Washington State Department of Financial Institutions

DIVISION OF CREDIT UNIONS

BULLETINS 1998

 

DCU Bulletin

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

January 22, 1998
No. B-98-1

List of Division Opinions and Bulletins Issued in 1997

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 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.

Bulletins

In addition, the Division issues Bulletins on regulatory developments. Enclosed is a list of the Bulletins issued in 1997. 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

January 23, 1998
No. B-98-2

Distribution of Copies of IRS Form 990s Filed by the Division in 1995, 1996, and 1997

Under IRS disclosure rules, credit unions must make their last three Form 990s available upon request. It appears that this requirement would currently apply to group 990 returns filed by the Division in 1995, 1996, and 1997 (for calendar years 1994, 1995, and 1996, respectively).

The group 990s have two components: a consolidated portion and an individual portion. When preparing the 990s, the Division completed only the consolidated portion. The Division instructed credit unions to complete the individual portion, specifically, Parts V, VII, and IX of the 990, retain one copy for their files, and forward one copy to the Division. The Division then filed the 990 with the IRS, including both the consolidated and individual portions.

To enable credit unions to comply with the IRS disclosure rule, we are enclosing a copy of the consolidated portion of the group 990 returns filed by the Division in 1995, 1996, and 1997. In addition, credit unions will need to supply a copy of the individual portion of the 990s filed in those years when responding to a disclosure request.

If you have any questions regarding this matter, please contact Bill Opperman at the Division, at (360) 902-8758.


DCU BULLETIN


Division of Credit Unions
Washington State Department of Financial Institutions

Phone: (360) 902-8718, Fax: (360) 902-8800

February 24, 1998
No. B98-3

Division Distributes Summary of New State Credit Union Act

The Division has prepared and enclosed a summary of the new Washington State Credit Union Act, Chapter 31.12 RCW, which took effect on January 1, 1998.

If you have questions about the new Act, you may reach Parker Cann at the Division at (360) 902-8778, or pcann@dfi.wa.gov.


DCU BULLETIN

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

February 12, 1998
No. B-98-4

Year 2000 Compliance Examinations and Quarterly Reports

On-site Examinations

The Division of Credit Unions (Division) has begun the first round of on-site examinations to assess credit union progress toward Year 2000 (Y2K) compliance. We anticipate that the on-site Y2K examinations will continue through April of 1998.

Most credit unions will be examined by Division personnel. However, a combined team from the Division and CASE Associates, Inc. will examine a limited number of credit unions. CASE is under contract to provide qualified technical expertise to the Division regarding Y2K assessment. We selected CASE because CASE personnel have had extensive experience with the evaluation of Y2K projects both in the public sector and the private sector, including credit unions and other financial institutions. CASE is also under contract with the Washington State Department of Information Services to assess state agency progress in achieving Y2K compliance.

Attached to this Bulletin are:

It will be helpful if the individuals working on your Y2K plan are available to the exam team during the exam.

Our exam team will be evaluating Y2K action plans as well as the specific progress toward Y2K compliance. Please ensure that your credit union’s plan includes a timetable for actions and identifies those individuals who will be responsible for implementing the plan.

Notification of Commencement of Y2K Exam

Approximately three weeks prior to your credit union’s Y2K examination, we will notify you of the timing and plans for the examination of your credit union. Given the tight schedule for examinations, the specific date for initiating your examination may need to shift by one or two days as we encounter delays. Our staff will be in contact the week prior to your examination to verify the actual date the examiners will arrive.

Y2K Examination Ratings

The following rating system will be used to identify each credit union’s status in achieving Y2K compliance. This rating will be assigned at the time of the Y2K examination and will be updated each quarter as we receive the quarterly reports.

