary related matters; and

(5) Investment of funds held as fiduciary, including short-term investments and the treatment of fiduciary funds awaiting investment or distribution.

§91.6007.Review of Fiduciary Accounts.

(a) Pre-acceptance review. Before accepting a fiduciary account, a credit union shall review the prospective account and related instruments and documents to determine whether it can properly administer the account.

(b) Initial post-acceptance review. Upon the acceptance of a fiduciary account for which a credit union has investment discretion, the credit union shall conduct a prompt review of all assets of the account to evaluate whether they are appropriate for the account.

(c) Annual review. At least once during every calendar year, a credit union shall conduct a review of all assets of each fiduciary account for which the credit union has investment discretion to evaluate whether they are appropriate, individually and collectively, for the account.

§91.6008.Recordkeeping.

A credit union shall adequately document the establishment and termination of each fiduciary account and shall maintain adequate records for all fiduciary accounts. All records pertaining to a fiduciary account shall be separate and distinct from other records of the credit union.

§91.6009.Audit.

At least once during each calendar year, a credit union shall arrange for a suitable audit by a certified public accountant in accordance with generally accepted standards for attestation engagement. The audit must ascertain whether the credit union's internal control policies and procedures provide reasonable assurance of three things:

(1) The credit union is administering fiduciary activities in accordance with applicable law and the trust instrument or other documents creating the fiduciary responsibility;

(2) The credit union is properly safeguarding fiduciary assets; and

(3) The credit union is accurately recording transactions in appropriate accounts in a timely manner.

§91.6010.Custody of Fiduciary Assets.

(a) A credit union shall place assets of fiduciary accounts in the joint custody or control of not fewer than two the fiduciary officers or employees designated for that purpose by the board of directors.

(b) A credit union shall keep assets of fiduciary accounts separate from the assets of the credit union. Except as otherwise authorized by applicable law and as may be in the best interests of the beneficiaries of the fiduciary account, a credit union shall keep assets of each fiduciary account separate from all other accounts.

§91.6011.Trust Funds.

All monies received by a credit union as fiduciary on trust business shall be deposited in a specially designated account or accounts, shall not be commingled with any funds of the credit union and shall remain on deposit until disbursed or invested in accordance with powers and duties of the credit union in its capacity as such fiduciary.

§91.6012.Compensation, Gifts, and Bequests.

A credit union may not permit its directors, officers, or employees to retain any compensation for acting as co-fiduciary with the credit union in the administration of a fiduciary account, except with the specific approval of the board of directors. In addition, a credit union may not permit any fiduciary officer or employee to accept a bequest or gift of fiduciary assets, unless the bequest or gift is directed or made by a relative of the director, officer, or employee or is specifically approved by the board of directors.

§91.6013Bond Coverage.

A credit union is required to maintain a bond for protection and indemnity of members, in reasonable amounts against dishonesty, fraud, defalcation, forgery, theft, embezzlement, and other similar insurable losses with an insurance or surety company authorized to do business in this state. Coverage against such losses shall include all agents who do not otherwise provide protection and indemnity for the credit union, directors, officers, and employees of the credit union acting independently or in collusion or combination with any person or persons whether or not they draw salary or compensation.

§91.6014.Errors and Omissions Insurance.

The credit union shall procure errors and omission insurance of at least five hundred thousand dollars.

§91.6015.Litigation File.

A credit union shall keep an adequate record of all pending litigation to which it is a party in connection with its exercise of fiduciary powers.

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 July 21, 2003.

TRD-200304391

Harold E. Feeney

Commissioner

Credit Union Department

Effective date: August 10, 2003

Proposal publication date: April 11, 2003

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