Part 4.
TEXAS SAVINGS AND LOAN DEPARTMENT
Chapter 80.
MORTGAGE BROKER AND LOAN OFFICER LICENSING
Subchapter B. PROFESSIONAL CONDUCT
7 TAC §80.9
The Finance Commission of Texas (Finance Commission) proposes
to amend 7 TAC §80.9, Required Disclosures to modify the disclosures
which a mortgage broker or loan officer must give to a mortgage loan applicant.
The purpose of the amendment is to provide for a more detailed statement as
to how consumers may file complaints and to more prominently give notice about
the Mortgage Broker Recovery Fund which is administered by the Texas Savings
and Loan Department.
The Mortgage Broker Licensing Act (the "Act") became effective September
1, 1999. It requires that mortgage brokers and the loan officers who work
for them meet certain requirements, that they obtain licenses, that they adhere
to certain standards of conduct, and that they provide required disclosures
to mortgage loan applicants. The Act directs the Finance Commission to promulgate
regulations to implement the Act (the "Regulations") and specifically authorizes
the Finance Commission to adopt rules to prohibit false, misleading, or deceptive
practices by mortgage brokers and loan officers. The Commissioner of the Texas
Savings and Loan Department ("Department") is charged with administration
of the Act.
The Act establishes a Mortgage Broker Advisory Committee to advise the
Commissioner and the Finance Commission on the promulgation of forms and regulations
and the implementation of the Act. The Advisory Committee met on February
4, 2004, and discussed the proposed amendments.
Danny Payne, Savings and Loan Commissioner, has determined that for the
first five-year period that the amendments, as proposed, will be in effect,
there will be no fiscal implications for state and local government as a result
of enforcing or administering the section and is not expected to increase
or decrease the net revenue of the Department from the industry.
Mr. Payne estimates that for the first five years that the proposed amendments
are in effect, the public will benefit by having more detailed notice of how
to file a complaint, including more detailed information as to contact with
the Department. This will further the ability of the Department to detect
and enforce violations of the Act, and provide improved consumer protection.
No difference will exist between the cost of compliance for small business
and the cost of compliance for the largest business affected by the amendments.
Comments on the proposed amendments may be submitted in writing to Danny
Payne, Commissioner, Texas Savings and Loan Department, 2601 North Lamar,
Suite 201, Austin, Texas 78705-4294, or e-mailed to TSLD@tsld.state.tx.us,
no later than 30 days from the date that this proposed rule is published in
the
Texas Register.
The amendments are proposed under
Finance
Code
, Section 11.306, which authorizes the Finance Commission to adopt
mortgage broker rules as provided by Chapter 156 of the Act, and under
The section of the Act affected by the proposed amendment is
Finance Code
, Section 156.102(b) relating to authority for the Finance
Commission to adopt rules to prohibit false, misleading, or deceptive trade
practices.
§80.9.Required Disclosures.
(a)
At the time an application for a Mortgage Loan is made
to a Mortgage Broker or Loan Officer, the Mortgage Broker or Loan Officer
shall provide the Mortgage Applicant with a disclosure describing their relationship,
the duties of the Mortgage Broker or Loan Officer to the Mortgage Applicant,
and a description of how the Mortgage Broker or Loan Officer will be compensated
for his or her services. Such disclosures are to be made using forms promulgated
by the Commissioner. [
(b)
In order to let its consumers know how
to file complaints and to inform them of the Mortgage Broker Recovery Fund,
Mortgage Brokers and Loan Officers must include the following notice in the
disclosure required by subsection (a) of this section:
(c)
[
(1)
The portion retained by the Mortgage Broker or Loan Officer
and a description of the service actually rendered by the Mortgage Broker
or Loan Officer shall be disclosed to the Mortgage Applicant in writing and
(2)
The portion so retained by the Mortgage Broker or Loan
Officer shall not exceed the reasonable value of services actually rendered
by the Mortgage Broker or Loan Officer for the benefit of the Mortgage Applicant.
(3)
Any Mortgage Broker or Loan Officer retaining any portion
of any fee or fees charged by third parties, however denominated, shall maintain
appropriate documentation to substantiate the basis for the retention of such
monies, including the reasonable value of the services rendered for such fee
or fees.
(4)
Affiliated business arrangements, as provided for under
the Real Estate Settlement Procedures Act, and payments made pursuant thereto
shall be disclosed to Mortgage Applicants as provided for by the Real Estate
Settlement Procedures Act and the regulations implementing that act.
[(c)
Consumer Complaint Procedure]
[(1)
Definitions]
[(A)
"Privacy notice" means any notice which a Mortgage Broker
or Loan Officer gives regarding a consumer's right to privacy, regardless
of whether it is required by a specific state or federal law or given voluntarily.]
[(B)
"Required notice" means a notice in a form set forth or
provided for in paragraph (2)(A) of this subsection.]
[(2)
Notice of how to file complaints]
[(A)
In order to let its consumers know how to file complaints,
Mortgage Brokers and Loan Officers must use the following notice: (Name of
Mortgage Broker or Loan Officer) is licensed under the laws of the State of
Texas and by state law is subject to regulatory oversight by the Texas Savings
and Loan Department. Any consumer wishing to file a complaint against (name
of Mortgage Broker or Loan Officer) should contact the Texas Savings and Loan
Department through one of the means indicated below: In Person or by U.S.
Mail: 2601 North Lamar Boulevard, Suite 201, Austin, Texas 78705-4294, Telephone
No.: (877) 276-5550, Fax No.: (512) 475-1360, E-mail: TSLD@tsld.state.tx.us
]
[(B)
A required notice must be included in each privacy notice
that a Mortgage Broker or Loan Officer sends out.]
[(C)
Regardless of whether a Mortgage Broker or Loan Officer
is required by any state or federal law to give privacy notices, each Mortgage
Broker or Loan Officer must take appropriate steps to let its consumers know
how to file complaints by giving them the required notice in compliance with
subparagraph (A) of this paragraph or by providing the disclosure specified
in this subsection.]
[(D)
Any one of the following measures is deemed to be an appropriate
step to give the required notice:]
[(i)
In each registered office or branch office where a Mortgage
Broker or Loan Officer conducts business on a face-to-face basis, the required
notice, in the form specified in subparagraph (A) of this paragraph, must
be conspicuously posted. A notice is deemed to be conspicuously posted if
a customer with 20/20 vision can read it from the place where he or she would
typically conduct business or if it is included on a bulletin board, in plain
view, on which all required notices to the general public (such as equal housing
posters, licenses, etc.) are posted; ]
[(ii)
If a Mortgage Broker or Loan Officer maintains a web
site, the required notice must be included in a screen prominently displayed;
or ]
[(iii)
Providing a completed mortgage broker disclosure in
the form required by subsection (a) of this section executed at application.
]
(d)
The consumer complaint and Mortgage Broker
Recovery Fund notice required by subsection (b) of this section shall also
be conspicuously posted in each registered office or branch office where a
Mortgage Broker or Loan Officer conducts business on a face-to-face basis.
A notice is deemed to be conspicuously posted if a customer with 20/20 vision
can read it from the place where he or she would typically conduct business
or if it is included on a bulletin board, in plain view, on which all required
notices to the general public (such as equal housing posters, licenses, etc.)
are posted.
(e)
If a Mortgage Broker or Loan
Officer maintains a web site, the consumer complaint and Mortgage Broker Recovery
Fund notice required by subsection (b) of this section must be included in
a screen prominently displayed on the web site.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 27, 2004.
TRD-200401601
John Fleming
General Counsel
Texas Savings and Loan Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 475-1353
7 TAC §80.10
The Finance Commission of Texas (the "Finance Commission")
proposes to amend 7 TAC §80.10, Prohibition on False, Misleading, or
Deceptive Practices and Improper Dealings by adopting in subsection (b) new
paragraph (4) and new subsections (c) and (d) relating to improper dealing.
These proposed amendments prohibit the mislabeling of a fee or a charge as
a "discount point" when it is retained by a mortgage broker, loan officer
or company affiliate who is not a lender, or when the fee or charge is not
reimbursement for sums advanced to the lender to "buy down" the interest rate
on the loan.
The Mortgage Broker Licensing Act (the "Act") became effective September
1, 1999. It requires that mortgage brokers and the loan officers who work
for them meet certain requirements, that they obtain licenses, that they adhere
to certain standards of conduct, and that they provide required disclosures
to mortgage loan applicants. The Act directs the Finance Commission to promulgate
regulations to implement the Act (the "Regulations") and specifically authorizes
the Finance Commission to adopt rules to prohibit false, misleading, or deceptive
practices by mortgage brokers and loan officers. The Commissioner of the Texas
Savings and Loan Department ("Department) is charged with administration of
the Act.