Y2K Exam Rating Explanation
Complete Fully Y2K compliant; must include adequate final implementation, an adequate contingency plan, and a communications plan
1 Final testing complete; must include adequate final testing documentation, an adequate contingency plan, and a communications plan
2 Adequate plans and on schedule but not yet compliant
3 Inadequate plan or behind schedule
4 Severely deficient plan or behind schedule
5 No plan or inadequate assessment

The Y2K rating is separate from the CAMEL rating derived from safety and soundness exams. However, the Y2K rating may effect a credit union’s CAMEL rating, as discussed below.

Exam Response

During the exit conference, we will provide you with a draft of the Y2K exam report. Our goal is to mail out the final report a week later. The credit union will then have 30 days from the date of the final exam to provide a written response to the Division.

Confidentiality of Y2K Exam Findings

Y2K exams are considered confidential under state law, just as safety and soundness exams. Because of the potential adverse effect that could result from a loss of member confidence, credit unions should take particular care that management, directors, and employees of the credit union maintain exam findings in strictest confidence. We suggest that management discuss the statutory requirement for confidentiality with individuals at the credit union who need to be aware of the exam findings.

Effect of Y2K Rating on CAMEL Rating

Your progress in resolving the Y2K issue may have a significant impact on the safety and soundness of your credit union. Consequently, your Y2K rating may impact the components of your CAMEL rating, particularly management, as well as your composite CAMEL rating.

Based upon the Y2K examination and off-site Y2K assessments, the Division may revise your CAMEL ratings between regular safety and soundness examinations. We will not re-assess your CAMEL rating based on your Y2K rating until after you have had the opportunity to respond to the Y2K exam report. We will provide you with a written explanation of any such revisions in your CAMEL ratings.

Y2K Action Plan

As you will recall, Division Bulletin 97-15 (November 25, 1997) contained a Supervisory Letter which identified specific elements to be addressed in the written Y2K action plan adopted by each credit union. As indicated in the Bulletin, we are requesting that credit unions sign and return the Supervisory Letter, including their Y2K plans, by February 16, 1998.

No credit union should rely completely upon their software vendor to determine compliance for Y2K purposes. Each credit union is expected to perform sufficient testing to ensure that mission-critical systems will operate accurately in the environment of that credit union.

Quarterly Reporting on Y2K

To supplement the on-site Y2K examination, the Division has established a quarterly reporting process. The first report will be due in the Division’s office by March 31, 1998.

The Division’s Y2K reports are in addition to the quarterly Y2K reports required by the NCUA and should be a good deal more comprehensive. They should follow closely the Y2K plan developed by the credit union and should address each point noted in the Supervisory Letter. The quarterly reports are intended to provide enough information on Y2K progress so that the Division does not have to resort to additional on-site Y2K exams, other than those credit unions with a Y2K rating of 3, 4, or 5.

Credit unions should file the NCUA quarterly Y2K reports directly with the Division. The Division has made arrangements with the NCUA to receive and input these reports. Please note that the NCUA may impose civil money penalties on any credit union not providing the NCUA quarterly Y2K reports in an accurate and timely manner.

*****

Should you have questions about the Division’s Y2K examination and assessment process, please contact Mike Delimont at (360) 902-8790.


DCU BULLETIN

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

March 9, 1998
No. B-98-5

Follow-up on IRS Form 990

As a follow-up to our Bulletin 97-8 issued on August 11, 1997, the Division is issuing a reminder that each credit union must prepare and file individual Form 990, Organizations Exempt from Income Tax, beginning this year. The due date to the IRS is May 15, 1998 for calendar year 1997.

The Form 990 and its packet of information may be obtained from your nearest Federal IRS office, or by calling the IRS toll free number listed in your telephone directory. We suggest you consult with your accountant or tax specialist for further clarification on preparing and filing the Form 990.

If you have any questions about this Bulletin, please contact Parker Cann at (360) 902-8778 or by e-mail at pcann@dfi.wa.gov.


