Washington State Department of Financial Institutions

Division of Credit Unions

Bulletins 1997

 

DCU Bulletin

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

February 18, 1997
No. B-97-1

List of Division Opinions and Bulletins Issued in 1996

Opinions

From time to time, the Division issues written opinions in response to questions about how a statute or rule should be applied to a particular factual situation. In order to make these opinions available generally to credit unions, we will publish a list of new opinions twice a year. The Division is happy to provide "sanitized" copies of the actual opinions upon request. Enclosed is a list of opinions issued in 1996.

Please be aware that the opinions are limited to their facts; we may reach a different conclusion if presented with different facts or conditions.

Bulletins

In addition, the Division issues Bulletins on regulatory developments. Enclosed is a list of the Bulletins issued in 1996. A copy of each Bulletin was provided to credit unions at the time the Bulletin was issued.

*****

Please call or fax your request to Tina Philippsen (at the Division office at the numbers above) if you would like a copy of an opinion or Bulletin on the enclosed lists.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

February 26, 1997
No. B-97-2

NCUA Issues Letter on Automated Response Systems

Enclosed is a copy of a recent NCUA letter (no. 97-CU-1) to credit unions regarding certain internal controls for automated response systems. The letter is pertinent for state credit unions that offer these systems.

The NCUA has instructed its examiners to review internal controls for automated response systems, paying particular attention to those weaknesses described in the letter.

Should you have any questions regarding the information contained in the NCUA letter, please contact either this office or the NCUA.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

February 27, 1997
No. B-97-3

DFI Focus Group Meetings with Director John Bley and Assistant Director Parker Cann

Please plan to attend one of the regional focus group meetings with Director John Bley and Assistant Director Parker Cann. These meetings are part of the overall business planning cycle of the DFI.

The purpose is for John and Parker to get your input on the current and future direction of credit union regulatory policy at the agency. You will have the opportunity to raise questions and discuss critical current issues in a small group session with your state regulator.

The following are the scheduled meetings:

Date and time City Location Host
March 5, 1997
2:00 pm to 4:00 pm
Longview Weyerhaeuser Employees Credit Union Bob Kane
360-425-2130
March 12, 1997
2:00 pm to 4:00 pm
Tacoma Tapco Credit Union John Bechtholt
206-565-9895
April 9, 1997
2:00 pm to 4:00 pm
Everett Educational Community Credit Union
*Meeting at Cascade Savings Bank (see below)
Karen Canaday
(Contact:Marilyn Razee 206-259-8051
April 16, 1997
2:00 pm to 4:00 pm
Seattle Boeing Employees Credit Union Gary Oakland (Contact: Necia Wainwright 206-439-5981
April 30, 1997
2:00 pm to 4:00 pm
Spokane Spokane Teachers Credit Union Steve Dahlstrom

*Cascade Savings Bank: 2828 Colby Ave., Everett, WA 98201

Please call the host credit union prior to the meeting to confirm your attendance and check the location, in case changes were made since this Bulletin.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

March 28, 1997
No. B-97-4 REVISED
(Please note the change in date for the Spokane focus group meeting.)

DFI Focus Group Meetings with Director John Bley and Assistant Director Parker Cann

Please plan to attend one of the regional focus group meetings with Director John Bley and Assistant Director Parker Cann. These meetings are part of the overall business planning cycle of the DFI.

The purpose is for John and Parker to get your input on the current and future direction of credit union regulatory policy at the agency. You will have the opportunity to raise questions and discuss critical current issues in a small group session with your state regulator.

The following are the scheduled meetings:

Date and time City Location Host
March 5, 1997
2:00 pm to 4:00 pm
Longview Weyerhaeuser Employees Credit Union Bob Kane
360-425-2130
March 12, 1997
2:00 pm to 4:00 pm
Tacoma Tapco Credit Union John Bechtholt
206-565-9895
April 9, 1997
2:00 pm to 4:00 pm
Everett Educational Community Credit Union
*Meeting at Cascade Savings Bank (see below)
Karen Canaday
(Contact: Marilyn Razee 206-259-8051)
April 16, 1997
2:00 pm to 4:00 pm
Seattle Boeing Employees Credit Union GaryOakland
(Contact: Necia Wainwright 206-439-5981)
May 27, 1997
2:00 pm to 4:00 pm
Spokane Spokane Teachers Credit Union Steve Dahlstrom

*Cascade Savings Bank: 2828 Colby Ave., Everett, WA 98201

Please call the host credit union prior to the meeting to confirm your attendance and check the location, in case changes were made since this Bulletin.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

July 14, 1997
No. B-97-5

List of Division Opinions Issued During the First Half of 1997

From time to time, the Division issues written opinions in response to questions about how a statute or rule should be applied to a particular factual situation. In order to make these opinions available generally to credit unions, we will publish a list of new opinions twice a year. The Division is happy to provide "redacted" copies of the actual opinions upon request. Enclosed is a list of opinions issued during the first half of 1997.