The proposed rule would amend 7 TAC §80.10(b) which outlines certain
acts or practices which are defined as "improper dealing" to add a new paragraph
(b)(4). This amendment is intended to prevent misrepresentation as to the
nature of a fee or charge collected by licensees or their company affiliates
when the fee or charge is called a "discount point" by the mortgage broker
or loan officer, but the fee or charge is not used to "buy down" or otherwise
reduce the stated interest rate charged by the lender for the loan.
Discount points are common charges in a mortgage loan transaction. Lenders
commonly quote the price of mortgage loans by stating a specific interest
rate plus a specific origination fee and a specific number of discount points.
A consumer can negotiate to obtain a lower interest rate by paying more discount
points.
In many, if not most cases, mortgage brokers and their loan officers are
not lenders. They assist consumers in finding and obtaining a mortgage loan
from a third party lender. Mortgage brokers charge fees for their services
in assisting consumers in the application process and in bringing together
the prospective borrower and the prospective lender. Unless they serve as
the lender in the transaction or have paid the lender to discount or reduce
the interest rate on the loan, mortgage brokers who characterize a charge
as "discount points" are mislabeling what in fact is an additional fee for
brokerage services. In these cases, the mortgage broker should appropriately
disclose the true nature of the services or acts for which the fee is being
charged.
The fees charged by mortgage brokers to assist consumers in obtaining a
mortgage loan are generally negotiable. The Department believes that characterizing
broker compensation as loan discount points is misleading and deceptive and
results in a significant understatement to the consumer of the compensation
being paid for the mortgage broker's services.
Several other states prohibit the charging of discount points by mortgage
brokers. In information submitted to the Department, Massachusetts, New York,
and Delaware have stated that mortgage brokers are prohibited from collecting
discount points in their states. Massachusetts added that reimbursement has
been required where brokers are found to have charged discount points and
New York has fined brokers for this practice.
Proposed subsections (c) and (d) emphasizes that the amendment proposed
in (b)(4) does not address the question of whether any properly disclosed
fee may be legally charged. That determination must be made under the provisions
of the Real Estate Settlement Procedures Act and under the provisions of Finance
Code Chapter 156.304 and 7 TAC §80.8, Limitation on Charging of Fees,
or other applicable law.
A mortgage broker may appropriately designate or label a fee or charge
as a "discount point" in some circumstances. These exceptions involve circumstances
in which the mortgage broker meets the definition of a "lender" or circumstances
in which the broker is not retaining any portion of the discount points collected
but is serving exclusively as a conduit for the discount point(s) to be paid
to the lender. The following situations are deemed to be appropriate examples
of where a fee or charge may be properly described or labeled as a "discount
point":
(1) If the broker is in fact the lender. A lender may offer a borrower
an option to pay a higher interest rate without "points", or a lower rate
with the payment of points. Under the proposed amendment, it is presumed that
when the mortgage broker acts as a lender and collects discount point(s),
the stated rate of the loan has or will be reduced. A mortgage lender who
makes or originates loans at the retail level often will sell the loans in
the secondary market. The lender may quote an applicant rates and terms which
the mortgage lender anticipates will be required by purchasers in the secondary
market. Thus, the lender is exposed to lender liability, funding risks (i.e.
the secondary purchasers may default on their purchase obligations or the
selling lender may not have secured a firm repurchase for the loans in the
secondary market) and/or interest rate risks (the price at which the lender
concludes its sale in the secondary market may vary as interest rate yields
vary in a rapidly changing market environment). Where a broker is exposed
to those risks, the charging and collecting of discount points may be appropriate
because points are compensation for the taking of financial risk in the market.
This compensation is separate and markedly different from compensation for
the services of taking and receiving applications, and performing those other
services necessary to bring a prospective borrower together with a prospective
lender and to process the loan.
For purposes of the amendment, the mortgage broker will be considered the
lender if: the mortgage broker or loan officer or the entity with which he
or she is affiliated (as evidenced by the records of the Department) is the
person or entity to whom the obligation is initially payable as indicated
on the face of the note or other written evidence of indebtedness. The initial
payee who at closing concurrently assigns the debt to a third party (a practice
called table funding) qualifies as a lender, and may collect a charge labeled
as a discount point if the other provisions of the amended section are met.
(2) If the broker has paid the lender on behalf of the consumer to buy
down the interest rate on a loan and the receipt of discount points by the
broker at closing is a reimbursement for the broker's expenditure as demonstrated
by clear and convincing evidence. This would include situations in which the
payment to the lender is netted against fees otherwise paid or payable by
the lender to the broker.
Under no circumstances would the mortgage broker or loan officer be entitled
to charge or retain a discount point if the loan does not close.
The Act establishes a Mortgage Broker Advisory Committee to advise the
Commissioner and the Finance Commission on the promulgation of forms and regulations
and the implementation of the Act. The Advisory Committee met on February
4, 2004, and discussed the proposed amendments.
Danny Payne, Savings and Loan Commissioner, has determined that for the
first five year period the amendments, as proposed, will be in effect, there
will be no fiscal implications for state and local government as a result
of enforcing or administering the section, and is not expected to increase
or decrease the net revenue of the Department from the industry.
Mr. Payne estimates that for the first five years the proposed amendments
are in effect, the public will benefit from the proper disclosure and labeling
of "discount fees". The proper labeling and disclosure will prevent mortgage
brokers from misrepresenting the nature of the fee. This will facilitate a
consumer's ability to assess the total costs of obtaining a mortgage and to
more accurately compare the total costs of loan products offered by competing
lenders and mortgage brokers. No difference will exist between the cost of
compliance for small business and the cost of compliance for the largest business
affected by the amendments.
Comments on the proposed amendments may be submitted in writing to Danny
Payne, Commissioner, Texas Savings and Loan Department, 2601 North Lamar,
Suite 201, Austin, Texas 78705-4294, or e-mailed to TSLD@tsld.state.tx.us,
not later than 30 days from the date that this proposed rule is published
in the
Texas Register
.
The amendments are proposed under
Finance
Code
, Section 11.306, which authorizes the Finance Commission to adopt
mortgage broker rules as provided by Chapter 156 of the Act, and under
The section of the Act affected by the proposed amendment is
Finance Code
, Section 156.303(a)(3).
§80.10.Prohibition on False, Misleading, or Deceptive Practices and Improper Dealings.
(a)
(No change.)
(b)
The term "improper dealings" in Section 156.303(a)(3) of
the Act includes, but is not limited to the following:
(1) - (3)
(No change.)
(4)
No Mortgage Broker or Loan
Officer shall represent to a Mortgage Applicant that a charge or fee which
is payable to the Mortgage Broker, Loan Officer or the corporation, partnership
or other entity through, or for which the mortgage broker conducts activities
(the "company affiliate") is a "discount point" unless:
(A)
The Mortgage Broker or Loan Officer is the lender
in the transaction. For purposes of this subsection (b)(4)(A), the Mortgage
Broker or Loan Officer is deemed to be the lender if the Mortgage Broker,
Loan Officer, or the company affiliate for which the mortgage broker conducts
activities, as designated in the records of the Commissioner under the provisions
of
Finance Code
§156.204(b) as of the
date of the loan, is the person or entity to whom the mortgage obligation
is initially payable as evidenced on the face of the note or other written
evidence of indebtedness; or
(B)
When the Mortgage Broker, Loan Officer, or company
affiliate is not the lender, the Mortgage Broker or Loan Officer demonstrates
by clear and convincing evidence that the lender has charged or collected
discount point(s) or other fees which the Mortgage Broker, Loan Officer, or
company affiliate has paid the lender on behalf of the consumer, to buy down
the interest rate on a loan and the receipt of the discount point(s) by the
Mortgage Broker, Loan Officer, or company affiliate at closing is a reimbursement
for the Mortgage Broker, Loan Officer, or company affiliate's expenditure.
(C)
The discount points are retained or charged
only in the event the loan closes.
(c)
Nothing herein shall be construed
to authorize a Mortgage Broker or Loan Officer to provide any of the services
made the subject of fees. It is the responsibility of the Mortgage Broker
or Loan Officer providing any such services to obtain any necessary, approvals,
licenses, or permits and to comply with applicable legal and contractual requirements.
(d)
Nothing herein is intended
to authorize the charging or retaining of a fee or charge which may be prohibited
under other federal or state law.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 26, 2004.
TRD-200401555
John Fleming
General Counsel
Texas Savings and Loan Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 475-1353
7 TAC §80.11
The Finance Commission of Texas ("Finance Commission) proposes
to amend 7 TAC §80.11 Advertising by amending §80.11(a) to provide
that advertisements for mortgage loans which are offered by or through a mortgage
broker or loan officer must contain the information which a creditor is required
to provide in an advertisement under federal Truth in Lending (Regulation
Z, 12 CFR Part 226) whether or not the mortgage broker or loan officer is
a creditor for purposes of Regulation Z. The amendments will further require
that advertising include: (1) the name and license number of the mortgage
broker or loan officer or the business entity through which the mortgage broker
or loan officer conducts its activities; (2) a physical street address for
the mortgage broker, loan officer, or business entity: and (3) the license
number of the mortgage broker or loan officer. New subsection (c) provides
a definition of "advertising."