DCU BULLETIN

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

April 2, 1998
No. B-98-6

Guidance on DCU’s Year 2000 (Y2K) Quarterly Reports

Several credit unions have called requesting guidance on the content of the Y2K quarterly reports required under the DCU Supervisory Letter and Bulletin 97-15 to be filed with the Division. The reports are intended to gather specific information on the progress of credit unions as they implement their action plans to resolve Y2K issues. If the reports for your credit union demonstrate appropriate progress in resolving Y2K issues, we will not need to do an on-site, follow-up visit.

Because of the great variety in Y2K situations, we did not feel it would be worthwhile to provide a template for the quarterly reports. In general, the reports should include a brief narrative with supporting documentation, such as meeting minutes, board reports, tracking reports, significant letters from vendors, revised plans, etc. Please do not submit documents that have been previously provided to the Division.

The quarterly reports should include a status update on the elements of your Y2K action plan, as well as any changes to your plan, particularly in regard to the following:

The quarterly reports do not need to detail every aspect of your Y2K efforts but should reflect the progress made, problems encountered, and accurate estimates of time required for completion of the project. Quarterly reports and supporting documentation may be provided in electronic format.

Each credit union must also submit to the Division a quarterly NCUA Y2K report, on the form required by the NCUA. The Division will in turn transmit all the NCUA Y2K reports to Region VI of the NCUA.

Questions regarding the Division’s and the NCUA’s quarterly Y2K reports should be addressed to Mike Delimont, at (360) 902-8790.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions

Phone: (360) 902-8718, Fax: (360) 902-8800

May 21, 1998
No. B-98-7

DCU’s Examiners Achieve Salary Parity with Other Divisions

We are pleased to report that on May 14, 1998, through action of the State Personnel Resources Board, the DCU’s examiner positions were reclassified and merged (in government-speak) with the series of examiner positions used by the Division of Banks and the Division of Consumer Services. All three Divisions will now use the same series of financial examiner positions, with the same pay scales. The immediate effect of this change is that our examiners will receive a pay increase so that their pay is consistent with the examiners in the other Divisions. We have budgeted for this increase and do not anticipate that it will necessitate a fee increase.


DCU BULLETIN

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

June 18, 1998
No. B-98-8

Division Begins Rule-making to Implement 1997 Credit Union Act and to Review Rules under Governor’s Executive Order

On June 16, 1998, the Division filed a CR-101 for rule-making in two areas:

  1. To consider the adoption of rules to implement Chapter 397, Washington Laws of 1997. Chapter 397 extensively modernized the Washington State Credit Union Act, Chapter 31.12 RCW.
  2. To consider rule revisions based on a review of the Division’s rules, other than the Division’s field of membership (FOM) expansion rules, in accordance with the Governor’s Executive Order 97-02. The Division intends to undertake review and revision of its FOM rules in a separate rule-making at a later time.

Enclosed is a copy of the CR-101.

Persons wishing to comment on the CR-101 should forward their comments to:

Parker Cann, Assistant Director
Division of Credit Unions
PO Box 41200
Olympia, WA 98504-1200
Phone: (360) 902-8778
Fax: (360)902-8800
E-Mail: pcann@dfi.wa.gov


DCU BULLETIN

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

June 22, 1998
No. B-98-9

New DCU Rules on Prohibited Fees and Nonpreferential Loans Take Effect

As you are aware, last November the Division adopted final rules on prohibited fees and nonpreferential loans (new DCU rules). A copy of the new DCU rules is enclosed. The rules are codified at WAC Sections 208-444-020 through -050. The operative sections are -020 and -030.

Effective date of new DCU rules

The new DCU rules specified that they would not take effect until the NCUA Board had made a determination that they were substantially equivalent to the NCUA rules at 701.21(c)(8) and (d)(5). On March 19, 1998, the NCUA Board made such a determination.

Consequently, beginning March 19, 1998, all Washington State-chartered credit unions:

  1. Are subject to the new DCU rules; and
  2. Are no longer subject to subsections 701.21(c)(8) and (d)(5) of the NCUA rules.