Please be aware that the opinions are limited to their facts; we may reach a different conclusion if presented with different facts or conditions.

*****

Please call or fax your request to Tina Philippsen (of the Division office at the numbers above) if you would like a copy of an opinion from the enclosed list.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

July 21, 1997
No. B-97-6

Credit Unions and the Year 2000

Enclosed is information from the National Credit Union Administration about the Year 2000 compliance issue. Additional information may be available on the Internet at sites from the Federal Financial Institutions Examination Council (FFIEC) and other government agencies. As an example, we have enclosed a copy of the FFIEC Internet information. If you do not have access to the Internet, you might check with other credit unions or the Washington Credit Union League to obtain additional reference information.

The Division of Credit Unions is increasing its supervision of Year 2000 compliance. Next week we will be sending out a questionnaire to evaluate each credit union’s progress on its compliance plan.

If you have any questions, please give us a call at the Division.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

July 17, 1997
No. B-97-7

Mortgage Loan Prequalifications under Reg B and Reg C

Enclosed is a recent NCUA Regulatory Alert which provides guidance on the treatment of mortgage loan prequalifications under federal fair lending laws, including ECOA (Reg B), HMDA (Reg C), and the Fair Housing Act.

State credit unions, even those not yet converted to NCUSIF, should comply with the NCUA’s guidance set forth in the Alert.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

August 11, 1997
No. B-97-8

Division Will No Longer Prepare IRS Form 990s

State credit unions are required under the federal Internal Revenue Code to file annually a Form 990 (informational return). For many years, the Division has prepared and filed with the IRS a Form 990 group return on behalf of state credit unions. We prepared the group return based on information provided by credit unions.

However, because of our growing workload in the examination and supervision areas and the growing complexity of federal tax laws, we have decided to stop preparing Form 990. The last group return that we prepared was filed in May 1997 for the year 1996.

This means that credit unions will have to prepare and file their own individual Form 990 in the future. The first individual filing will be due in May 1998 for the year 1997, for those credit unions with a calendar year as their fiscal year.

Training on Form 990 Preparation

To help credit unions learn how to prepare their own Form 990, the Division and Washington Credit Union League will arrange a Form 990 training session to be held during the fall through Washington Interactive Television (WIT). Details regarding the WIT session will be distributed to all credit unions in the next month or so.

If you have any questions about this Bulletin, please contact Parker Cann at (360) 902-8778.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

September 12, 1997
No. B-97-9

Division Files for Expedited Adoption of Rules that are "Substantially Equivalent" to NCUA Rules on Prohibited Fees and Nonpreferential Loans

NCUA rules on prohibited fees and nonpreferential loans that are applicable to federally-insured state credit unions (FISCUs) may be superseded by substantially equivalent state rules. In order to take advantage of this provision, the Division filed a Form CR-101XA (Expedited Approval) on September 4, 1997, to initiate the rule-making on substantially equivalent rules in these areas. Enclosed is a copy of the Form CR-101XA.

The proposed rules are as follows:

  1. A rule substantially the same as the NCUA rule at 12 CFR Section 701(c)(8), prohibiting credit union officials and employees from receiving any compensation in connection with a loan by the credit union.
  2. A rule substantially the same as the NCUA rule at 12 CFR Section 701(d)(5), prohibiting credit union officials and their immediate families and business associates from receiving loans from the credit union on preferential terms.

These two NCUA rules are applicable to FISCUs in accordance with NCUA rule 741.203(a).

Because all Washington FISCUs are subject to these NCUA rules, and all other Washington state credit unions will be subject to them shortly, the Division decided to file the rules on an expedited basis, a new procedure permitted under the 1997 amendments to the state Administrative Procedures Act.

The expedited rule-making process allows the agency to adopt the rules without a hearing and without many of the other procedural steps involved in typical rule-making. The Division may adopt the proposed rules in final form, without further notice or hearing, if no one files an objection by November 18, 1997. The Division believes that in this unique circumstance, with the adoption of rules that are substantially the same as NCUA rules that apply to FISCUs, the expedited process is appropriate.