The Mortgage Broker Licensing Act (the "Act") became effective September
1, 1999. It requires that mortgage brokers and the loan officers who work
for them meet certain requirements, that they obtain licenses, that they adhere
to certain standards of conduct, and that they provide required disclosures
to mortgage loan applicants. The Act directs the Finance Commission to promulgate
regulations to implement the Act (the "Regulations") and specifically authorizes
the Finance Commission to adopt rules to prohibit false, misleading, or deceptive
practices by mortgage brokers and loan officers. The Commissioner of the Texas
Savings and Loan Department ("Department") is charged with administration
of the Act.
Federal Truth in Lending regulations (Regulation Z, 12 CFR Part 226) promote
the informed use of credit by requiring disclosures about its terms and costs.
A critical part of informed decision making by consumers is ensuring that
advertisements relating to credit products provide disclosures about the terms
and costs in a uniform manner to aid the consumer in evaluating competing
credit products. In furtherance of that goal, Regulation Z requires that advertisement
for credit include certain disclosures (See 12 CFR §226.16 relating to
advertisement for open-end credit; §226.24 relating to advertisement
for closed-end credit ;). When a mortgage broker is a "creditor" as defined
by Regulation Z, the mortgage broker's advertisement must conform to the requirements
of the Regulation Z. However, in many instances mortgage brokers are not creditors.
They may simply assist consumers in finding and obtaining a mortgage loan
from a third-party lender. When a mortgage broker is not a "creditor", the
broker may not be subject to the requirements of Regulation Z (See, for instance,
Field examinations of licensed mortgage brokers and loan officers indicate
that improper advertising is quite frequent. In order to provide uniform and
consistent guidelines disclosures for Texas consumers, and guidelines for
mortgage brokers and loan officers, the proposed amendments are intended to
clarify that the advertisement requirements of Regulation Z must be followed
by mortgage brokers or loan officers, whether or not they are "creditors"
as defined in Regulation Z.
The proposed guidelines in subsection (a) new paragraphs (1)-(3) are adopted
from those portions of Regulation Z which apply to closed-end credit. This
is deemed sufficient by the Department to cover the advertising violations
noted in the field examinations. Regulation Z requires that creditors advertising
home equity loans may be required to make additional disclosures (See 12 CFR
226.16). Based upon examinations conducted to date, few mortgage brokers or
loan officers are advertising these loans in Texas. The election of the Department
not to adopt additional guidelines to govern home equity lending advertising
does not excuse a mortgage broker or loan officer from complying with Regulation
Z open end credit advertising disclosures and home equity disclosures set
forth in 12 CFR 226.16 where those provisions apply. Failure to comply may
constitute a violation of §80.11(a)(7) or §80.10(3)(D). Further,
should the Department observe a significant increase in advertising of open-end
credit by mortgage brokers in the future, the Department may elect to specifically
incorporate the additional disclosures at that time.
The monitoring of advertisements by the staff of the Texas Savings and
Loan Department also indicates that many advertisements fail to provide the
consumer with sufficient information to identify a mortgage broker or loan
officer responsible for the advertisement. The proposed amendment to current §80.11(a)(4)
(to be renumbered as (a)(6)) requires clear identification of the mortgage
broker or loan officer, or the corporation, partnership, or other business
through which activities are conducted, including the name, license number,
and physical street address.
Current subsection (a)(1) is renumbered as (a)(7) and modified to reinforce
the principle that, in addition to complying with the advertising requirements
of §80.11, mortgage brokers or loan officers must also comply with all
other federal or state laws when applicable.
The Act establishes a Mortgage Broker Advisory Committee to advise the
Commissioner and the Finance Commission on the promulgation of forms and regulations
and the implementation of the Act. The Advisory Committee met on February
4, 2004, and discussed the proposed amendments. Based upon that discussion,
the Department has added subsection (c) to define the term advertising and
to exempt certain kinds of promotional and proprietary material from the definition.
Danny Payne, Savings and Loan Commissioner, has determined that for the
first five-year period that the amendments, as proposed, will be in effect,
there will be no fiscal implications for state and local government as a result
of enforcing or administering the section and that they are not expected to
increase or decrease the net revenue of the Department from the industry.
Mr. Payne estimates that for the first five years that the proposed amendments
are in effect, the public will benefit because mortgage brokers and loan officers
will be required to provide in their advertisements the same information that
all creditors are required to provide under Regulation Z. This consistency
will enable consumers to better compare the terms and conditions of credit
offered through advertisements. No difference will exist between the cost
of compliance for small business and the cost of compliance for the largest
business affected by the amendments.
Comments on the proposed amendments may be submitted in writing to Danny
Payne, Commissioner, Texas Savings and Loan Department, 2601 North Lamar,
Suite 201, Austin, Texas 78705-4294, or e-mailed to TSLD@tsld.state.tx.us.,
not later than 30 days from the date that this proposed rule is published
in the
Texas Register
.
The amendments are proposed under
Finance
Code
, Section 11.306, which authorizes the Finance Commission to adopt
mortgage broker rules as provided by Chapter 156 of the Act, and under
The section of the Act affected by the proposed amendment is
Finance Code
, Section 156.102(b) relating to authority for the Finance
Commission to adopt rules to prohibit false, misleading, or deceptive trade
practices.
§80.11.Advertising.
(a)
Any advertisement of Mortgage Loans which are offered by
or through a Mortgage Broker or Loan Officer shall
conform to the following
requirements:
(1)
If an advertisement states a rate of finance charge,
it shall state the rate as an "annual percentage rate," using that term (as
defined in 12 CFR 226,22). If the annual percentage rate may be increased
after consummation, the advertisement shall state that fact. The advertisement
shall not state any other rate, except that a simple annual rate or periodic
rate that is applied to an unpaid balance may be stated in conjunction with,
but not more conspicuously than, the annual percentage rate.
[
(2)
If any of the following terms
is set forth in an advertisement, the advertisement shall meet the requirements
of paragraph (3) of this subsection:
(A)
The amount or percentage of any down payment.
(B)
The number of payments or period of repayment.
(C)
The amount of any payment.
(D)
The amount of any finance charge.
(E)
The amount of any closing costs (for example:
"total closing costs only $100.00" or "No Closing Costs")
(3)
An advertisement stating any
of the terms in paragraph (2) of this subsection shall state the following
terms, as applicable (an example of one or more typical extensions of credit
with a statement of all the terms applicable to each may be used):
(A)
The amount or percentage of the down payment.
(B)
The terms of repayment.
(C)
The annual percentage rate, using that term,
and, if the rate may be increased after consummation, that fact.
(4)
[
(5)
[
(6)
[
(A)
the name of the Mortgage Broker or Loan
Officer followed by the phrase "Mortgage Broker" or "Loan Officer" or the
name of the corporation, partnership or other entity through, or for which
the mortgage broker or loan officer conducts activities (the "company affiliate"),
as designated in the records of the Commissioner under the provisions of
(B)
the license number of the Mortgage
Broker or Loan Officer; and
(C)
the physical street address
in Texas of the Mortgage Broker or Loan Officer or company affiliate; and
(7)
An advertisement shall otherwise
comply with applicable state and federal disclosure requirements.
(b)
(No change.)
(c)
For purposes of this rule §80.11,
an advertisement means a commercial message in any medium that promotes directly
or indirectly, a credit transaction. However, the requirements of subsection
(a)(6) of this section shall not apply to:
(1)
any advertisement which indirectly promotes
a credit transaction and which contains only the name of the mortgage broker,
loan officer, or company affiliate and does not contain any contact information,
such as the inscription of the name on a coffee mug, pencil, youth league
jersey or other promotional item; or
(2)
any rate sheet, pricing sheet, or similar proprietary
information provided to realtors, builders, and other commercial entities
that is not intended for distribution to consumers.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State on February 26, 2004.
TRD-200401558
John Fleming
General Counsel
Texas Savings and Loan Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 475-1353
Chapter 91.
CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS
Subchapter E. DIRECTION OF AFFAIRS
7 TAC §91.502
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.502 relating to the payment
of director fees and expenses. The Commission believes that the reasons for
initially adopting this rule continue to exist; however, it has determined
from its review that safeguards should be established to prevent the payment
of fees and expenses that are excessive or that could lead to material financial
loss to the institution.
The proposed amendments are a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.502 was published in the December 19, 2003, issue of the
The amendments to the rule are proposed to clarify that the payment of
fees and expenses that are excessive or that could lead to material financial
loss is considered an unsafe and unsound practice. The amendments specifically
indicates that fees and expenses shall be considered excessive when amounts
paid are disproportionate to the services performed, or unreasonable considering
the financial condition of the credit union and similar practices at credit
union's of comparable asset size, geographic location, and/or operational
complexity.