Because the new DCU rules are the same as NCUA rules that were applicable to state credit unions, the new rules will not subject credit unions to additional regulatory requirements.

Section 208-444-020 – Prohibited Fees

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

Section 208-444-030 – Nonpreferential Loans

In general, Section -030 prohibits a credit union from making loans to its directors and loan (or credit) and supervisory committee members, and their immediate family members and their business affiliates, on terms and conditions more favorable than loans to other credit union members.

As you know, RCW 31.12.365(3) contains a similar prohibition. We will consider compliance with WAC 208-444-030 to be compliance with RCW 31.12.365(3).

Please contact Parker Cann at the Division, at (360) 902-8778, if you have questions about the new DCU rules.


DCU BULLETIN

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

June 24, 1998
No. B-98-10

Reminder on Quarterly Year 2000 (Y2K) Reports

Division Quarterly Y2K Reports

As you are aware, the Division is requiring credit unions to provide quarterly Y2K reports. See DCU Bulletin 97-15 and related Supervisory Letter. Credit unions must file the reports by quarter-end, through the fourth quarter of 1999. The report for the current quarter is due in our office by June 30, 1998.

The reports are intended to gather specific information on the progress of credit unions as they implement their action plans to resolve Y2K issues. Because of the great variety in Y2K situations, we did not feel it would be appropriate to provide a template for the quarterly reports. In general, the reports should include a brief narrative describing the credit union’s Y2K progress, with supporting documentation such as meeting minutes, board reports, tracking reports, significant letters from vendors, revised plans, etc. Please do not submit documents that have been previously provided to the Division.

The quarterly reports must include a status update on the elements of your Y2K action plan, as well as any changes to your plan, particularly in regard to the following:

The quarterly reports do not need to detail every aspect of your Y2K efforts but should reflect the progress made, problems encountered, and accurate estimates of time required for completion of the project. Quarterly reports and supporting documentation may be provided in electronic format.

NCUA Quarterly Y2K Reports

Each credit union must also submit to the Division a quarterly NCUA Y2K report, on the form required by the NCUA. The Division will in turn transmit all the NCUA Y2K reports to Region VI of the NCUA. These NCUA reports are also due at the Division office on June 30, 1998.

*****

Questions regarding the Division’s and the NCUA’s quarterly Y2K reports should be addressed to Mike Delimont at the Division, at (360) 902-8790.


DCU BULLETIN

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

July 17, 1998
No. B-98-11

List of Division Opinions Issued in the First Half of 1998

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 will provide "redacted" copies of the actual opinions upon request. Enclosed is a list of opinions issued during the first half of 1998.

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 Diane Moye (at the Division office at the numbers above) if you would like a copy of an opinion on the enclosed list.

Procedure for Requesting the Division to Issue an Opinion

To request the issuance of a written opinion, credit unions should submit the request to the Division in writing with a full description of the relevant facts, and include copies of any relevant written materials. The request should also include a detailed statement of the conclusion you are seeking, with supporting rationale.


DCU BULLETIN

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

July 8, 1998
No. B-98-12

List of DCU and NCUA Guidance on Year 2000 (Y2K)

The following tables list the DCU and NCUA guidance provided to this point relating to the Year 2000 issue. Should any credit union need a hard copy of any of them, please contact the Division of Credit Unions at (360) 902-8790 or (360) 902-8791 or fax your request to (360)902-8800.