If you have any questions about the proposed rules or the expedited rule-making process, please contact Parker Cann at (360) 902-8778. If you object to the use of the expedited rule-making process, you should file an objection in writing with the Division. The objection must be received by November 18, 1997. If one or more persons file an objection, the Division may not adopt the rules through the expedited process and must initiate a rule-making through the normal process, with a hearing, etc.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

September 18, 1997
No. B-97-10

The Division of Credit Unions (Division) has decided to modify the work hours for its examiners. The new arrangement, known as the 9/80 program, will in essence require examiners to work nine-hour days with every other Friday off. As a result, examiners may need access to credit union records from 7:30 a.m. to 5:30 p.m. while examining your credit union.

Prior to implementing this program, the Division contacted several credit unions of various sizes for comments on the anticipated impact of the program on the credit unions. The response was overwhelmingly favorable. DFI’s Division of Banks implemented a 9/80 program a few years back and it has worked well.

We anticipate that the 9/80 program will produce at least three benefits for the Division:

1) A reduction in travel costs, as one day of hotel, per diem, parking, etc. will be eliminated.
2) A decrease in distractions during exams and an increase in the quality of exam analysis, because personal errands, appointments, etc., can be scheduled on the Friday off rather than during a work day
3) An improvement in staff morale.

Questions about this program should be directed to Mike Delimont at (360) 902-8790. Thank you for your support.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

October 9, 1997
No. B-97-11

Form 990 Training Session Scheduled for November 12, 1997

The Division has scheduled a training session on the preparation of IRS Form 990. The training session will be held on November 12, 1997, from 9:00 a.m. to 11:00 a.m., through Washington Interactive Television (WIT).

Credit unions will be able to participate in the training session at five WIT sites:

  1. Lacey: 710 Sleater-Kinney Rd SE, Suite Q
  2. Seattle: Seattle Community College District, Siegal Center 1500 Harvard Avenue
  3. Vancouver: Educational Service District (ESD) #112, 2500 NE 65th Avenue
  4. Yakima: Yesterday’s Village, The 15 West Yakima Avenue Bldg., 15 West Yakima Avenue, Suite 202
  5. Spokane: Educational Service District (ESD) #101, 910 N. Ash Street

If you need directions to your WIT site, please call and we will fax directions. Credit unions are encouraged to send staff who will actually be filling out the Form 990s. Please RSVP to Tina Philippsen (360) 902-8718 with the number of people who will be attending from your credit union.

As you know, the Division has in the past prepared an IRS Form 990 group return on behalf of state-chartered credit unions. However, because of our growing workload in the examination and supervision areas and the growing complexity of federal tax laws, we have decided to stop preparing Form 990s. The last group return that we prepared was filed in May 1997 for calendar year 1996.

Consequently, credit unions will have to prepare and file their own individual Form 990s in the future. The first individual filing will be due on May 15, 1998 for calendar year 1997, for those credit unions with a calendar year as their fiscal year. Any credit union that wishes to change its fiscal year should consult a knowledgeable tax advisor on the impact of such a change on its IRS Form 990 reporting.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

November 13, 1997
No. B-97-12

Division Announces Town Hall Meetings with Credit Unions in December to Discuss Division’s FOM Initiative

The Division is undertaking a three-prong FOM initiative:

  1. To adopt a new rule requiring credit unions to use a Model FOM Bylaw format. After each credit union converts to the new format (within one year after the rule is adopted), the Division will print out a new listing for each credit union as new groups are approved by the Division. Enclosed is a copy of the preliminary draft of the model FOM Bylaw.
  2. To adopt a new rule requiring credit unions to document new member eligibility. The purpose of this new rule is to require credit unions to retain a record of which FOM group each new member belongs to, and to require Supervisory Committees to audit this documentation. Enclosed is a copy of the preliminary draft of the rule.
  3. To revise its FOM expansion rules (Chapter 208-472 WAC), to clarify and streamline the rules, and to make them better reflect current Division policy. The Division hopes to distribute a preliminary draft of these revisions to credit unions in the next few weeks.

The Division has been discussing these rules with a FOM Task Force of the League. At the suggestion of the Task Force, the Division has scheduled three "town hall" meetings around the state to gather input from a larger group of credit unions. These meetings are scheduled as follows:

Please call Tina Philippsen at the Division (360) 902-8718, to RSVP to attend one of the town hall meetings.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

November 17, 1997
No. B-97-13

Division Issues Letter for Use as an Attachment with IRS Form 990 Filings

At the recent WIT session on IRS Form 990s, the Division agreed to provide credit unions with a memo to the IRS explaining the change in Form 990 filings (from group to individual returns). Enclosed is a memo from the Division for this purpose. The memo may be used by credit unions as an attachment to their Form 990 filings.

January 1, 1998

TO: Internal Revenue Service

FROM: J. Parker Cann, Assistant Director

SUBJECT: Filing of Individual IRS Form 990s by Washington Credit Unions

The purpose of this memo is to notify the IRS that Washington state-chartered credit unions will no longer file a Form 990 on a group basis, but will file a Form 990 on an individual basis, beginning with the filing due in 1998.

In years past, the Washington State Division of Credit Unions (Division) filed a group return on Form 990 with the IRS on behalf of all Washington state-chartered credit unions (Washington credit unions). The group returns were filed under the name "Credit Unions in the state of Washington", EIN #91-6055937. The last such group return was filed in May 1997 for calendar year 1996. However, the Division has discontinued this practice, and will no longer prepare a group return for Washington credit unions. Consequently, Washington credit unions will be responsible for filing individual Form 990s beginning in 1998 for the 1997 calendar year.

It should also be noted that some federally-chartered credit unions converted to a Washington State charter during 1997. Consequently, these credit unions will be filing an initial individual Form 990 in 1998 for calendar year 1997.

 


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

November 19, 1997
No. B-97-14

Division Adopts Final Rules on Prohibited Fees and Nonpreferential Loans

On November 19, 1997, the Division adopted final rules on prohibited fees and nonpreferential loans (new rules). The new rules were adopted through the expedited rule-making process. Enclosed is a copy of the CR-103 form that we filed for adoption of the rules, including the text of the rules. The new rules will be codified at WAC Sections 208-444-020 through –050.

New rules not yet in effect

The new rules are substantially equivalent to National Credit Union Administration rules at 701.21(c)(8) and (d)(5) (NCUA rules). The NCUA rules will continue to apply to federally-insured, state-chartered credit unions (FISCUs) in Washington until the NCUA determines that the new rules are substantially equivalent to the NCUA rules. At the time the NCUA makes such a determination, FISCUs will no longer be subject to the NCUA rules and will be subject instead to the new rules.

The DFI has submitted a written request to the NCUA for a determination about the new rules. The Division will notify credit unions of the outcome of its request to the NCUA for a determination.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

November 25, 1997
No. B-97-15

Year 2000 (Y2K) Supervision

As you are aware, Year 2000 (Y2K) non-compliance may cause safety and soundness issues for credit unions and other financial institutions. Consequently, state and federal regulators are agreed that financial institutions should complete the evaluation, renovation, and validation/testing of their mission-critical systems for Y2K compliance by December 31, 1998. This will allow financial institutions the year of 1999 to work out any unanticipated problems.

Your Y2K compliance efforts are critical to the future of your credit union. DO NOT DELAY in addressing this problem and arranging for the necessary changes to achieve Y2K compliance.

Supervisory Timetable

Enclosed is a copy of the Division’s Year 2000 Supervisory Timetable. As appropriate, the Division will use its various enforcement tools to deal with deficient Y2K compliance efforts.

After January 1, 1999, the Division will begin the process of issuing cease and desist orders on credit unions with deficient Y2K compliance efforts. In addition, the Division will begin to identify those with severely deficient compliance efforts as candidates for merger into Y2K-compliant credit unions.

Credit union actions

  1. Submission of Division’s Y2K questionnaires. Credit unions that have not yet completed and returned the Division’s Y2K questionnaire should do so as soon as possible.
  2. Submission of Y2K Supervisory Letter and Action Plan by February 16, 1998. The Board of Directors and Managing Officer of each credit union should discuss the enclosed Supervisory Letter at the next Board meeting. The Division is requesting the Chairperson and Managing Officer of each credit union to sign the enclosed Supervisory Letter and return it, along with the credit union’s Y2K Action Plan, to the Division by February 16, 1998.

At least sixty credit unions noted in their response to the Division’s Y2K questionnaire that they had a Y2K Plan in place. Consequently, the Division expects that many of these credit unions will submit their Action Plans to the Division well before the February 16, 1998 deadline.

Please give us a call at the Division if you have any questions about this Bulletin. Mike Delimont is heading up the Y2K project internally. Mike's phone number is (360) 902-8790.

November 25, 1997

Subject: Year 2000 Compliance Efforts

Dear:

As you know, Year 2000 (Y2K) non-compliance may cause safety and soundness issues for your credit union. In order to ensure credit unions are making adequate Y2K compliance efforts, the Division is requesting that you agree to and comply with the provisions of the Supervisory Letter set forth below.

You should discuss the Supervisory Letter with your Board of Directors at its next meeting. Please sign where indicated below and return this letter and your Y2K Action Plan to the Division by February 16, 1998.

Supervisory Letter

(Credit Union) agrees to the following provisions:

1. Recognition of critical nature of problem. The Board of Directors of the Credit Union (Board) agrees that:

2. Y2K Action Plan. The Board will adopt a written Y2K Action Plan by February 16, 1998. The Plan will include, at a minimum:

The reports will indicate for each mission-critical system, at a minimum: the name or number of the system; its general function; the fix methodology, if known; the name of the servicer/vendor, if any, along with the servicer/vendor’s address and phone number; critical dates for completion of each of the five project phases; and the priority of renovation of the system. The reports should also include a copy of any servicer or vendor certifications or assurances received since the last report, as well as any other documentation that the Credit Union feels is important to demonstrate its compliance efforts.

3. Definition of terms. As used in this Letter, the term:

Sincerely,

J. Parker Cann
Assistant Director

CREDIT UNION

Signed: __________________________________________

Print name: __________________________________________

Chairman of the Board of Directors Managing Officer

Definition of Mission-Critical System

The term "mission-critical system" includes, at a minimum:

Any data processing services provided by third parties, software and equipment provided by vendors, interfaces with third party service providers (e.g., clearinghouses, ATM exchanges, etc.), and systems maintained or serviced in-house, that:

  1. Are used to maintain or calculate balances, transactions, interest, or terms for:
  1. General ledger;
  2. Shares or deposits;
  3. Loans;
  4. Any other type of member or customer account (loans serviced for others, credit card processing, etc.); or
  5. Funds transfer or check/item processing.

The systems described above in this item 1 are referred to below as "primary systems;"

  1. Are relied upon by a primary system for continued operation, such as computer operating systems, customer information files, third party interface systems, in some circumstances temperature control, etc.; or
  2. Control or restrict access to primary systems or are necessary for continued operation of the credit union during normal business hours, such as vault or door locks, computer security, etc.

*****

The board of directors and management of each credit union must use their own prudent judgment in determining whether:

  1. Any system within the definition is clearly non-essential and therefore should be excluded from treatment as a mission-critical system; or
    b) Any system not included within the definition is truly mission-critical and therefore should be treated as a mission-critical system.

DCU YEAR 2000 (Y2K) SUPERVISORY TIMETABLE (issued November 25, 1997)

November 25, 1997, DCU issues Y2K Supervision Bulletin.

January 10, 1998, DCU's consultant begins assisting the Division in evaluating credit unions on their Y2K compliance progress.

February 16, 1998, Credit unions furnish Y2K Supervisory Letters and Y2K Action Plans to the Division.

March 31, 1998, Credit unions furnish first quarterly Y2K progress report to the Division.

December 31, 1998, Credit unions should have completed renovation and validation/testing of mission-critical systems to ensure Y2K compliance.

January 1, 1999, DCU begins the process of issuing cease and desist orders on credit unions with deficient Y2K compliance efforts. DCU begins to identify those credit unions with severely deficient compliance efforts as candidates for merger into Y2K-compliant credit unions.

July 1, 1999, DCU notifies all credit unions to arrange for data back-ups in late 1999.

January 1, 2000, DCU staff is on alert for unanticipated problems.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

November 26, 1997
No. B-97-16

Preliminary Draft of the Field of Membership (FOM) Bylaws

Enclosed is the preliminary draft of the Division's revision of the existing FOM rules. These revisions will be discussed at the upcoming "town hall" meetings.

December 3, 1997 4:00 p.m. to 7:00 p.m.*
TAPCO Credit Union
6312 19th St W
Tacoma, WA

December 9, 1997 4:00 p.m. to 7:00 p.m.*
Yakima Valley Credit Union
401 Tieton Dr
Yakima, WA

December 10, 1997 4:00 p.m. to 7:00 p.m.*
Spokane Teachers Credit Union
106 W Nora
Spokane, WA

*Please note time change from previous Bulletin

If you are planning to attend and have not called to RSVP, please call Tina Philippsen at the Division (360) 902-8718.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718, Fax: (360) 902-8800

December 30, 1997
No. B-97-17

Examination Survey

Early in 1998, the Division of Credit Unions will initiate a quarterly survey process to assist in improving the examination process. We intend to send the survey form to approximately ten credit unions each quarter. The credit unions will be selected at random from those who have had a safety and soundness examination during the quarter. Please review the draft of the survey form and send any suggestions for improvement in the survey form to Division of Credit Unions, PO Box 41200, Olympia, WA 98504-1200 before January 16, 1998.