Kerri T. Galvin, General Counsel, has determined that for each year of
the first five years the proposed amended rule is in effect, there will be
no fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be clarification of the applicable provisions
and that board-related expenses will be contained for the benefit of the credit
union members. There is no anticipated effect on small businesses as a result
of adopting the amended rule. There is no economic cost anticipated to credit
unions for complying with the amendments if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendments are proposed under the provisions of §15.402
of the Texas Finance Code which authorizes the Credit Union Commission to
adopt reasonable rules necessary for administering Subtitle D, Title 3, Texas
Finance Code; and §122.062 of the Texas Finance Code which authorizes
the Commission to establish by rule the fees that may be paid and expenditures
that may be reimbursed to persons serving as directors and committee members
of a credit union.
The specific section affected by the proposed amendments is Texas Finance
Code §122.062.
§91.502.Director Fees and Expenses.
(a)
Expense reimbursement. A credit union may, by written board
policy, authorize the payment of reasonable expenses incurred by directors
and committee members and their spouses for attending and participating in
board approved conferences and/or educational programs.
(b)
Payment of fees. A credit union may, by written board policy,
authorize the payment of reasonable fees for directors and/or committee members
attending duly called meetings for the conduct of appropriate credit union
business. The policy shall include a schedule of meeting fee amounts and a
provision that fees may be paid only for actual attendance at duly called
meetings. The authority to pay any such fee is subject to the following limitations:
(1)
the credit union is not operating under a Net Worth Restoration
Plan;
(2)
the credit union must not be under supervisory sanctions
imposed by the commissioner pursuant to the Act or commission rule;
(3)
the credit union must notify the commissioner by furnishing
a copy of the policy, and any amendments thereto, at least 30 days prior to
the implementation of the policy or any revisions thereof; and
(4)
the credit union must keep accurate and detailed records
of the fees paid under the policy.
(c)
Use of credit union equipment. A credit union may provide
personal computers, access to electronic mail, and other possible electronic
conveniences to directors during their terms of office provided:
(1)
The board of directors determines that the equipment and
the electronic means are necessary and appropriate for the directors to [
(2)
The board of directors develops and maintains written policies
and procedures regarding this matter; and
(3)
The arrangement ceases immediately upon the person's leaving
office, without providing any residual physical benefits.
(d)
Review by board.
A credit union shall maintain safeguards
to prevent the payment of fees or expenses that are excessive or that could
lead to material financial loss to the institution.
At least annually,
the board shall review the
fees and
expenses [
(e)
Waiver by commissioner. The commissioner in the exercise
of discretion may grant a waiver in writing of the limitations described in
subsection (b) of this section.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401357
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
7 TAC §91.510
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.510 relating to fidelity
bond and insurance requirements. The Commission believes that the reasons
for initially adopting this rule continue to exist; however, it has determined
from its review that certain modifications should be made to ensure that bond
coverage is adequate in relation to the potential risks facing credit unions.
The proposed amendments are a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.510 was published in the December 19, 2003, issue of the
First, the amendments clarify that the prescribed minimum coverage thresholds,
which is computed based upon a credit union's total assets, apply to any single
loss. Secondly, the amendments require that any aggregate limit of liability
provided for in a fidelity bond policy must be at least twice the single loss
limit of liability. Finally, a new subsection was added to make clear that
a credit union must also comply with any and all bond requirements imposed
by an insuring organization as a condition to maintain insurance on share
and deposit accounts, including the minimum fidelity bond specifications contained
within Part 741.201 of the NCUA Rules and Regulations.
Kerri T. Galvin, General Counsel, has determined that for each year of
the first five years the proposed amended rule is in effect, there will be
no fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be that risks posed from potential misdeeds
will be mitigated to the extent that the credit union has appropriate fidelity
bond coverage insuring the credit union against losses from these events.
There is no anticipated effect on small businesses as a result of adopting
the amended rule. There is no economic cost anticipated to credit unions for
complying with the amendments if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendments are proposed under the provisions of §15.402
of the Texas Finance Code which authorizes the Credit Union Commission to
adopt reasonable rules necessary for administering Subtitle D, Title 3, Texas
Finance Code (Texas Credit Union Act); and §122.063 of the Texas Finance
Code which authorizes the Commission to establish by rule the requirements
for fidelity bond coverage.
The specific section affected by this proposed amended rule is Texas Finance
Code §122.063.
§91.510.Bond and Insurance Requirements.
(a)
Fidelity bond. Each credit union shall purchase and maintain
a blanket fidelity bond covering the officers, directors, employees, committee
members, and its agents, against loss caused by dishonesty, burglary, robbery,
larceny, theft, holdup, forgery or alteration of instruments, misplacement
or mysterious disappearance. All carriers writing credit union blanket bonds
must be authorized by the Insurance Commissioner for the state of Texas as
an acceptable fidelity on bonds in this state.
(1)
The amount of coverage to be required for each credit union
shall be determined by the credit union's board of directors, based on its
assessment of the level that would be safe and sound in view of the credit
union's potential exposure to risk. In making its determination the board
shall be guided by the following minimum
required amount
[
(2)
Any aggregate limit of liability
provided for in a fidelity bond policy must be at least twice the single limit
of liability. This requirement does not apply to optional insurance coverage.
(3)
[
(4)
[
(5)
[
(6)
[
(b)
Cancellation. A fidelity bond must include a provision
requiring written notification by the fidelity to the commissioner prior to
cancellation of any or all coverages set out in the bond which includes a
brief statement of cause for termination.
(c)
Other insurance. Each credit union shall, subject to approval
by the board, purchase appropriate insurance coverages to insure the credit
union and its assets against loss or damage by fire, liability, casualty or
any other insurance risks.
(d)
Board review. The board of directors of each credit union
shall formally approve the credit union's bond and insurance coverages. In
deciding whether to approve the coverages, the board shall review the adequacy
of the standard coverage and the need for supplemental coverage. Documentation
of the board's approval shall be included as part of the minutes of the meeting
at which the board approves coverages. Additionally, the board of directors
shall review the credit union's bond and insurance coverages at least annually
to assess the continuing adequacy of coverage.
(e)
Review by fidelity company. Credit unions which are analyzed
by a fidelity company shall notify the commissioner of the analysis within
30 days of the review commencement. The report of the review is to be provided
to the commissioner upon request. The confidentiality of the report shall
be preserved in the same manner afforded a report of examination conducted
by the department.
(f)
Insuring organization's bond
requirements. As applicable, a credit union shall also comply with any and
all bond requirements imposed by an insuring organization as a condition to
maintain insurance on share and deposit accounts, including, the minimum fidelity
bond specifications contained within Part 741.201 of the NCUA Rules and regulations.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401356
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
7 TAC §91.602
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.602 relating to the solicitation
and acceptance of brokered deposits. The Commission believes that the reasons
for initially adopting this rule continue to exist; however, it has determined
from its review that guidelines should be established to ensure that credit
unions perform due diligence and implement risk management practices before
entering into a business relationship with a deposit broker.
The proposed amendment is a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.602 was published in the December 19, 2003, issue of the
The amendment adds a new subsection to the rule to clarify that credit
unions utilizing brokered deposits must have proper risk management practices
in place, including appropriate written asset liability management policies,
business strategies, concentration limits, monitoring procedures, and contingency
funding plans. In addition, a credit union must implement adequate due diligence
procedures prior to establishing a business relationship with a deposit broker.
Kerri T. Galvin, General Counsel, has determined that for each year of
the first five years the proposed amended rule is in effect, there will be
no fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be that brokered deposit activities are
conducted in a safe and sound manner. There is no anticipated effect on small
businesses as a result of adopting the amended rule. There is no economic
cost anticipated to credit unions for complying with the amendments if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendment is proposed under the provisions of §15.402
of the Texas Finance Code which authorizes the Credit Union Commission to
adopt reasonable rules necessary for administering Subtitle D, Title 3, Texas
Finance Code.
The specific sections affected by this proposed amendment are Texas Finance
Code §§123.202, 123.203, and 123.204.
§91.602.Solicitation and Acceptance of Brokered Deposits.
(a)
Definitions.
(1)
Brokered deposit means any deposit that is obtained, directly
or indirectly, from or through the mediation or assistance of a deposit broker.
(2)
Deposit broker means a person engaged in the business of
placing deposits, or facilitating the placement of deposits, of third parties
with financial institutions; or the business of placing funds with financial
institutions for the purpose of selling interests in the deposit to third
parties.
(b)
Limitation.
A credit union that has a net worth
ratio of less than six percent as defined in §91.901 of this title (relating
to Reserve Requirements) or is not deemed adequately capitalized by its insuring
organization may not accept, renew or roll over any brokered deposit unless
it has been granted a waiver by the commissioner.
(c)
Risk management and due diligence.