Division of Credit Unions

Number

Title

Date

B-98-10 Reminder on Quarterly Year 2000 (Y2K) Reports June 24, 1998
B-98-6 Guidance on DCU’s Year 2000 (Y2K) Quarterly Reports April 2, 1998
B-98-4 Year 2000 Compliance Examinations and Quarterly Reports Feb. 12, 1998
B-97-15 Year 2000 (Y2K) Supervision Nov. 25, 1997
B-97-6 Credit Unions and the Year 2000 (cover to NCUA letter No. 97-CU-6) July 21, 1997
B-96-11 Credit Unions and the Year 2000 (introduction to Y2K) Sept. 25, 1996

NCUA

Number

Title

Date

98-CU-12 Business Resumption Contingency Planning June 10, 1998
98-CU-11 Information Systems Vendor Reviews May 21, 1998
98-CU-10 Testing for Year 2000 Readiness May 12, 1998
98-CU-9 Service Provider and Software Vendor Year 2000 Readiness – The Year 2000 Impact on Customers May 7, 1998
98-CU-3 Year 2000 Business Risk Feb. 4, 1998
98-CU-4 NCUA’s Y2K Contingency Plan-Ensuring Credit Union Compliance Jan 22, 1998
98-CU-2 Year 2000 Contingency Planning Jan. 15, 1998
98-CU-1 Year 2000 Bridge Programs and Interfacing Jan. 14, 1998
97-CU-12 Credit Union Year 2000 Self-Analysis Guide Dec. 18, 1997
97-CU-10 Supervisory Committee’s Role in Year 2000 Compliance Dec. 1, 1997
Acctg Bulletin 97-1 Accounting Guidance on Year 2000 Expenditures Dec 1997
96-CU-5 FFIEC Statement on the Risks to Financial Institutions Involving Computer Systems in the New Millennium Aug 16, 1997
97-CU-6 Year 2000 Conversion June 3, 1997

DCU BULLETIN

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

August 17, 1998
No. B-98-13

Effective Date of Credit Union Mergers

Overview

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

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

Analysis

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

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

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

Conclusion

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

Coordination with the Division

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

Merger of Books

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


DCU BULLETIN

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

September 18, 1998
No. B-98-14

Important Points Relating To Year 2000

Y2K Compliance Timetables

Credit union managers and directors should review the following important dates relating to Y2K compliance. Please keep in mind that credit unions that fail to meet these benchmarks may be subject to additional regulatory enforcement action.

Date

Level of Progress

September 30, 1998 Credit unions should be in the Y2K testing phase on all mission-critical systems, as reflected on their NCUA quarterly Y2K reports for the third quarter
December 31, 1998 Credit unions should have substantially completed testing of all mission-critical systems; only minor follow-up questions should remain open
June 30, 1999 Credit unions should have finished testing of all systems
July 31, 1999 Credit unions should have fully implemented all systems, as reflected on their next NCUA quarterly Y2K report

In addition, credit unions that have failed to report to the Division by October 16, 1998 that they have implemented the Division’s Y2K exam recommendations may be asked to enter into a Y2K Mutual Action Plan with the Division.

Business Resumption Planning

Credit unions are now directing attention to Business Resumption Contingency Planning - what to do if some unforeseen circumstance, such as loss of power, forces the credit union into new modes of operation.

The NCUA guidance on this subject is found in 98-CU-12, Business Resumption Contingency Planning. A copy of this Letter was previously distributed to all credit unions by the NCUA or the Division. Letter 98-CU-12 expands upon information given in 98-CU-2.

Adequate planning for business resumption is an essential element of a credit union’s planning for Y2K. The Board and senior management of each credit union should consider the unique circumstances of the credit union and develop such plans as may be appropriate. Please take this area of your planning seriously and begin to develop your written plans now.

Quarterly Report to DCU Concerning Completion of Testing

After completion of testing of all mission-critical systems, credit unions should include the following items in the next quarterly Y2K report to the Division:

In addition, after completion of testing, credit unions should indicate on their next NCUA quarterly Y2K report that all mission-critical systems are 100% tested or, if appropriate, 100% implemented.

Utility Industry Contacts

Credit unions have expressed concern that various utilities may not be Y2K-ready. Some credit unions have been unable to contact knowledgeable persons at the utility companies to obtain adequate information.