Credit unions utilizing brokered deposits shall ensure that proper risk management
practices are in place, including appropriate written asset liability management
policies, business strategies, concentration limits, monitoring procedures,
and contingency funding plans. In addition, credit unions must implement adequate
due diligence procedures before entering into a business relationship with
a deposit broker.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401355
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
7 TAC §91.608
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.608 relating to the confidentiality
of member records. The Commission believes that the reasons for initially
adopting this rule continue to exist; however, it has determined from its
review that clarification is needed with respect to application of this rule
and federal law.
The proposed amendments are a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.608 was published in the December 19, 2003, issue of the
The amendments make several changes. First, it requires that a credit union's
written privacy policy be consistent with the disclosure and reporting requirements
applicable to federally insured credit unions as provided in Part 716 of NCUA
Rules and Regulations. In addition, a new subsection was added to clarify
that the provisions of this rule may not be construed to alter or affect any
applicable federal statute, regulation, or interpretation that affords a member
greater protection than provided in this rule.
Kerri T. Galvin, General Counsel, has determined that for each year of
the first five years the proposed amended rule is in effect, there will be
no fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be potentially greater privacy of certain
member records for their protection. There is no anticipated effect on small
businesses as a result of adopting the amended rule. There is no economic
cost anticipated to credit unions for complying with the amendments if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendments are proposed under the provisions of §15.402
of the Texas Finance Code which authorizes the Credit Union Commission to
adopt reasonable rules necessary for administering Subtitle D, Title 3, Texas
Finance Code; and §125.402 of the Texas Finance Code which authorizes
the Commission to establish rules relating to the confidentiality of the accounts
of credit union members and the duties of a credit union to maintain that
confidentiality.
The specific section affected by the proposed amendments is Texas Finance
Code §125.402.
§91.608.Confidentiality of Member Records.
(a)
Confidentiality of members' accounts. No credit union officer,
director, committee member or employee may disclose to any person, other than
the member, or to any company or governmental body the individual savings,
shares, or loan records of any credit union member, contained in any document
or system, by any means unless specifically authorized to do so in writing
by such the members, except as follows:
(1)
reporting credit experience to a bona fide credit reporting
agency, another credit union, or any other bona fide credit-granting business
and/or merchants information exchange, provided that applicable state and
federal laws and regulations pertaining to credit collection and reporting
are followed;
(2)
furnishing information
in response to a valid request
from
[
(3)
furnishing information, orally or in written form, in response
to the order of a court of competent jurisdiction or pursuant to other processes
of discovery duly issuing from a court of competent jurisdiction;
(4)
furnishing reports of loan balances to co-borrowers, co-makers,
and guarantors of loans of a member and of share or deposit account balances,
signature card information, and related transactions to joint account holders;
(5)
furnishing information to and receiving information from
check and draft reporting, clearing, cashing and authorization services relative
to past history of a member's draft and checking accounts at the credit union;
or
(6)
as otherwise authorized by law
, including access by
examiners of the Department
.
(b)
Non-disclosure statement. Nothing in this rule shall prohibit
the credit union from releasing the name and address of members to assist
the credit union in its marketing efforts or sale of third party products,
provided, however, that the credit union obtains a written non-disclosure
statement providing assurances that the information will be used exclusively
for the benefit of the credit union and no other.
(c)
Privacy policy. Each credit union shall develop, implement
and maintain a written policy on the protection of nonpublic personal information
of individual members in its possession. This policy
shall be consistent
with the disclosure and reporting requirements applicable to federally insured
credit unions as addressed in Part 716 of NCUA Rules and Regulations
[
(d)
Relation to federal laws. This
section shall not be construed as altering or affecting any applicable federal
statute, regulation, or interpretation that affords a member greater protection
than provided under this section.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401354
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
7 TAC §91.801
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.801 relating to investments
in credit union service organizations. The Commission believes that the reasons
for initially adopting this rule continue to exist; however, it has determined
from its review that certain amendments are needed to provide guidance and
expand the scope of one provision and mitigate the potential for any insider
self-dealing.
The proposed amendments are a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.801 was published in the December 19, 2003, issue of the
The Credit Union Commission proposes several amendments to this rule. First,
the amendments make the existing restrictions on receiving compensation from
a credit union service organization applicable to credit union directors.
In addition, the amendments impose a new requirement on a credit union to
provide written notice to the Commissioner of its intent to perform new activities
in an existing credit union service organization. The amendment also provides
specific guidelines as to the content of the required notice that must be
give to the Commissioner prior to commencing certain credit union service
organization activities.
Kerri T. Galvin, General Counsel, has determined that for each year of
the first five years the proposed amended rule is in effect, there will be
no fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be clarification of the applicable provisions
and elimination of possible self-dealing by directors. There is no anticipated
effect on small businesses as a result of adopting the amended rule. There
is no economic cost anticipated to credit unions for complying with the amendments
if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendments are proposed under the provision of the Texas
Finance Code, §124.352 which provides the Credit Union Commission with
the authority to adopt rules limiting investments; 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.
The specific sections affected by the proposed amended rule are Texas Finance
Code, §124.351 and §124.352.
§91.801.Investments in Credit Union Service Organizations.
(a)
Definition. When used in this section, a credit union service
organization (CUSO) is an organization whose primary purpose is to strengthen
or advance the credit union movement, serve or otherwise assist credit unions
or their operations, or provide services authorized by subsection (f) of this
section to members of credit unions.
(b)
A credit union by itself, or with other parties, may only
organize, invest in or make loans to a CUSO which is structured and operated
in a manner that demonstrates to the public that it maintains a legal existence
separate from the credit union. A credit union and a CUSO must operate so
that:
(1)
their respective business transactions, accounts, and records
are not intermingled;
(2)
each observes the formalities of their separate corporate
or other organizational procedures;
(3)
each is adequately financed as a separate unit in light
of normal obligations reasonably foreseeable in a business of its size and
character;
(4)
each is held out to the public as a separate enterprise;
and
(5)
unless the credit union has guaranteed a loan to the CUSO,
all borrowings by the CUSO indicate that the credit union is not liable.
(c)
Notice. A credit union shall provide written notice to
the commissioner of its intent to make an initial investment in
,
[
(d)
Limitations. The board of directors of a credit union that
organizes, invests in, or lends to any CUSO shall establish, in writing, the
maximum amount [
(e)
Prohibitions. No credit union may invest in or make loans
to a CUSO:
(1)
if any officer, director, committee member, or employee
of such credit union or any member of the immediate family of such persons
owns or makes an investment in or has made or makes a loan to the CUSO;
(2)
unless the organization is structured as a corporation,
limited liability company, registered limited liability partnership, or limited
partnership and the credit union has obtained a written legal opinion that
the CUSO is established in a manner that will limit the credit union's potential
exposure to not more than the loss of funds invested in or loaned to such
CUSO;
(3)
if the CUSO engages in any revenue producing activity other
than the performance of services for credit unions or members of credit unions,
and such activity equals or exceeds one half (1/2) of the CUSO's total revenue;
(4)
unless prior to investing in or making a loan to a CUSO
the credit union obtains a written agreement which requires the CUSO to follow
GAAP, render financial statements to the credit union at least quarterly,
and provide the department, or its representatives, complete access to the
CUSO's books and records at reasonable times without undue interference with
the business affairs of the CUSO; or
(5)
if any director is an employee of the CUSO, or anticipates
becoming an employee of the CUSO upon its formation.
(f)
Permissive activities and services. A CUSO shall be engaged
in providing products and services that include, but are not limited to:
(1)
operational services including credit and debit card services,
cash services, wire transfers, audits, ATM and other EFT services, share draft
and check processing and related services, shared service center operations,
electronic data processing, development, sale, lease, or servicing of computer
hardware and software, alternative methods of financing and related services,
other lending related services, and any other services or activity, including
consulting, related to the operations of credit unions;
(2)
financial services including financial planning and counseling,
securities brokerage and dealer activities, estate planning, tax services,
insurance services, administering retirement, deferred compensation and other
employee or business benefit plans, or any other service deemed economically
beneficial or attractive to the members of the participating credit union
or credit unions;
(3)
Internet based or related services including sale and delivery
of products to credit unions or members of credit unions; or
(4)
any other service or activity approved, in writing, by
the commissioner.
(g)
Compensation. A
credit union director,
senior
management employee, or committee member or immediate family member of any
such person may not receive any salary, commission, or other income or compensation,
either directly or indirectly, from a CUSO affiliated with their credit union,
unless received in accordance with a written agreement between the CUSO and
the credit union. The agreement shall describe the services to be performed,
the rate of compensation (or a description of the method of determining the
amount of compensation) and any other provisions deemed desirable by the CUSO
and the credit union. The agreement, and any amendments, must be approved
by the board of directors of the [
(h)
Examination fee. If a CUSO is requested by the commissioner
to make its books and records available for inspection and examination, the
CUSO shall pay a supplemental examination fee as prescribed in §97.113(d)
of this title (relating to Supplemental Examinations). The commissioner may
waive the supplemental examination fee or reduce the fee as he deems appropriate.