The DFI has been in contact with the Washington Utilities and Transportation Commission (UTC) concerning the utilities’ Y2K-readiness. Bear in mind that the UTC regulates only investor-owned companies, which represent less than half of the utility companies. The UTC is monitoring the progress of regulated utilities on their Y2K projects.

The following are the contacts at the UTC and the utility companies regulated by the UTC. UTC contacts should only be used in the event that inadequate responses are received from individual utility companies.

UTC Contacts on Y2K

Telecommunications
Tom Spinks
(360) 664-1289
tspinks@wutc.wa.gov

Energy-Electric
Doug Kilpatrick
(360) 664-1303
dkilpatr@wutc.wa.gov

Energy-Gas
Mert Lott
(360) 664-1312
mlott@wutc.wa.gov

Utility Industry Y2K Contacts

Puget Sound Energy
Katie Moriarty
Puget Sound Energy
Year 2000 Program Office, OBC-11S
PO Box 97034
Bellevue, WA 98009
(425) 456-2416
kmoria@puget.com

Puget Sound Energy
OR Dale Leatherman
(425) 462-3393
dleath@puget.com

Pacificorp
Brian Hedman, Manger of DSM Policy
PacifiCorp-Regulation Department
825 NE Multnomah, Suite 800
Portland, OR 97232
(503) 813-6081
Brian.hedman@pacificorp.com

The Washington Water Power Company
Jeff Brune, Y2K Program Manager
Washington Water Power
1411 East Mission
PO Box 3727
Spokane, WA 99220-3727
(509) 482-8506
JBrune@wwpco.com

Northwest Natural Gas Company
Bruce Debolt, Sr. VP Finance & Administration Division
Northwest Natural Gas
220 NW Second Ave
Portland, OR 97209
(503) 220-2406
brd@nwnatural.com

Cascade Natural Gas Corporation
Gary Iverson, Special Projects Administrator
Cascade Natural Gas
222 Fairview Ave. N
Seattle, WA 98109
(206) 624-3900 ext. 3234
giverson@cngc.com


DCU BULLETIN

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

November 18, 1998
No. B-98-15

Division Starts Rule-making Process to
Revise MBL Rules and Repeal Real Estate Appraisal Rules

The Division is in the process of reviewing all of its rules. On November 16, the Division filed to initiate the rule-making process for revision of its member business loan (MBL) rules and for repeal of its real estate appraisal rules, Chapters 208-464 and -480, respectively. Enclosed are copies of the forms that were filed.

Revision of MBL Rules

The Division's current MBL rules are preempted by the MBL rules of the National Credit Union Administration (NCUA). See NCUA rules at 741.203(a), recently amended at 63 Federal Register 51793, 51802, September 29, 1998. The NCUA's MBL rules are available on the NCUA's website at:

http://www.ncua.gov/news/proposed_regs/mblhr111.html

However, the Division's MBL rules may supersede the NCUA's MBL rules if the NCUA Board determines that our MBL rules adequately minimize risk. See NCUA rules at 723.20. The Division adopted two other rules (concerning prohibited fees and nonpreferential loans) in 1997 that the NCUA Board has determined supersede the NCUA's related rules. See WAC 208-444-020 to -050. (The NCUA allows state rules to supersede its own rules only in the three areas.) In the past, the NCUA would not allow state rules to supersede the NCUA rules unless the state rules were virtually identical to the NCUA's. However, the NCUA has recently given signals that it is willing to relax its standards.

The Division intends to submit revised MBL rules to the NCUA for such a determination. Given the relaxation of the NCUA standards for such a determination, the Division intends to revise its MBL rules prior to submission to make them more flexible. The Division believes that more flexible rules can be crafted which will allow credit unions to better serve the needs of their members while also protecting the safety and soundness of the institutions.

Because the Division's existing MBL rules need to be extensively revised for this purpose, the Division feels that it would be more convenient to adopt new MBL rules, rather than amend its existing MBL rules, and repeal its existing MBL rules.

The Division intends to use the NCUA's MBL rules as a starting point for drafting the Division's new MBL rules. Interested parties should provide comments to the Division on which provisions of the NCUA's MBL rules should be amended or deleted, and what new provisions should be added, for the purpose of drafting the Division's new MBL rules.

To revise its MBL rules for this purpose, the Division has:

  1. Filed a CR-101 to initiate a rule-making proceeding for the adoption of new MBL rules. The next step in the Division's MBL rule-making process is for the Division to draft proposed MBL rules and schedule a public hearing to receive comment on the rules. The Division will provide notice to credit unions concerning the draft rules and the hearing.
  2. Filed a CR-101XR to repeal its existing MBL rules in an expedited manner.

Copies of the CR-101 and CR-101XR are enclosed.

Notwithstanding the proposed repeal of the Division's existing MBL rules, the Division has taken the position that as a matter of safety and soundness the aggregate amount of a credit union's MBL, as defined by the Federal Credit Union Act, may not exceed an amount equal to 3 times its reserves, without the written permission of the Division.

Repeal of Real Estate Appraisal Rules

The Division's existing real estate appraisal rules, Chapter 208-480 WAC, are preempted by NCUA's real estate appraisal rules. See NCUA rules at 741.203(b). Because the Division's real estate appraisal rules do not effect Washington State-chartered credit unions, the Division on November 16 filed a CR-101XR to repeal its existing real estate appraisal rules in an expedited manner.


DCU BULLETIN

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

December 4, 1998
No. B-98-16

YEAR 2000 (Y2K) UPDATE # 8*

Reminder of December 31, 1998 Benchmark for Completion of Renovation and Testing of Mission-Critical Systems

As noted in previous DCU Bulletins, the DCU has established Y2K compliance benchmarks for Washington state credit unions. See Bulletin No. B-98-14. One of the most important benchmarks is that credit unions should have substantially completed testing of their mission-critical systems by December 31, 1998. By the end of 1998, credit unions should have:

Credit unions not meeting this deadline may be subject to a Y2K Mutual Action Plan or other regulatory action.

DCU's Remaining Y2K Enforcement Benchmarks

Enclosed is an attachment outlining DCU's remaining Y2K benchmarks and enforcement actions for failure to meet the Y2K benchmarks.

* This Bulletin is the 8th DCU Bulletin relating to Y2K.

Exceptions to Mission-Critical Definition

We have confirmed with NCUA that credit unions should not report systems provided by the following organizations as mission-critical systems on their NCUA quarterly reports:

Clearly, these systems meet the definition of "mission-critical" and are necessary for the operation of your credit union. However, in recognition of the limited testing capability and limited pressure an individual credit union can bring to bear on these organizations to achieve compliance, please do not include these systems on the NCUA quarterly report as mission-critical.

Nonetheless, credit unions should continue to make appropriate contingency plans relating to these systems. Such plans may well include purchase or rental of power generators, etc.

Contents of December 31, 1998 DCU Y2K Report

In order to gather sufficient information, we are requesting that the following information or materials be included in the state Y2K quarterly report for December 31, 1998. The information and materials should be current.

  1. Names, phone numbers, and titles of key staff charged with Y2K responsibility and Y2K reporting responsibility to the board of directors; frequency of Y2K reports to the board
  2. Y2K action plan
  3. Y2K testing plan
  4. Testing scripts for mission-critical systems for the January 1, 2000 test date
  5. Results summary pages from tests of all mission-critical systems for each date tested
  6. Status reports and timetable for any mission-critical system not fully tested
  7. Contingency plan (includes alternative service providers, trigger dates, business resumption plans and liquidity plans). We understand that this document is a living document and expect that it will change throughout 1999 as new information becomes available.
  8. Communications plan with samples used to date
  9. Copies of Y2K reports that were provided to the board of directors since July 1998; board minutes reflecting review of the reports
  10. Final resolution of any remaining outstanding Y2K examination recommendations
  11. Audits or internal audit reports (do not include DCU exams) that focus on Y2K.