(i)
Exclusion. A credit union which has a net worth ratio greater
than six percent (6%) and is deemed adequately capitalized by its insuring
organization may invest in or make loans to a CUSO that is not limited by
the restriction set forth in subsection (e)(3); provided the activities of
the CUSO are exclusively limited to activities which could be conducted directly
by a credit union or are incidental to the conduct of the business of a credit
union. Notwithstanding this exclusion, all other provisions of the act and
this chapter applicable to a CUSO apply. In the event a credit union's net
worth or capital declines below the required thresholds, the credit union
may not renew, extend the maturity of, or restructure an existing loan, advance
additional funds or increase the investment in the CUSO without the prior
written approval of the commissioner.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401353
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
7 TAC §91.802
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.802 relating to other investments.
The Commission believes that the reasons for initially adopting this rule
continue to exist; however, it has determined from its review that guidelines
should be established to address both the implementation of an appropriate
risk management framework and the use of investment broker/dealers.
The proposed amendments are a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.802 was published in the December 19, 2003, issue of the
The amendments to the rule are proposed to clarify that a credit union's
investment policy must contain an appropriate risk management framework for
the level of risk in the investment portfolio, including methods for evaluating,
monitoring, and managing the various risks associated with its investment
activities. The amendments also impose a new requirement that third-party
entities, used by a credit union to purchase or sell investments, must be
registered with the Securities and Exchange Commission or a financial institution.
Kerri T. Galvin, General Counsel, has determined that for each year of
the first five years the proposed amended rule is in effect, there will be
no fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be improved safety and soundness given
the additional guidance concerning risk management practices and the new restrictions
on doing business with investment broker/dealers. There is no anticipated
effect on small businesses as a result of adopting the amended rule. There
is no economic cost anticipated to credit unions for complying with the amendments
if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendments are proposed under the provision of 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 and Texas Finance Code, §124.351, which authorizes
the Credit Union Commission to adopt rules authorizing other investments permissible
for credit unions that are responsive to changes in economic conditions or
competitive practices and to the need for safety and soundness of credit union
investments.
The specific section affected by this proposed amended rule is Texas Finance
Code §124.351.
§91.802.Other Investments
(a)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
Bailment for hire contract--A contract whereby a third
party, bank, or other financial institution, for a fee, agrees to exercise
ordinary care in protecting the securities held in safekeeping for its customers;
also known as a custodial agreement.
(2)
Bankers' acceptance--A time draft that is drawn on and
accepted by a bank, and that represents an irrevocable obligation of the bank.
(3)
Cash forward agreement--An agreement to purchase or sell
a security with delivery and acceptance being mandatory and at a future date
in excess of 30 days from the trade date.
(4)
Eurodollar deposit--A deposit denominated in U. S. dollars
in a foreign branch of a United States financial institution.
(5)
Federal funds transaction--A short-term or open-ended transfer
of funds to a financial institution.
(6)
Financial institution--A bank or savings association, the
deposits of which are insured by the Federal Deposit Insurance Corporation,
a federal or state-chartered credit union, or the National Credit Union Central
Liquidity Facility.
(7)
Repurchase transaction--A transaction in which a credit
union agrees to purchase a security from a counterparty and to resell the
same or any identical security to that counterparty at a later date and at
a specified price.
(8)
Reverse repurchase transaction--A transaction whereby a
credit union agrees to sell a security to a counterparty and to repurchase
the same or any identical security from that counterparty at a future date
and at a specified price.
(9)
Investment--Any security, obligation, account, deposit,
or other item authorized for investment by the Act or this section other than
an investment authorized by §124.351(a)(1) of the Act.
(10)
Settlement date--The date originally agreed to by a credit
union and a vendor for settlement of the purchase or sale of a security.
(11)
Trade date--The date a credit union originally agrees,
whether orally or in writing, to enter into the purchase or sale of a security.
(12)
Yankee dollar deposit--A deposit in a United States branch
of a foreign bank, the deposits of which are insured by the Federal Deposit
Insurance Corporation, that is licensed to do business in the state in which
it is located, or a deposit in a state chartered, foreign controlled bank.
(13)
Mortgage related security--A security which meets the
definition of mortgage related security in United States Code Annotated, Title
15, §78c(a)(41); i.e., a privately-issued security backed by mortgages
secured by real estate upon which is located a dwelling, a mixed residential
and commercial structure, a residential manufactured home, or a commercial
structure.
(14)
Nationally recognized statistical rating organization
(NRSRO)--A rating organization recognized by the Securities and Exchange Commission.
(15)
Asset-backed security--A bond, note, or other obligation
issued by a financial institution, trust, insurance company, or other corporation
secured by either a pool of loans, extensions of credit which are unsecured
or secured by personal property, or a pool of personal property leases.
(b)
Policy. A credit union may invest funds not used in loans
to members, subject to the conditions and limitations of the written investment
policy of the board of directors. The investment policy may be part of a broader,
asset-liability management policy. The board of directors must review the
investment policy at least annually to ensure that the policies adequately
address the following issues:
(1)
The types of investments that are authorized by the board
of directors.
(2)
A specific limit on the amount that may be invested in
any single investment or investment type.
(3)
The delegation of investment authority to the credit union's
officials or employees, including the person or persons authorized to purchase
or sell investments, and a limit of the investment authority for each individual
or committee.
(4)
A list of authorized broker-dealers or other third-parties
that may be used to purchase or sell investments, and an internal process
for assessing the credentials and previous record of the individual or firm.
(5)
An appropriate risk management framework for the level
of risk in the investment portfolio. This will include specific
[
(6)
A list of authorized third-party safekeeping agents.
(7)
If the credit union operates a trading account, the policy
[
(8)
The procedure for reporting to the board of directors investments
and investment activities that become noncompliant with the credit union's
investment policy subsequent to the initial purchase.
(c)
Authorized activities.
(1)
General authority. A credit union may contract for the
purchase or sale of a security provided that delivery of the security is by
regular-way settlement. Regular-way settlement means delivery of a security
from a seller to a buyer within the time frame that the securities industry
has established for that type of security. All purchases and sales of investments
must be delivery versus payment (i.e., payment for an investment must occur
simultaneously with its delivery).
(2)
Cash forward agreements. A credit union may enter into
a cash forward agreement to purchase or sell a security, provided that:
(A)
the period from the trade date to the settlement date does
not exceed 90 days;
(B)
if the credit union is the purchaser, it has written cash
flow projections evidencing its ability to purchase the security;
(C)
if the credit union is the seller, it owns the security
on the trade date; and
(D)
the cash forward agreement is settled on a cash basis at
the settlement date.
(3)
Repurchase transactions. A credit union may enter a repurchase
transaction provided:
(A)
the purchase price of the security obtained in the transaction
is at or below the market price;
(B)
the repurchase securities are authorized investments under
Texas Finance Code §124.351 or this section;
(C)
the credit union has entered into signed contracts with
all approved counterparties;
(D)
the counterparty is rated no lower than BBB by Standard &
Poor's or an equivalent rating by another NRSRO; and
(E)
the credit union receives a daily assessment of the market
value of the repurchase securities, including accrued interest, and maintains
adequate margin that reflects a risk assessment of the repurchase securities
and the term of the transaction.
(4)
Reverse repurchase transactions. A credit union may enter
into a reverse repurchase transaction, which is a borrowing transaction subject
to the Act, provided:
(A)
any securities received are authorized investments under
Texas Finance Code §124.351 and this section;
(B)
the credit union has entered into signed contracts with
all approved counterparties; and
(C)
for transaction with a maturity greater than one month,
the credit union receives a monthly assessment of the market value of the
securities received, including accrued interest, and maintains adequate margin
that reflects a risk assessment of the securities and the term of the transaction.
(5)
Federal funds. A credit union may enter into a federal
funds transaction with a financial institution, provided that the interest
or other consideration received from the financial institution is at the market
rate for federal funds transactions and that the transaction has a maturity
of one or more business days or the credit union is able to require repayment
at any time.
(6)
Yankee dollars. A credit union may invest in yankee dollar
deposits.
(7)
Eurodollars. A credit union may invest in eurodollar deposits.
(8)
Bankers' acceptance. A credit union may invest in bankers'
acceptances.
(9)
Open-end Investment Companies (Mutual Funds). A credit
union may invest funds in an open-end investment company established for investing
directly or collectively in any authorized investment, including qualified
money market mutual funds as defined by Securities and Exchange Commission
regulations.
(10)
Government-sponsored enterprises. A credit union may invest
in government-sponsored enterprise obligations such as Federal Home Loan Banks,
the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association and the Student Loan Marketing Association.
(11)
Commercial paper. A credit union may invest in commercial
paper issued by corporations domiciled within the United States and having
a rating of no less than A1 or P1 by Standard & Poor's or Moody's, respectively,
or an equivalent rating by a NRSRO.
(12)
Corporate bonds. A credit union may invest in corporate
bonds which are rated in one of the three highest rating categories by a NRSRO
(e.g. Standard & Poor's ratings AAA, AA, and A) and
have
remaining
maturities of five years or less.
(13)
Municipal bonds. A credit union may invest in municipal
bonds which are rated in one of the three highest rating categories by a NRSRO
and remaining maturities of five years or less.
(14)
Mortgage related securities. A credit union may invest
in mortgage related securities, except not in the "accrual bond" (or Z-bonds)
or the residual interest of the mortgage related security which are rated
in one of the three highest rating categories by a NRSRO.
(15)
Asset-backed securities. A credit union may invest in
asset-backed securities rated in one of the two highest rating categories
by a NRSRO provided the underlying collateral is domestic- and consumer-based.
(d)
Documentation: A credit union shall maintain files containing
credit and other information adequate to demonstrate evidence of prudent business
judgment in exercising the investment powers under the Act and this rule.
Except for investments that are issued, insured or fully guaranteed as to
principal and interest by the U.S. Government or its agencies, enterprises,
or corporations or fully insured (including accumulated interest) by the National
Credit Union Administration or the Federal Deposit Insurance Corporation,
a credit union must conduct and document a credit analysis of the issuing
entity and/or investment before purchasing the investment. The credit union
must update the credit analysis at least annually as long as the investment
is held. Credit and other due diligence documentation for each investment
shall be maintained as long as the credit union holds the investment and until
it has been both audited and examined.
(e)
Classification. A credit union must classify a security
as hold-to-maturity, available-for-sale, or trading, in accordance with generally
accepted accounting principles and consistent with the credit union's documented
intent and ability regarding the security.
(f)
Purchase or sale of investments
through a third-party. A credit union may use a third-party entity to purchase
or sell investments as long as the third-party is registered with the Securities
and Exchange Commission under the Securities and Exchange Act of 1934 (15
U.S.C. 78a et seq.) or is a financial institution. The requirements of this
subsection do not apply when a credit union purchases a certificate of deposit
or share certificate directly from a financial institution.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401352
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
7 TAC §91.803
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.803 relating to investment
limits and prohibitions. The Commission believes that the reasons for initially
adopting this rule continue to exist; however, it has determined from its
review that the provisions dealing with the investment pilot program should
be expanded and one other provision is no longer necessary.
The proposed amendments are a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.803 was published in the December 19, 2003, issue of the
The amendments, if adopted, will establish the criteria the Commissioner
will consider in rendering a decision on a request to participate in an investment
pilot program. The amendments also provide authority for the Commissioner
to rescind an approval to participate in an investment pilot program upon
the finding that certain conditions exist. Lastly, the amendments remove the
exception to the prescribed limitation for loan participations purchased from
other credit unions. The Commission in its recent revision to §91.711
(relating to Loan Participations), specifically provided that participation
in a loan to a borrower that is a member of the credit union or a member of
another participating credit union shall be considered a loan and not an investment.
Accordingly, the exception is no longer applicable.
Kerri T. Galvin, General Counsel, has determined that for each year of
the first five years the proposed amended rule is in effect, there will be
no fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be a clearer and more concise investment
pilot program that will not compromise safety and soundness. There is no anticipated
effect on small businesses as a result of adopting the amended rule. There
is no economic cost anticipated to credit unions for complying with the amendments
if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendments are proposed under the provisions of §15.402
of the Texas Finance Code which authorizes the Credit Union Commission to
adopt reasonable rules necessary for administering Subtitle D, Title 3, Texas
Finance Code; and §124.351 of the Texas Finance Code which authorizes
the Credit Union Commission to adopt rules authorizing other investments permissible
for credit unions that are responsive to changes in economic conditions or
competitive practices and to the need for safety and soundness of credit union
investments.
The specific section affected by this proposed amended rule is Texas Finance
Code §124.351.
§91.803.Investment Limits and Prohibitions.
(a)
Limitations. A credit union may not invest an amount that
is greater than 50% of its reserves and undivided earnings with any obligor
or related obligors except for investments issued by or fully guaranteed as
to principal and interest by the United States or an agency, enterprise, corporation,
or instrumentality of the United States, or in any trust or trusts established
for investing directly or collectively in such securities, obligations, or
instruments. For the purposes of this section, obligor is defined as an issuer,
trust, or originator of an investment, including the seller of a loan participation.
(b)
Notwithstanding subsection (a) of this section
, a
[
[
[
(c)
Prohibited Activities.
(1)
Definitions.
(A)
Adjusted trading--selling an investment to a counterparty
at a price above its current fair value and simultaneously purchasing or committing
to purchase from the counterparty another investment at a price above its
current fair value.
(B)
Collateralized mortgage obligation (CMO)--a multi-class
bond issue collateralized by mortgages or mortgage-backed securities.
(C)
Fair value--the price at which a security can be bought
or sold in a current, arms length transaction between willing parties, other
than in a forced or liquidation sale.
(D)
Real estate mortgage investment conduit (REMIC)--a nontaxable
entity formed for the sole purpose of holding a fixed pool of mortgages secured
by an interest in real property and issuing multiple classes of interests
in the underlying mortgages.
(E)
Residual interest--the remainder cash flows from a CMO/REMIC,
or other mortgage-backed security transaction, after payments due bondholders
and trust administrative expenses have been satisfied.
(F)
Short sale--the sale of a security not owned by the seller.
(G)
Stripped mortgage-backed security (SMBS)--a security that
represents either the principal-only or the interest-only portion of the cash
flows of an underlying pool of mortgages or mortgage-backed securities. Some
mortgage-backed securities represent essentially principal-only cash flows
with nominal interest cash flows or essentially interest-only cash flows with
nominal principal cash flows. These securities are considered SMBSs for the
purposes of this rule.
(H)
Zero coupon investment--an investment that makes no periodic
interest payments but instead is sold at a discount from its face value. The
holder of a zero coupon investment realizes the rate of return through the
gradual appreciation of the investment, which is redeemed at face value on
a specified maturity date.
(2)
A credit union may not:
(A)
Purchase or sell financial derivatives, such as futures,
options, interest rate swaps, or forward rate agreements;
(B)
Engage in adjusted trading or short sales;
(C)
Purchase stripped mortgage backed securities, residual
interests in CMOs/REMICs, mortgage servicing rights, commercial mortgage related
securities, or small business related securities;
(D)
Purchase a zero coupon investment with a maturity date
that is more than 10 years from the settlement date;
(E)
Purchase investments whereby the underlying collateral
consists of foreign receivables or foreign deposits; or
(F)
Purchase securities used as collateral by a safekeeping
concern.
(d)
Investment pilot program.
(1)
The commissioner may authorize a
limited
number of
credit
unions
[
(A)
[
(B)
[
(C)
[
(D)
[
(E)
[
(F)
[
(G)
[
(2)
In connection with a request
to participate in an investment pilot program, the commissioner will consider
the general nature and functions of credit unions, as well as the specific
financial condition and management of the applicant credit union, as revealed
in the request, examinations, or such other information as may be available
to the commissioner. The commissioner may approve the request, approve the
request conditionally, approve it in modified form, or deny it in whole or
in part. A decision by the commissioner concerning participation in an investment
pilot program is not appealable.
(3)
The commissioner may find that an investment
pilot program previously authorized is no longer a safe and prudent practice
for credit unions generally to engage in, or has become inconsistent with
applicable state or federal law, or has ceased to be a safe and prudent practice
for one or more particular credit unions in light of their financial condition
or management. Upon such a finding, the commissioner will send written notice
informing the board of directors of any or all of the credit unions engaging
in such a practice that the authority to engage in the practice has been revoked
or modified. When the commissioner so notifies any credit union, its directors
and officers shall forthwith take steps to liquidate the investments in question
or to make such modifications as the commissioner requires. Upon demonstration
of good cause, the commissioner may grant a credit union some definite period
of time in which to arrange its' affairs to comply with the commissioner's
direction. Credit unions which continue to engage in investment practices
where their authority to do so has been revoked or modified will be deemed
as engaging in an unsound practice.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401351
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
7 TAC §91.804
The Credit Union Commission has completed its review of Texas
Administrative Code Title 7, Chapter 91, §91.804 relating to custody
and safekeeping. The Commission believes that the reasons for initially adopting
this rule continue to exist; however, it has determined from its review that
safeguards should be established to give state chartered credit unions parity
with federal credit unions with respect to investments in brokered certificate
of deposits.
The proposed amendment is a result of the general rule review mandated
by the Government Code, which requires each state agency to review and consider
for readoption each of its rules every four years. Notice of Intention to
Review §91.804 was published in the December 19, 2003, issue of the
The amendments to the rule are proposed to authorize a credit union to
invest in certain federally insured certificates of deposit as long as the
investment is held for a credit union by a board-approved safekeeper that
is supervised by the Securities and Exchange Commission, or Federal or State
depository institution regulatory agency. This amendment would allow a credit
union to participate in a third-party certificate arrangement where the certificate
is not issued directly to the credit union and the credit union's name as
the owner of the certificate is not directly on the books and records of the
issuing financial institution; however, the program must meet all applicable
federal deposit insurance requirements to ensure the availability of pass-through
insurance coverage to each credit union investor.
Kerri T. Galvin, General Counsel, has determined that there will be no
fiscal implications for state or local government as a result of enforcing
or administering the proposed rule.
Ms. Galvin has also determined that for each year of the first five years
the proposed amended rule is in effect, the public benefits anticipated as
a result of enforcing the rule will be clarification of the applicable provision
and keeping state chartered credit unions from being at a competitive disadvantage
with federally chartered credit unions. There is no anticipated effect on
small businesses as a result of adopting the amended rule. There is no economic
cost anticipated to credit unions for complying with the amendments if adopted.
Written comments on the proposal must be submitted within 30 days after
its publication in the
Texas Register
to Kerri
T. Galvin, General Counsel, Credit Union Department, 914 East Anderson Lane,
Austin, Texas 78752-1699.
The amendment is proposed under the provision of 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; and Texas Finance Code, §124.351, which authorize the Credit
Union Commission to adopt rules authorizing other investments permissible
for credit unions that are responsive to changes in economic conditions or
competitive practices and to the need for safety and soundness of credit union
investments. This amendment is also proposed 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 this proposed rule is Texas Finance Code §124.351.
§91.804.Custody And Safekeeping.
(a)
A credit union's purchased investments and repurchased
collateral must be in its possession, recorded as owned by the credit union
through the federal reserve book-entry system, or be held by a board-approved
safekeeper under a bailment for hire contract
or a custodial arrangement
subject to regulation by the Securities and Exchange Commission
. Any
safekeeper used by a credit union must be regulated and supervised by either
the Securities and Exchange Commission or a federal or state financial institution
regulatory agency. For the purposes of this section a bailment for hire contract
has the same meaning as in §91.802 (relating to Other Investments).
(b)
A credit union that invests funds in a certificate of deposit
in a financial institution as defined in §91.802 (relating to Other Investments)
shall hold such certificate of deposit in the name of the credit union
or, if held by a safekeeper in the safekeeper's name as custodian for a credit
union or the credit union's registered broker or dealer
.
Any certificate
of deposit held by a safekeeper as custodian for a credit union or the credit
union's registered broker or dealer must be eligible for extended or flow-through
insurance coverage to the credit union through either the Federal Deposit
Insurance Corporation or the National Credit Union Share Insurance Fund
[
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on February 23, 2004.
TRD-200401350
Harold E. Feeney
Commissioner
Credit Union Department
Earliest possible date of adoption: April 11, 2004
For further information, please call: (512) 837-9236
Such disclosures shall include a statement to the
effect that the Department oversees the enforcement of the Act (including
conducting investigations of any complaints) and provide a consumer toll free
telephone number for the Department.
]
(b)
] Anytime a Mortgage Broker or
Loan Officer charges or receives from a Mortgage Applicant a fee for a service
that is provided by a third party and retains any portion of the fee so charged
or received:
comply
with all applicable state and federal disclosure requirements, including,
but not limited to, those under the Truth in Lending Act regarding the disclosure
of annual percentage rates;
]
(2)
]
An advertisement shall
be made only for
[
advertise only
] such products and terms
as are actually available and, if their availability is subject to any material
requirements or limitations, the advertisement shall specify those requirements
or limitations;
(3)
]
An advertisement shall
not make any statement or omit to make any statement the result of
which is to present a misleading or deceptive impression to consumers; [
and
]
(4)
]
Except as provided in
subsection (c) of this section,
if the person who caused the advertisement
to be published is a Mortgage Broker or a Loan Officer,
the advertisement
shall contain:
[
disclose that fact.
]
Part 6.
CREDIT UNION DEPARTMENT
fulfil
]
fulfill
their duties and responsibilities;
which have been
] incurred, paid or reimbursed by the credit union as authorized by
this section.
Fees and expenses shall be considered excessive when amounts
paid are disproportionate to the services performed by a director or committee
member, or unreasonable considering the financial condition of the institution
and similar practices at credit unions of a comparable asset size, geographic
location, and/or operational complexity.
amounts
] of
fidelity
[
blanket
] bond coverage
for any single loss computed
[
required
] according to asset
categories:
(2)
] The following maximum amounts
of blanket bond deductibles are authorized according to asset categories:
(3)
] A deductible may be applied
separately to one or more insuring clauses in a blanket bond. No deductible
will exceed ten percent of a credit union's unencumbered reserves and undivided
earnings unless the credit union creates a segregated Contingency Reserve
for the amount of the excess. Valuation allowance accounts, e.g., allowance
for loan losses, may not be considered part of the unencumbered reserves and
undivided earnings when determining the maximum deductible.
(4)
] The commissioner may require
additional coverage of any credit union when, in his opinion, the fidelity
bond in force is insufficient to provide adequate fidelity coverage. It shall
be the duty of the board of directors to obtain the additional coverage within
30 days after the date of written notice of the findings by the commissioner.
(5)
] After the effective date of
this section, any bond coverage purchased or renewed by any credit union shall
conform to this section.
Subchapter F. ACCOUNTS AND SERVICES
to
] a duly constituted government agency or taxing
authority, or any subdivision thereof, including law enforcement agencies;
should contain clear and readily understandable disclosures about the handling
of member information, and be supported by consistent internal procedures
and methods to enhance compliance by credit union personnel
].
Subchapter H. INVESTMENTS
or
] make an initial loan to a CUSO
, or perform new activities
in an existing CUSO
at least 15 days prior to commencing efforts to
effect such activity.
The written notice must include a complete description
of the credit union's investment in or loan to the CUSO, the activity conducted,
and a representation and undertaking that the activity will be conducted in
accordance with applicable law.
The credit union shall provide any additional
information reasonably requested by the commissioner.
of the credit union's assets,
] relative to the
credit union's net worth, that will be invested in or loaned to any one CUSO.
Investments and loans described in this section shall not, in the aggregate,
exceed 10% of the total assets of the credit union, unless the credit union
receives the prior written approval of the commissioner. The amount of loans
to CUSOs, cosigned, endorsed, or otherwise guaranteed by the credit union,
shall be included in the aggregate for the purpose of determining compliance
with the limitations set forth in this section.
participating
] credit union and
the board of directors (or equivalent governing body) of the CUSO prior to
any performance of service or payment and annually thereafter. For purposes
of this section, senior management employee shall include the chief executive
officer, any assistant chief executive officers (e.g. vice presidents and
above), and the chief financial officer; and immediate family shall include
a person's spouse or any other person living in the same household.
The
] methods
for evaluating, monitoring, and managing
[
to be used to manage
] the [
credit union's
] credit risk, interest-rate
risk, and liquidity risk
from the investment
[
that are associated
with its investment-related
] activities.
should
]
shall
specify the persons authorized to engage
in trading account activities, trading account size limits, stop loss and
sale provisions, time limits on inventoried trading account investments, and
internal controls that specify the segregation of risk-taking and monitoring
activities that related to trading account activities.
:
]
(1)
]
[
A
] credit union's board of directors,
as a single exception to this section, will be allowed to establish the aggregate
credit-risk exposure to a single financial institution approved by the board
as the credit union's designated depository based on the credit union's liquidity
trends and funding needs as documented by its asset/liability management policy,
provided that the credit union has appropriately documented its due diligence
to demonstrate that the investments in this designated depository do not pose
a safety and soundness concern.
(2)
A credit union may invest
in loan participations purchased from other credit unions provided the loan
complies with the purchasing credit union's loan policy and credit risk standards.]
union
] to engage in other
types of investment activities under an investment pilot program. [
In
approving a credit union's request to participate in a pilot program, the
commissioner, in the exercise of discretion, may condition or limit the investment
activity to be conducted.
] A credit union wishing to participate in
an investment pilot program shall submit a request that addresses the following
items:
(1)
] Board policies approving the
activities and establishing limits on them;
(2)
] A complete description of the
activities, with specific examples of how the credit union will conduct them
and how they will benefit the credit union;
(3)
] A demonstration of how the
activities will affect the credit union's financial performance, risk profile,
and asset-liability management strategies;
(4)
] Examples of reports the credit
union will generate to monitor the activities;
(5)
] A projection of the associated
costs of the activities, including personnel, computer, audit, etc.;
(6)
] A description of the internal
systems to measure, monitor, and report the activities, and the qualifications
of the staff and/or official(s) responsible for implementing and overseeing
the activities; and
(7)
] The internal control procedures
that will be implemented, including audit requirements.
In no event shall such certificate of deposit held by the depository financial
institution be in the name of a third party
].
Subchapter I. RESERVES AND DIVIDENDS