Phase II Workprogram

The NCUA has adopted the FFIEC's Phase II examination workprogram for on-site Y2K examinations of all federal credit unions. The DCU will be going on-site in only 25-30 credit unions for a Phase II Y2K examination. Our purpose will be to complete the appropriate portions of the Phase II workprogram and to evaluate the results of testing efforts of mission-critical systems. We expect to complete the Phase II exams by the end of February 1999.

Certification and Retest of New Systems or Releases

If a credit union intends to upgrade or replace a mission-critical, Y2K-compliant system in 1999, the credit union should require the following as conditions to the lease or purchase:

In addition, the credit union may need to complete tests of the system after it is installed.

Attachment 1

Y2K Benchmarks
Division of Credit Unions (DCU)

As noted in previous DCU Bulletins, the DCU has established Y2K compliance benchmarks for Washington state credit unions. The purpose of this memo is to reiterate the remaining DCU benchmarks for mission-critical systems and the enforcement efforts that the DCU may undertake against deficient credit unions. Failure to satisfy a benchmark may be considered an unsafe or unsound practice, and may in certain cases place the credit union in an unsafe or unsound condition.

  1. December 31, 1998

Credit unions should have:

The DCU may ask credit unions which have not satisfied this benchmark to enter into Mutual Action Plans.

  1. March 31, 1999
  2. Credit unions should have completed the renovation and testing of all of their mission-critical systems for Y2K compliance. The DCU may issue cease and desist orders against credit unions which have not satisfied this benchmark.

  3. June 30, 1999

Credit unions should have completed the renovation, testing and implementation of all of their mission-critical systems for Y2K compliance. The DCU may ask credit unions which have not satisfied this benchmark to pursue mergers with Y2K-compliant credit unions. In appropriate cases, the DCU may appoint a conservator or receiver for a credit union.

*****

Of course, as circumstances warrant, the DCU may pursue more severe enforcement action.

The DCU will rely on all available information in determining whether to take enforcement action. Each credit union should be certain that any Y2K reports to the NCUA and DCU accurately reflect the credit union's Y2K status.


DCU BULLETIN

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

December 17, 1998
No. B-98-17

Division Says "Thank You" to 1998 Speakers

The Division of Credit Unions holds quarterly staff meetings. A portion of the staff meetings is set aside to allow outside speakers to come in and cover topics of interest to the staff. It is our privilege to acknowledge the following speakers for 1998:


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8718 FAX: (360) 704-6991

December 29, 1998
No. B-98-18

Division to Provide Governor's Y2K Office
With Names of CEOs As Year 2000 (Y2K) Contacts

The Governor's Y2K Office is developing an Internet web site that will include statements from state agencies pertinent to Y2K, along with references to other sources for information concerning Y2K-related topics.

The Y2K Office has asked us to provide the names, addresses and telephone numbers of state credit union staff who will act as contact on Y2K inquiries. The contact person may be called upon to field Y2K inquiries from a variety of sources, including members as well as the media.

Rather than ask credit unions for a list of Y2K contact persons, we have decided to provide the Y2K Office with the name/address/phone number of each credit union CEO, unless you notify us of a different contact person by January 11, 1999.

If you would like us to provide the Y2K Office with the name/address/phone number of a person other than the CEO as the Y2K contact person at your credit union, please complete and fax back the second page of this Bulletin by January 11, 1999. Our fax number is (360) 704-6991.

 

FAX TO: DCU

FAX No.: (360) 704-6991

FROM: (Name of credit union)

Name of Y2K contact person:

Address:


Phone:|

Signed by:

Title: