Washington State Department of Financial Institutions

DIVISION OF CREDIT UNIONS

BULLETINS 2000

 

DCU Bulletin

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

January 28, 2000  
No. B-00-1

Credit Unions No Longer Required to Submit
Report of Annual Meeting of Members to Division

By letter dated March 14, 1996, the Division of Credit Unions (Division) required credit unions to submit the Report of Annual Meeting of Members (Report) to the Division. To help refresh your recollection, a copy of the first page of the Report is attached.

Effective January 1, 2000, the Division will no longer require credit unions to submit the Report.

If you have any questions, please call Linda Jekel at 360/902-8753.

Sample 1st page of cancelled report

Report of Annual Meeting of Members and other information

The original of this Report must be filed with the Division of Credit Unions (Division), Olympia, Washington, promptly after the Annual Meeting. Please report any changes in directors during the year promptly to the Division.

Credit Union:

Address (Main Office) Mailing Address


I. Date Annual Meeting held:

III. Members of the Board of Directors serving for the upcoming year:

Name

Title

Term Expires

1     

2

     

3

     

4

     

5

     

6

     

7

     

8

     

9

     

10

     

11

     

12

     

13

     

14

     

15

     

Please report any changes in directors during the year promptly to the Division of Credit Unions.


 

DCU BULLETIN

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

February 8, 2000
No. B-00-02

Interest Required on Past Due Amounts
Owed To Division, Beginning July 1

Beginning July 1, 2000, we will charge interest at 1% per month on past due amounts owed to the Division, as required by state law. See RCW 43.17.240.

As a reminder:

  • Quarterly assets assessments are past due after January 31, April 30, July 31 and October 31, as applicable.
  • Invoices, such as invoices for the processing of community FOM applications, are past due one month after billing.

See Chapter 208-418 WAC.

If you have any questions, please call Linda Jekel at (360) 902-8753.


 

 

DCU BULLETIN

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

February 16, 2000
No. B-00-03

Division Begins Process to Amend Rules
On Commercial Arrangements with Third Parties

Enclosed is a copy of the form filed by the Division to begin the rule making process to amend Chapter 208-440 WAC, entitled "Participation in Commercial Business Activities." A preliminary draft of the rule amendments is also enclosed.

Persons wishing to comment on the rulemaking 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) 704-6978
E-mail: pcann@dfi.wa.gov


 

DCU BULLETIN

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

March 15, 2000
No. B-00-04

Division Hires Special Counsel;
Compliance Matters

Need for special counsel
Increasingly, complaints we receive from credit union members allege violations of consumer protection laws, such as the Electronic Funds Transfer Act, Truth in Lending Act, etc. Considering the complexity of these laws, we decided to arrange for special counsel so that the Division could, when necessary, seek advice on the application of these laws.

Hiring of special counsel
The Division has entered into a contract with a law firm that is highly experienced in consumer protection laws as well as credit union business practices. The contract was arranged through the State Attorney General’s Office. The cost of special counsel will run about $190 for each hour counsel spends working with the Division.

Limited use of special counsel
Our use of counsel will be limited to the complaints that involve consumer protection law violations. Of course, most of the complaints we receive do not involve such violations. In addition, many consumer protection complaints are clear-cut, and there will be no need to seek the advice of counsel in that situation.

Pass through of costs of special counsel to credit union involved
We intend to pass through the cost of special counsel to the credit union complained against, as permitted by WAC 208-418-070(3). Otherwise, all credit unions would have to absorb the additional cost of counsel as part of the Division’s budget. We believe that the use of special counsel will be cheaper than hiring an attorney on staff, or devoting an examiner to consumer protection law matters.

We are sensitive to the fact that the pass through of these costs could get expensive, and we will attempt to limit the cost of counsel to less than $750 for each complaint. We will notify the CEO of the involved credit union before we consult special counsel in regard to a complaint against the credit union.

Compliance matters
We encourage credit unions to take steps to promote compliance, including the following:

  1. Hiring/sharing of compliance officer.
  2. Use of knowledgeable auditor or lawyer to perform compliance audit or legal audit.
  3. Annual board/management review of compliance policies and issues.
  4. Top-down endorsement of the importance of compliance and the compliance function.
  5. Regular compliance training for staff and management responsible for compliance issues.
  6. Purchase of compliance rider on credit union bond.

Use of special counsel to advise Division on exam issues
The Division may also use special counsel to advise it on consumer protection law issues that arise during the exam process. The Division expects that use of counsel for this purpose would be fairly rare. However, costs of counsel incurred by the Division in this regard would also be passed through to the credit union involved.

Discussion with Division’s Budget and Efficiency Task Force
The special counsel program was discussed at a recent meeting of the Division’s Budget and Efficiency Task Force. The members of the Task Force are Bruce Kramer, Bob Harvey, Rick Brandsma, Paul Regimbal, Stacy Augustine, Fred Rose, Madeline Durham.

*****

Please feel free to contact Parker Cann at (360) 902-8778 if you have any questions about the Division’s special counsel program.


 

DCU BULLETIN

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

March 16, 2000
No. B-00-05

Division’s Summary of PCA

Enclosed is a copy of the Division’s Summary of the NCUA’s Prompt Corrective Action (PCA) rule. The Summary outlines:

  1. The main part of the PCA rule, which the NCUA has adopted in final form; and
  2. The complex credit union/risk based net worth part of the PCA rule, which the NCUA has issued as a proposed rule.

The Summary has been updated and clarified from prior Division summaries of the PCA rule. Prior summaries provided by Parker ("PC on PCA") may now be inaccurate and should be discarded.

Please feel free to call Parker at (360) 902-8778 if you have questions about the PCA rule.


Summary of NCUA’s
Prompt Corrective Action (PCA) Rule

By Parker Cann
Washington State Director of Credit Unions
March 15, 2000

Table Of Contents

Overview

  1. What is PCA?
  2. What is the current status of PCA?
  3. When does PCA take effect?
  4. Are State regulators involved in the PCA process?

Operation of Main Part of PCA Rule

  1. What are the Net Worth categories under PCA?
  2. What happens when my NW ratio falls below 7%?
  3. What happens when my NW ratio falls below 6%?
  4. Will the NCUA allow alternative or secondary capital for credit unions?
  5. How will asset growth affect NW category?
  6. How often do I figure my NW category? Can I figure my NW category off my Call Reports? When do NW classifications take effect?
  7. When will the first NW classifications take effect?
  8. Would it be prudent for my Board to establish a target NW spread above the 7% NW threshold?
  9. Is the NCUA’s PCA system for credit unions like the FDIC’s PCA system for banks and thrifts?

Complex/Risk-Based Net Worth Requirement Part of PCA Rule

  1. How do I know if I am a "complex" credit union?
  2. I’m a "complex" credit union under PCA. What is my RBNW requirement?
  3. Will my RBNW requirement always be higher than 6%?
  4. How do I determine my NW category?
  5. How often do I determine if I am complex?
  6. When do I make my first determination of complexity?

NCUA’s Letter 161; Statutory (regular) reserving

  1. Will Letter 161 be revised with PCA in mind?
  2. What is Letter 161?
  3. Is it true that the PCA rule repeals the requirement for statutory (regular) reserving?

 

Appendices

Table A -- 702.104 Thresholds to define complex credit unions
Table B -- 702.105 RBNW components to calculate RBNW requirement

 

Overview

  1. What is PCA? The Credit Union Membership Access Act (CUMAA), H.R. 1151, mandates a system of Prompt Corrective Action - "PCA" - for all federally insured credit unions, whether federally or state chartered. CUMAA directs the NCUA to adopt rules to implement these PCA provisions.

These PCA provisions:

  • Establish a system of five net worth (NW) categories.
  • Establish a series of mandatory and discretionary enforcement actions that apply if a credit union falls to one of the three Undercapitalized categories. \

These first two parts are referred to below as the main PCA rule.

  • Require NCUA to adopt a risk-based net worth (RBNW) requirement for "complex" credit unions.

The third part is referred to below as the complex/RBNW part of the PCA rule.

You will notice that the term "capital" is out. "Net worth" is in.

Essentially, the PCA system forces regulators to take enforcement action against a credit union if its net worth falls below specified levels.

  1. What is the current status of PCA? On February 3, 2000, the NCUA Board adopted the final version of the main PCA rule, and proposed the complex/RBNW part of the PCA rule. The NCUA is inviting your comments on the proposed rule, by April 18, 2000.
  1. When does PCA take effect? According to CUMAA, the two portions of PCA take effect at different times:
  • The main part takes effect August 7, 2000.
  • The complex/RBNW part takes effect January 1, 2001.

Note that these dates are not quarter-end dates. More discussion is provided below on the actual dates that NW classifications take effect.

  1. Are State regulators involved in the PCA process? Yes, CUMAA requires the NCUA to consult and cooperate with state credit union regulators in adopting PCA rules. In addition, the NCUA is required to work with state regulators when it makes significant PCA decisions regarding state charters.

Operation of Main Part of PCA Rule

  1. What are the Net Worth categories under PCA? The Net Worth categories essentially fall into three groups:

  • The Good: 7% or higher NW - Well Capitalized category
  • The Almost Good: 6% to 7% NW - Adequately Capitalized category
  • The Not-So-Good: less than 6% NW – Undercapitalized, Significantly Undercapitalized, and Critically Undercapitalized categories

In the final version of the main part of the PCA rule, the NCUA has allowed credit unions to use an average total assets figure (the denominator in the Net Worth ratio) based on the last four quarter-end balances. Credit unions cannot use this averaging for purposes of the complex/RBNW part of the rule.

"New" credit unions, defined by the 10/10 rule, have different net worth categories. The 10/10 rule = in existence less than 10 years with $10 M or less in total assets.

  1. What happens when my NW ratio falls below 7%? If your NW ratio is 6% – 7%, you are in the Adequately Capitalized category. The sole PCA ramification is that you must contribute to reserves quarterly from earnings an amount equal to 0.10% of assets, before the payment of dividends.

However, earnings are being squeezed. Many credit unions did not have 40 basis points in ROAA last year. Credit unions with a NW ratio of less than 6% that do not have sufficient earnings to make the 10 basis point reserve transfer must seek regulatory approval before paying dividends.

  1. What happens when my NW ratio falls below 6%?

5% to 6% NW

If your NW ratio is 5% – 6%, you are considered first tier Undercapitalized. The credit union is subject to four mandatory supervisory actions:

  • Must reserve quarterly from earnings an amount equal to 0.10% of assets.
  • Must submit net worth restoration plan (NWRP) to the regulator.
  • No growth in assets until NWRP providing for growth in assets is approved by the regulator.
  • No growth in the total balance of member business loans (MBL), unless the credit union has been granted an exception from the aggregate MBL limits under CUMAA.

4% to 5% NW

If your NW ratio is 4% - 5%, you are considered second tier Undercapitalized. The consequences are as follows:

  • You are subject to the four mandatory supervisory actions described above.
  • The NCUA in its discretion may impose a broad range of supervisory actions against the credit union.

The NCUA’s discretionary actions become more severe as a credit union deteriorates to Significantly Undercapitalized (2% - 4% NW) and Critically Undercapitalized (less than 2% NW).

  1. Will the NCUA allow alternative or secondary capital for credit unions? CUMAA expressly permits low-income credit unions to count secondary capital as NW for PCA purposes.

It appears that Congress did not permit other credit unions to do so. However, the NCUA may count recognized alternative/secondary capital as a mitigating factor when making regulatory determinations under PCA.

  1. How will asset growth affect my NW category?

Growth can dilute your NW ratio, causing your credit union to fall into a lower NW category.

Credit unions must learn to effectively manage share/deposit and asset growth. In the PCA era, budgeting and business planning will become more critical. In the planning process, credit unions should develop fairly detailed pro forma balance sheets and income statements, including key ratios. These should be developed before year-end for the upcoming year. The Board should track variances on a regular basis. The pro formas should be based on reasonable, articulated, and achievable assumptions.

The bottom line is that it may be very difficult to maintain your NW ratio if you have significant growth. We looked at some projections on NW maintenance breakeven points with various levels of growth, ROAA, etc. Credit unions with double-digit growth rates and typical ROAA levels will have to look at this issue very seriously if they have a NW ratio in the 7% - 10% range.

In the final version of the main part of the PCA rule, the NCUA has allowed credit unions to use an average total assets figure (the denominator in the Net Worth ratio) based on the last four quarter-end balances, helping to dampen the impact of growth on Net Worth ratios.

  1. How often do I figure my NW category? Can I figure my NW category off my Call Reports? When do NW classifications take effect? Credit unions will determine their NW categories quarterly and provide PCA worksheets with the Call Report forms. (However, the NCUA will need to revise the Call Report forms to pick up certain data for the calculation of the RBNW requirement for complex credit unions.)

Using this approach:

  • If you are a quarterly 5300 filer , you would figure your NW category quarterly off your Call Reports by using the PCA worksheet.
  • If you are a semi-annual 5300 filer , you would figure your NW category from your financials for the 1st and 3rd quarters, and from the Call Reports for the 2nd and 4th quarters, by using the PCA worksheets. You will need to provide your regulator with the PCA worksheet on the "off" quarters only if your NW category has lowered.

The NW classifications take effect at the end of the month after each quarter-end. Put another way, your NW category would be in jeopardy four times a year – January 31, April 30, July 31, and October 31. (However, the regulators also have the authority to reclassify a credit union to a lower NW category in certain circumstances, through the exam process or otherwise.)

  1. When will the first NW classifications take effect? They will take effect January 31, 2001.
  2. Would it be prudent for my Board to establish a target NW spread above the 7% NW threshold? Yes.
  3. Is the NCUA’s PCA system for credit unions like the FDIC’s PCA system for banks and thrifts? Yes and no.

The Yes part – The basic structure is the same; many of the discretionary enforcement actions are similar.

The No part –

  • Many of the details of the PCA system are set forth in CUMAA – a federal statute – rather than in federal agency rules, including such critical parts of PCA as the definition of NW, and the net worth ratios and net worth categories. This is a huge difference.
  • The net worth ratios for credit union PCA are significantly higher (a bank or thrift is "well capitalized" with a 5% capital ratio).

 

Complex/Risk-based Net Worth Requirement

Part of PCA Rule

Note: The discussion below is based on the proposed "complex" rule – which may or may not be the final version of the rule adopted by the NCUA. Comments on the proposed complex/RBNW part of the PCA rule are due to the NCUA by April 18, 2000.

14. How do I know if I am a "complex" credit union? Credit unions that exceed any one of 4 specified thresholds would be deemed complex. The thresholds involve:

  1. Long-term real estate loans
  2. Member business loans (MBL)
  3. Long-term investments
  4. Loans sold with recourse

See the enclosed Table A for a more detailed description of the thresholds.

15. I’m a "complex" credit union under PCA. What is my RBNW requirement? Complex credit unions would calculate their risk based net worth requirement using net worth factors for 8 specified items:

  1. Long-term real estate loans
  2. MBLs outstanding
  3. Long-term investments
  4. Low-risk assets
  5. Average-risk assets
  6. Loans sold with recourse
  7. Unused MBL commitments
  8. Allowance for loan and lease losses

Credit unions may use alternative factors for the first three categories of assets to calculate their RBNW requirement.

Ultimately, when you do the calculation, you would end up with an overall RBNW requirement, phrased as a percentage of total assets. See the enclosed Table B for a more detailed explanation of the calculation of the RBNW requirement.

  1. Will my RBNW requirement always be higher than 6%? No. In determining their overall RBNW requirement, credit unions would be required to have more than 6% in net worth for certain higher-risk assets and less than 6% in net worth for lower-risk assets. Consequently, complex credit unions may have less than a 6% overall RBNW requirement, depending on the overall risk in their portfolio.
  2. How do I determine my Net Worth category?
  1. If your NW exceeds 6%, you would first calculate your RBNW requirement.
  2. Then:
  • If you meet your RBNW requirement, you would maintain your classification as Adequately or Well Capitalized, as applicable.
  • If you fail to meet your RBNW requirement, you are Undercapitalized. In other words, a complex credit union with 6.0% NW or higher that fails its RBNW requirement is Undercapitalized.
  1. How often do I determine if I am complex?
  • Quarterly Call Report filers will determine whether they are "complex" quarterly.
  • Semi-annual filers will make the determination semi-annually, at the time they file their semi-annual Call Reports.
  1. When do I make my first determination of complexity?
  • Quarterly Call Report filers will make their initial determination based on Call Reports for the first quarter of 2001, effective April 30, 2001.
  • Semi-annual filers will make their first determination based on the Call Report for the first half of 2001, effective July 31, 2001.

NCUA’s Letter 161; Statutory (regular) reserving

  1. Will Letter 161 be revised with PCA in mind? NCUA should be revising Letter 161 sometime before the main part of the PCA rules takes effect, to make it consistent with PCA.
  2. What is Letter 161? Letter 161 is a NCUA pronouncement (last revised in 1994) that provides guidelines for credit unions and federal and state examiners for determining CAMEL ratings.
  3. Is it true that the PCA rule repeals the requirement for statutory (regular) reserving? Yes, the final version of the main part of the PCA rule eliminates the current statutory or regular reserving system. It appears that credit unions may cease regular reserving on August 7, 2000.

APPENDICES

Table A -- 702.104 Thresholds to define complex credit unions

Risk portfolios to define complex credit unions

Thresholds to define "complex"
(as percent of month-end total assets)

  1. Long-term real estate loans [fixed-rate loans over 3 years plus variable-rate loans than don’t adjust within 3 years; excludes MBL]

25.00%

  1. Combined portfolios of:
    1. MBLs outstanding and
    2. Unused MBL commit ments

12.25%

  1. Long-term investments[weighted average life over 3 years]

15.00%

  1. Loans sold with recourse

5.00%

Table B -- 702.105 RBNW components to calculate RBNW requirement

  Risk portfolio

Amount of risk portfolio (as percent of month-end total assets) to be multiplied by RBNW factor

RBNW factor

1. Long-term real estate loans

0 to 25.00%

.06

   

over 25.00 to 40.00%

.14

   

over 40.00%

.16

2. MBLs outstanding

0 to 12.25%

.06

   

over 12.25%

.14

3. Long-term investments

0 to 15.00%

.06

   

over 15.00%

.12

4. Low-risk assets

All %

.03

5. Average-risk assets

All %

.06

6. Loans sold with recourse

All %

.06

7. Unused MBL commitments

All %

.06

8. Allowance

Limited to equivalent of 1.50% of total loans (expressed as a percent of total assets)

(1.00)

A complex credit union’s RBNW requirement is the sum of eight RBNW components. An RBNW component is calculated for each of the eight risk portfolios, equal to the sum of each amount of a risk portfolio times its RBNW factor. A complex credit union is "undercapitalized" if its net worth ratio is less than its RBNW requirement.

 


 

DCU Bulletin

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

March 16, 2000 
No. B-00-06

New Look for DCU Exam Reports

The Division of Credit Unions (Division) is pleased to announce a new look for the safety and soundness examination reports. The new look will include:

  • a revised cover page
  • a table of contents
  • a summary page revealing the CAMEL and composite ratings along with important highlights of the report content
  • a page discussing significant elements for each of the CAMEL components
  • a page containing all report requirements and recommendations
  • several pages of supplemental information provided by Aires

You should start seeing the new report format on examinations begun after March 20, 2000. Please provide any comments on the new format to Mike Delimont at (360) 902-8790.


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-699

April 4, 2000
No. B-00-07

General Ledger Treatment of Official Checks

Our examiners have recently identified several credit unions who have been reporting official checks, that were drawn on themselves, as contra-assets in the "Cash and Due From" section of the balance sheet. Such treatment is acceptable when the credit union’s official checks are drawn on another financial institution.

However, when drawn on the credit union, any outstanding unpaid checks must be reported as a liability of the credit union. Such a check immediately becomes a liability of the credit union when the member legally purchases it. Under normal circumstance it never becomes reportable on the asset side of the credit union balance sheet. Stale dated official checks are also subject to escheatment to the State of Washington and should be handled just as you would handle an inactive share or deposit account.

Any questions should be directed to Mike Delimont, Examiner Supervisor, at (360) 902-8790.

 


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8791 FAX: (360) 704-6991

April 12, 2000
No. B-00-08

Compliance with the Electronic Funds Transfer Act

The Division of Credit Unions (DCU) has received a noticeable increase in consumer complaints regarding Electronic Funds Transfer Act (EFTA) issues. With the expanded use of electronic funds transfers (EFT) and the introduction of new EFT products, it is likely that we will see an increase in EFTA claims unless credit unions take pro-active steps to enhance compliance with the EFTA.

All credit unions should develop strong EFTA policies and procedures, particularly concerning error resolution. These policies and procedures should be reviewed with legal counsel or other knowledgeable EFTA advisors in order to assure they are in conformance with the Act.

Most EFTA complainants raised issues with a credit union’s EFT error resolution process and whether the credit union actually followed EFTA provisions when determining whether to reimburse members for losses associated with unauthorized electronic funds transfers. We encourage credit union management to review EFTA and to follow its error resolution guidelines and procedures closely. This will limit potential lawsuits and losses.

 


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

May 19, 2000
No. B-00-09

Division Contact Information

The Division has made some changes to our e-mail, fax and phone lists. The following page lists addresses and phone numbers to contact the Division and staff members.

Field staff now have cell phones, which are accessible during business hours. The previous field staff mailbox numbers are being deactivated.

Please distribute this list to anyone in your credit union who contacts the Division.

Division of Credit Unions' office contact numbers

E-mail box: DCU@dfi.wa.gov  
Fax: 360-704-6901
Phone: 360-902-8701
Address: 210 – 11th St. SW, Room 300

PO Box 41200
Olympia, WA 98504-1200

Name Position Phone E-Mail Address
Cann, Parker Director 360-902-8778 pcann@dfi.wa.gov
Jekel, Linda Program Manager 360-902-8753 ljekel@dfi.wa.gov
Delimont, Mike Examiner Supv. 360-902-8790 mdelimont@dfi.wa.gov
Lacy-Roberts, Doug Senior Examiner 360-902-0507 dlacy-roberts@dfi.wa.gov
Graham, Sue Examiner 360-902-8816 sgraham@dfi.wa.gov
Philippsen, Tina Admin Assistant 360-902-8718 tphilippsen@dfi.wa.gov
Moye, Diane Office Assistant 360-902-8791 dmoye@dfi.wa.gov
Brown, Debbie Office Assistant 360-902-8717 dbrown@dfi.wa.gov

Division of Credit Union’s field staff contact numbers

Name Position Cell Phone E-Mail Address
Abbott, Chongsun Examiner 360-481-1731 cabbott@dfi.wa.gov
Ausejo, Caryl Senior Examiner 360-481-2222 causejo@dfi.wa.gov
Izuagbe, Austine Examiner 360-481-1751 aizuagbe@dfi.wa.gov
Pascua, Rogelio Senior Examiner 360-481-1846 rpascua@dfi.wa.gov
Rogers, Joseph Senior Examiner 360-481-2507 jrogers@dfi.wa.gov
Ross, Glenn Senior Examiner 360-481-2551 gross@dfi.wa.gov
Ross, Margaret Senior Examiner 360-481-1121 mross@dfi.wa.gov
Ullrich, Rick Senior Examiner 360-481-1137 rullrich@dfi.wa.gov
Weintraub, Jay Senior Examiner 360-481-1146 jweintraub@dfi.wa.gov
Woodworth, Feryl Examiner 360-481-1310 fwoodworth@dfi.wa.gov

 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

June 14, 2000
No. B-00-10

Call Reports

The Division of Credit Unions (DCU) is alarmed over the increase in inaccurate and late Call Reports. These two problems create serious concerns for both the DCU and NCUA.

State-chartered credit unions are required to submit 5300 Call Reports to

the DCU on a semi-annual basis, or quarterly if asset size is over $50 million. DCU uses Call Reports for off-site analysis, and must forward them to NCUA within a week.

Timely Receipt

When we mail 5300 diskettes and Call Report instructions to you, a deadline date is included in the cover letter. This is the date Call Reports must be received by DCU. This is not a postmark date deadline.

This timeframe gives in-house data processing credit unions more than 20 days to complete the quarter-end process. On-line data processing vendors typically produce financials and make them available within one business day. Credit unions should therefore have ample time to complete the Call Reports in a timely fashion.

Accuracy

Credit union reporting errors are increasing significantly in the initial Call Report filing. As a result, we are now requiring that each credit union print a copy of the warnings found in the error check function of the 5300 Call Report program. Credit union CEOs must initial the warning list to show that the conditions prompting the warning message have been reviewed for accuracy by the credit union and forward the warning list to DCU with the completed Call Report.

As always, you must also mail a hard copy of the completed Call Report with the 5300 data diskette. The Credit union CEO must sign the report,

as required by the form, certifying its accuracy. DCU will no longer accept Reports without a CEO signature.

DCU analyzes the information you provide in the Call Reports for various safety and soundness concerns. DCU will also be analyzing your Call Reports to monitor your net worth category upon implementation of NCUA's Prompt Corrective Action (PCA) rules. It is extremely important that the reported data be timely and accurate.

Ramification

Beginning immediately, DCU will inform credit union presidents/CEOs of late or erroneous Call Report filings. DCU may factor recurring problems into the management component of the CAMEL rating upon examination. You should also be aware that NCUA currently has the authority to assess monetary penalties, and DCU may also instigate that sanction for chronic offenders.

DCU is presently considering extending the exam cycle for well-capitalized, well-run credit unions. Recurring Call Report problems may preclude a credit union from eligibility for an extended exam cycle.

* * * * * * * * * *

DCU is currently exploring the possibility of hosting a Call Report software training session for credit union staff. In the meantime, if you have Call Report questions or training needs, please contact Mike Delimont at 360- 902-8790 or Sue Graham at 360- 902-8816.


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

August 1, 2000
No. B-00-11

CAPITAL UNDER PCA

Reserve Transfers

Prompt Corrective Action (PCA) takes effect August 7, 2000. One of the effects of PCA will be the discontinuance of the Regular Reserve transfers under the old formula. This means that:

  • For a credit union that was required to make transfers monthly, month-end July 2000 will be the last month in which a transfer will need to be made under the old formula.
  • For a credit union making transfers quarterly, the last quarter-end (June 2000) was the final transfer under the old formula.

 

Please note, however, that credit unions that fall below well-capitalized under PCA will be required to transfer from current earnings to regular reserves each quarter an amount equal to 0.1% of total assets.

"Well-capitalized" May Not Be For Safety and Soundness Purposes

As you know, PCA categorizes credit unions as "well capitalized" if their net worth is 7% (and, if "complex," their net worth meets their risk-based net worth requirement). We want to remind you that this classification is for PCA purposes only. It does not necessarily mean that every credit union with 7% net worth (and that meets any applicable risk-based net worth requirement) will be considered safe and sound. In unusual situations, "well-capitalized" under PCA may not be enough.

Examiners will analyze the net worth adequacy of credit unions with higher than average risk, outside of the PCA system. For example, a given credit union with significantly higher credit, interest rate or other risk may need 8%, 9% or more net worth to be considered safe and sound. In that case, the Division and NCUA may require the credit union to maintain net worth at the higher level.

The lesson here is that if your credit union has higher than average risk, don’t assume that "well-capitalized" under PCA is enough.

 


DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

August 2, 2000
No. B-00-12

Division Schedules Hearing on Rules
On Commercial Arrangements with Third Parties;
Comments Invited on Proposed Rules

Included below is a copy of the form filed by the Division to schedule the hearing and publish the proposed rules amending Chapter 208-440 WAC, entitled "Participation in Commercial Business Activities." The purpose is to make the rules more flexible for credit unions to enter into commercial business arrangements on a safe and sound basis.

Persons wishing to comment on the proposed rules may present their comments at the hearing or submit their comments in writing prior to the close of business on August 28, 2000 to:

Parker Cann, Assistant Director
Division of Credit Unions
PO Box 41200
Olympia, WA  98504-1200

Phone: (360) 902-8778
Fax: (360) 704-6978
E-mail: pcann@dfi.wa.gov

We are particularly interested in how the rule could be made less burdensome for small credit unions. We are also interested in comments in response to the seven questions posed in Executive Order 97-02. The questions are listed in the attached CR-102 form.

The hearing will be held via interactive television on August 29, 2000, from 10:00 am to 11:00 am, at the Department of Information Services (DIS) sites listed below. Credit unions may attend the hearing at any one of the following sites:

Lacey Seattle (Renton)
DIS Interactive Technologies DIS Interactive Technologies
710 Sleater-Kinney Rd. SE, Ste. Q 1107 SW Grady Way, Ste. 112
Lacey, WA 98503 Renton, WA 98055
(360) 407-9487 (425) 277-7290
   
Spokane Vancouver
DIS Interactive Technologies Educational Service District 112
N. 1101 Argonne, Ste. 109 2500 NE 65th Ave.
Spokane, WA 99201 Vancouver, WA 98661
(509) 921-2371 (360) 750-7500
   
Yakima  
DIS Interactive Technologies  
c/o Dept. of Ecology  
Yesterday’s Village  
15 W. Yakima Ave., Ste. 220  
Yakima, WA 98902  
(509) 454-7878  

Please call Tina Philippsen by August 15, 2000, at (360) 902-8718 or fax at (360) 704-6918, if you are planning to attend, to advise us of the site location.

 


WSR 00-13- 041

PROPOSED RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed June 14, 2000, 11:45 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 00-04-074.

Title of Rule: Credit union participation in commercial arrangements with third persons.

Purpose: The purpose of chapter 208-440 WAC is to regulate credit unions' entering into commercial arrangements with third parties to offer products and services to members, to ensure that it is done in a safe and sound manner.

The purpose of this rule making is to:

  1. Amend chapter 208-440 WAC; and
  2. Review the proposed revisions to the chapter under the criteria described in Executive Order 97-02:
  1. Need. Is the rule necessary to comply with the statutes that authorize it? Is the rule obsolete, duplicative, or ambiguous to a degree that warrants repeal or revision? Have laws or other circumstances changed so that the rule should be amended or repealed? Is the rule necessary to protect or safeguard the health, welfare, or safety of Washington's citizens?
  2. Effectiveness and Efficiency. Is the rule providing the results that it was originally designed to achieve in a reasonable manner? Are there regulatory alternatives or new technologies that could more effectively or efficiently achieve the same objectives?
  3. Clarity. Is the rule written and organized in a clear and concise manner so that it can be readily understood by those to whom it applies?
  4. Intent and Statutory Authority. Is the rule consistent with the legislative intent of the statutes that authorize it? Is the rule based upon sufficient statutory authority? Is there a need to develop a more specific legislative authorization in order to protect the health, safety, and welfare of Washington's citizens?
  5. Coordination. Could additional consultation and coordination with other governmental jurisdictions and state agencies with similar regulatory authority eliminate or reduce duplication and inconsistency?
  6. Cost. Have qualitative and quantitative benefits of the rule been considered in relation to its cost?
  7. Fairness. Does the rule result in equitable treatment of those required to comply with it? Should it be modified to eliminate or minimize any disproportionate impacts on the regulated community? Should it be strengthened to provide additional protection?

The agency is interested in your comments on the proposed revisions to chapter 208-440 WAC in light of these criteria.

Statutory Authority for Adoption: RCW 31.12.516 (2), 43.320.040.

Statute Being Implemented: Chapter 31.12 RCW .

Summary: The proposed rules amend chapter 208-440 WAC and extensively revise the regulatory approach to commercial arrangements. The rules recognize that credit unions may enter into prudent commercial arrangements with third parties in order for the third party to directly or indirectly offer goods and services to the credit union's members. The rules also place the burden on credit union boards and management to evaluate and manage the risk involved, through policies, and through devices such as insurance and indemnification.

Reasons Supporting Proposal: The current rules are outdated and overly restrictive. They impede credit unions' ability to serve members by unnecessarily restricting credit unions' authority to enter into prudent commercial arrangements with third parties to provide products and services to members.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Parker Cann, Director of Credit Unions, 210 11th Street S.W., Room 300, P.O. Box 41200, Olympia, WA 98504-1200, fax (360) 704-6978.

Name of Proponent: [Department of Financial Institutions], governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: Explanation: Before entering into any commercial arrangements, a credit union's board must adopt a written policy regarding such arrangements, including without limitation, provision for evaluation of potential risk of liability. The policy may require management to seek board approval of each arrangement, or may delegate the decision to management and provide guidelines for making the decision.

Before entering into or renewing each commercial arrangement, a credit union must:

  1. Ensure that the arrangement is a prudent one and that it does not present safety and soundness risks to the credit union;
  2. Evaluate the potential risk of liability and ensure that the credit union takes appropriate precautions to reduce or offset such risk, including without limitation the use of such devices as disclaimers/disclosures to members and bond or insurance coverage; and
  3. Ensure that the contract evidencing the arrangement includes provision for indemnification of the credit union by the third party.

The term "third party" includes credit union service organizations (CUSOs).

Purpose and Anticipated Effects: The purpose of this rule making is to amend chapter 208-440 WAC to allow credit unions more flexibility to enter into prudent commercial arrangements with third parties to offer products and services to members. The anticipated effect is that more credit unions may enter into such arrangements.

Proposal Changes the Following Existing Rules: WAC 208-440-010 , this section would be extensively revised. The effect of the revisions is described above. WAC 208-440-020 , 208-440-040, and 208-440-050, these sections would be repealed.

A small business economic impact statement has been prepared under chapter 19.85 RCW .

Small Business Economic Impact Statement


Subject: Rules proposed by the Division of Credit Unions ("division") of the Washington State Department of Financial Institutions (DFI) to amend chapter 208-440 WAC . Chapter 208-440 WAC is entitled: Rules On Credit Union Participation In Commercial Business Activities.

By: Parker Cann, Director of Credit Unions.

Date: June 13, 2000.

The division has prepared this small business economic impact statement (SBEIS) in compliance with chapter 19.85 RCW , the Regulatory Fairness Act (RFA). The preproposal statement of inquiry (form CR-101) in connection with the proposed rules was filed at WSR 00-04-074.

BACKGROUND FOR PROPOSED RULES: In 1979, the division adopted the predecessor to chapter 208-440 WAC . These rules placed extensive restrictions on credit unions' ability to enter into commercial arrangements with third parties to provide products and services to members.

In developing their business plans, credit unions must determine what products and services their members want and what products and services they will offer to members. The division believes that it is important for credit unions to be able to offer third parties' products and services to members in a safe and sound manner, in order to stay viable and competitive. Part of our statutory charge is to "ensure that credit unions remain viable and competitive in this state." RCW 31.12.015 .

DESCRIPTION OF PROPOSED RULES: Generally. The proposed rules amend chapter 208-440 WAC and extensively revise the regulatory approach to commercial arrangements. The rules recognize that credit unions may enter into prudent commercial arrangements with third parties in order for the third party to directly or indirectly offer goods and services to the credit union's members. The rules also place the burden on credit union boards and management to evaluate and manage the risk involved, through policies, and through devices such as insurance and indemnification.

Specifically. Before entering into any commercial arrangements, a credit union's board must adopt a written policy regarding such arrangements, including without limitation, provision for evaluation of potential risk of liability. The policy may require management to seek board approval of each arrangement, or may delegate the decision to management and provide guidelines for making the decision.

Before entering into or renewing each commercial arrangement, a credit union must:

  1. Ensure that the arrangement is a prudent one and that it does not present safety and soundness risks to the credit union;
  2. Evaluate the potential risk of liability and ensure that the credit union takes appropriate precautions to reduce or offset such risk, including without limitation the use of such devices as disclaimers/disclosures to members and bond or insurance coverage; and
  3. Ensure that the contract evidencing the arrangement includes provision for indemnification of the credit union by the third party.

The term "third party" includes credit union service organizations (CUSOs).

REQUIRED ELEMENTS OF SBEIS: The elements of the SBEIS required by the RFA are set forth below.

ELEMENT 1 . A brief description of the reporting, record-keeping, and other compliance requirements of the proposed rules and the kinds of professional services that a small business is likely to need in order to comply with the requirements.

RESPONSE: See "Description of Proposed Rules" above for compliance requirements.

In terms of professional services, it would be prudent for a credit union to engage counsel to assist it in developing a policy on commercial arrangements, in evaluating the potential risk of liability, and in negotiating the contract with the third party. Of course, it would have been prudent for a credit union to engage counsel before entering into a commercial arrangement under the existing rules. Under the existing rules, it is also likely that counsel would have been needed to advise the credit union as to the application of the rules and/or to discuss interpretation of the rules with the division.

ELEMENT 2 . An analysis of the costs of compliance for identified industries, including costs of equipment, supplies, labor and increased administrative costs.

RESPONSE: It is difficult to assess the costs of compliance for several reasons:

  1. Many credit unions may not wish to enter into commercial arrangements with third parties. They would therefore not incur costs for compliance with the proposed rules.
  2. For those credit unions that do enter into such arrangements, the cost of compliance will vary extensively depending on the adequacy of existence of a policy, the complexity of the arrangement, the amount of time and effort necessary to negotiate a satisfactory contract, etc.

Because of this uncertainty, we have assumed that the cost of compliance would be more than minor.

ELEMENT 3 . Whether compliance with the proposed rules will cause business to lose sales or revenue.

RESPONSE: Relative to the existing rules on commercial arrangements, the proposed rules will enable credit unions to more freely enter into prudent commercial arrangements, perhaps enhancing their revenues through fee arrangements with the third parties. It is unlikely they would lose sales or revenue because of the proposed rules.

ELEMENT 4 . A comparison of the compliance costs for the small business segment and large business segment of the affected industry(ies), and whether the impact on the small business segment is disproportionate.

RESPONSE: Because the cost of compliance, as uncertain as it may be, would probably be the same in regard to a specific commercial arrangement, whether the credit union is large or small, we have assumed that the cost of compliance for the small business segment of credit unions would be higher per unit, whether the unit is an employee, hour of labor to comply, or one hundred dollars of sales. Consequently, the cost to small credit unions may be considered disproportionate.

One inherent advantage in compliance for small credit unions is that they tend to be less sophisticated and may naturally enter into fewer or less complicated commercial arrangements.

ELEMENT 5. Steps taken by the agency under RCW 19.85.030 (3) to reduce the costs of the proposed rules on small businesses, or reasonable justification for not doing so, addressing the specified mitigation steps.

RESPONSE: We have reviewed the six steps under RCW 19.85.030 (3)(a) through (f). Our analysis is as follows:

  1. Reducing, modifying, or eliminating substantive regulatory requirements. We believe that the proposed rules are necessary for the safety and soundness of credit unions, regardless of size, and that the compliance requirements should not be reduced for small credit unions.
  2. Simplifying, reducing, or eliminating record-keeping and reporting requirements. We believe that the proposed rules are necessary for the safety and soundness of credit unions, regardless of size, and that the compliance requirements should not be diminished for small credit unions.
  3. Reducing the frequency of inspections. This step is not applicable, because the proposed rules do not provide for inspections.
  4. Delaying compliance timetables. Considering that the proposed rules actually relax existing restrictions, we do not feel it is appropriate to delay compliance.
  5. Reducing or modifying fine schedules for noncompliance. This step is not applicable, because the division does not have fining authority.
  6. Any other mitigation techniques. We are not aware of other mitigation techniques. However, we have encouraged comments from small credit unions on how to make the proposed rules less onerous for them and we will consider comments received. To date we have not received any comments.

Consequently, as discussed above, we do not believe that it is legal or feasible to reduce the costs of the proposed rules on small businesses.

ELEMENT 6. A description of how the agency will involve small business in the development of the proposed rules.

RESPONSE: All credit unions, including smaller credit unions, will be provided with a copy of the proposed rules and an opportunity to provide comment on them. Credit unions are encouraged to contact the division to comment on the rules. Small credit unions in particular are encouraged to provide comments on how the rules could be made less onerous for them.

ELEMENT 7. A list of the industry(ies) affected by the proposed rule.

RESPONSE: The industry affected by the proposed rule is state credit unions, Standard Industrial Classification 6062.

A copy of the statement may be obtained by writing to Parker Cann, Director of Credit Unions, P.O. Box 41200, Olympia, WA 98504-1200, phone (360) 902-8778, fax (360) 704-6978.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. Section 201 does not include the Department of Financial Institutions as a covered agency.

Hearing Location: Lacey, Washington, DIS, 710 Sleater-Kinney Road S.E., Suite Q; Renton, Washington, DIS, 1107 S.W. Grady Way, Suite 112; Spokane, Washington, DIS, North 1101 Argonne, Suite 109; Vancouver, Washington, ESD 112, 2500 N.E. 65th Avenue; and Yakima, Washington, Department of Ecology, 15 West Yakima Avenue, Suite 220; on August 29, 2000, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Tina Philippsen by July 15, 2000, TDD (360) 664-8126, or phone (360) 902-8718.

Submit Written Comments to: Parker Cann, Director of Credit Unions, 210 11th Street S.W., Room 300, P.O. Box 41200, Olympia, WA 98504-1200, fax (360) 704-6978, by August 28, 2000. We are particularly interested in suggestions on how the rules could be made less onerous for small credit unions.

Date of Intended Adoption: August 30, 2000.

June 14, 2000
John L. Bley
Director

OTS-3699.2

Chapter 208-440 WAC

((RULES ON)) CREDIT UNION PARTICIPATION IN COMMERCIAL ((BUSINESS ACTIVITIES)) ARRANGEMENTS WITH THIRD PARTIES


AMENDATORY SECTION(Amending WSR 96-17-071, filed 8/20/96, effective 9/20/96)

WAC 208-440-010
((Credit union financial interest in commercial enterprise.)) Commercial arrangements with third parties.

((No credit union shall have any direct financial interest in a commercial enterprise by way of stock or other ownership interest in a commercial corporation, by way of partnership interest or participation in a joint venture in a general business enterprise or by way of exchanging money or services for a share of the proceeds of any commercial business enterprise except as provided below:

(1) Any credit union may make loans to commercial enterprises and investments in commercial enterprises to the extent permitted by statute;

(2) Any credit union may engage in the business of renting, leasing or subleasing portions of the land and building(s), in which the credit union carries on its business, to the extent that such land and buildings are not needed for credit union operations;

(3) The director may upon written application grant permission to a credit union to participate in a business enterprise not otherwise authorized by law or by this section, where the director is satisfied that the business enterprise is appropriate and adjunct to ordinary credit union operations and would not be contrary to law. )) (1) Credit unions may enter into arrangements with third parties in order for the third party to directly or indirectly offer goods and services to the credit union's members. These arrangements are referred to in this rule as commercial arrangements.

In connection with commercial arrangements, credit unions may:

  1. Allow third parties to offer goods and services to members through the credit union.
  2. Receive payment from third parties for participation in group purchasing enterprises.
  3. Endorse, directly or indirectly, goods and services of a third party.

This list is not intended to be exhaustive.

As used in this rule, the term "third party" includes, without limitation, credit union service organizations.

  1. Before entering into any commercial arrangements, a credit union's board must adopt a written policy regarding such arrangements, including, without limitation, provision for evaluation of potential risk of liability. The policy may require management to seek board approval of each arrangement, or may delegate the decision to management and provide guidelines for making the decision.
  2. Before entering into or renewing each commercial arrangement, a credit union must:
  1. Ensure that the arrangement is a prudent one and that it does not present safety and soundness risks to the credit union;
  2. Evaluate the potential risk of liability and ensure that the credit union takes appropriate precautions to reduce or offset such risk, including, without limitation, the use of such devices as disclaimers/disclosures to members and bond or insurance coverage; and
  3. Ensure that the contract evidencing the arrangement includes provision for indemnification of the credit union by the third party.
  1. Credit unions must comply with applicable laws in entering into and carrying out commercial arrangements, including any applicable law on privacy of member information.

[Statutory Authority: RCW 42.320.040 [ 43.320.040 ] and 31.12.535 . 96-17-071, 208-440-010, filed 8/20/96, effective 9/20/96. 96-06-011, recodified as 208-440-010, filed 2/23/96, effective 6/1/96. Statutory Authority: RCW 31.12.360 . 79-08-047 (Order 79-2), 419-40-010, filed 7/19/79.]


REPEALER

The following sections of the Washington Administrative Code are repealed:

WAC 208-440-020 Endorsements of commercial products or services

WAC 208-440-040 Use of credit union space to advertise commercial products and services.

WAC 208-440-050 Commercial programs offered to credit union members.

 


 

DCU Bulletin

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

August 13, 2000  
No. B-00-13

Division Begins Process to Adopt
Member Business Loan Rules

The Division recently filed a CR-101 form to begin the rule-making process to adopt member business loan rules. Enclosed is a copy of the CR-101, as well as a preliminary draft of the rules. If you would like a copy of a marked-up version of NCUA’s MBL rules to show how the Division’s preliminary draft differs from the NCUA’s rules, please contact Tina Philippsen at the Division.

The rules will not take effect until the NCUA Board has approved the rules and the rule-making process has been completed by the Division.

We encourage you to submit comments on the rules. We are particularly interested if you believe the rules could be made less burdensome for small credit unions. We are also interested in comments in response to the seven questions posed in Executive Order 97-02. The questions are listed in the enclosed CR-101 form.

You may forward your comments to:

Parker Cann Phone: (360) 902-8778
Director of Credit Unions Fax: (360) 704-6978

PO Box 41200
Oympia, WA 98504-1200
E-mail:pcann@dfi.wa.gov

 

PREPROPOSAL STATEMENT OF INQUIRY

CR-101 (710/97)

Do NOT use for expedited repeal or adoption

(RCW 34.05.310)

Agency: Department of Financial Institutions
Subject of possible rule making: (1) Revising rules of the Division of Credit Unions (DCU) on member business lending by state credit unions. This CR-101 supplements the CR-101 on the same subject matter filed by the Director of the Department of Financial Institutions (DFI) on November 16, 1998 and published in the Washington State Register (WSR) at WSR 98-23-062.

(2) Updating the "additional powers" granted by RCW 31.12.404(1).

(a) Statutes authorizing the agency to adopt rules on this subject: RCW 31.12.404(2); 31.12.436(1); RCW 31.12.516(2); RCW 43.320.040
(b) Reasons why rules on this subject may be needed and what they might accomplish:
[Insert text of Attachment A]
(c) Identify other federal and state agencies that regulate this subject and the process coordinating the rule with these agencies: NCUA regulates MBL by federally-insured, state credit unions. However, as permitted by NCUA rules, and explained in more detail above, DCU’s MBL rules may supersede the NCUA’s MBL rules upon an exemption determination by the NCUA Board. As indicated above, DCU’s MBL rules will not take effect until the NCUA Board has made such a determination. Consequently, State Credit Unions will not be subject to overlapping MBL rules at the state and federal level.
(d) Process for developing new rule (check all that apply):

p Negotiated rule making
p Pilot rule making
p Agency study
x Other (describe) The Division solicits input from credit unions and related parties.

(e)  How interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication: (List names, addresses, telephone, fax numbers of persons to contact; describe meetings, other exchanges of information, etc.)

Please provide comments and questions on the rules to:

Parker Cann, Director of Credit Unions             Ph.: 360-902-8778
210 11th St. SW Room 300                                  Fax: 360-704-8778
PO Box 41200                                                         E-mail: pcann@dfi.wa.gov
Olympia, WA 98504-1200

 

 

code reviser use only

NAME (TYPE OR PRINT)
John L. Bley
SIGNATURE
TITLE                                                         DATE
Director

 

Attachment A to DFI CR-101 on MBL

The purpose of this rule is to adopt a new rule on member business loans (MBL) made by Washington State-chartered credit unions (State Credit Unions), and to update the additional powers granted by RCW 31.12.404(1), as discussed in more detail below.

(1) MBL.

In 1998, DCU repealed its existing rules on MBL, at Chapter 208-464 WAC, in anticipation that updated MBL rules would be adopted at a later time. The repeal was effected by the filing of a CR-103 by DFI on January 8, 1999, and published at WSR 99-03-009.

State MBL Rules May Supersede NCUA's MBL Rules. All State Credit Unions are federally insured by the National Credit Union Share Insurance Fund (NCUSIF), administered by the National Credit Union Administration (NCUA). RCW 31.12.407. Among other requirements, the NCUA requires all federally-insured credit unions to comply with its MBL rules. 12 C.F.R. Section 741.203; 12 C.F.R. Part 723.

The NCUA's MBL rules preempt the application of any less restrictive state MBL laws to federally-insured, state credit unions. However, the NCUA Board may exempt state credit unions in a given state from NCUA’s MBL rules if the NCUA approves the state’s MBL rules for state credit unions (exemption determination). 12 C.F.R. Section 741.203(a), 723.20. Although in the past the NCUA would not issue an exemption determination unless the state MBL rules were virtually identical to the NCUA's, the NCUA has relaxed its standards for such a determination in Section 741.203(a) and 723.20.

DCU believes that new state MBL rules should be adopted and that they should be submitted to the NCUA Board for an exemption determination. DCU believes that MBL rules could be crafted that are more flexible than DCU’s prior MBL rules, and more flexible than NCUA’s MBL rules, while preserving the safety and soundness of state credit unions. More flexible rules will allow credit unions to better serve the needs of their members.

DCU’s new MBL rules will not take effect until the NCUA Board has issued an exemption determination under 12 C.F.R. Section 741.203(a) and 723.20.

Substance of DCU’s New MBL Rules. DCU intends to use the NCUA's new MBL rules as a starting point for drafting DCU's new MBL rules. See the NCUA’s final MBL rules at 64 Federal Register 28721, May 27, 1999.

Included with this CR-101 is a preliminary draft of DCU’s new MBL rules. DCU has worked with a task force of State Credit Union representatives to develop the preliminary draft.

(2) Additional Powers.

Washington State law grants State Credit Unions the powers and authorities conferred on federal credit unions as of December 31, 1993. Since that date, State Credit Union powers and authorities have fallen behind some powers and authorities of federal credit unions. State law permits the director by rule to update these additional powers for State Credit Unions, if the director finds that the exercise of the power or authority:

  1. Serves the convenience and advantage of members of credit unions; and
  2. Maintains the fairness of competition and parity between state and federal credit unions.

RCW 31.12.404(2).

The DCU intends to update these powers and authorities through this rule making. Included with this CR-101 is a preliminary draft of DCU’s new wording to do so.

(3) Reg Reform.

DCU intends to review its rules through this and other rule making proceedings, in accordance with Governor Locke’s Executive Order 97-02 (EO 97-02) and DFI’s Regulatory Improvement Plan.

EO 97-02 requires agencies to review their rules using the following criteria:

  1. Need. Is the rule necessary to comply with the statutes that authorize it? Is the rule obsolete, duplicative, or ambiguous to a degree that warrants repeal or revision? Have laws or other circumstances changed so that the rule should be amended or repealed? Is the rule necessary to protect or safeguard the health, welfare, or safety of Washington's citizens?
  2. Effectiveness and Efficiency. Is the rule providing the results that it was originally designed to achieve in a reasonable manner? Are there regulatory alternatives or new technologies that could more effectively or efficiently achieve the same objectives?
  3. Clarity. Is the rule written and organized in a clear and concise manner so that it can be readily understood by those to whom it applies?
  4. Intent and Statutory Authority. Is the rule consistent with the legislative intent of the statutes that authorize it? Is the rule based upon sufficient statutory authority? Is there a need to develop a more specific legislative authorization in order to protect the health, safety, and welfare of Washington's citizens?
  5. Coordination. Could additional consultation and coordination with other governmental jurisdictions and state agencies with similar regulatory authority eliminate or reduce duplication and inconsistency?
  6. Cost. Have qualitative and quantitative benefits of the rule been considered in relation to its cost?
  7. Fairness. Does the rule result in equitable treatment of those required to comply with it? Should it be modified to eliminate or minimize any disproportionate impacts on the regulated community? Should it be strengthened to provide additional protection?

The DCU is interested in your comments on the MBL rules that DCU will develop in this rulemaking proceeding in light of these criteria.

 


 

WSR 00-16- 028

PROPOSED RULES
DEPARTMENT OF
FINANCIAL INSTITUTIONS

[ Filed July 24, 2000, 12:09 p.m. ]

Subject of Possible Rule Making:

  1. Revising rules of the Division of Credit Unions (DCU) on member business lending by state credit unions. This CR-101 supplements the CR-101 on the same subject matter filed by the director of the Department of Financial Institutions (DFI) on November 16, 1998, and published in the Washington State Register (WSR) at WSR 98-23-062 .
  2. Updating the "additional powers" granted by RCW 31.12.404 (1).

Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 31.12.404 (2), 31.12.436(1), 31.12.516(2), 43.320.040.

Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: The purpose of this rule is to adopt a new rule on member business loans (MBL) made by Washington state-chartered credit unions (state credit unions), and to update the additional powers granted by RCW 31.12.404 (1), as discussed in more detail below.

  1. MBL: In 1998, DCU repealed its existing rules on MBL, at chapter 208-464 WAC, in anticipation that updated MBL rules would be adopted at a later time. The repeal was effected by the filing of a CR-103 by DFI on January 8, 1999, and published at WSR 99-03-009 .

State MBL Rules May Supersede NCUA's MBL Rules: All state credit unions are federally insured by the National Credit Union Share Insurance Fund (NCUSIF), administered by the National Credit Union Administration (NCUA). RCW 31.12.407 . Among other requirements, the NCUA requires all federally-insured credit unions to comply with its MBL rules. 12 C.F.R. Section 741.203; 12 C.F.R. Part 723.

The NCUA's MBL rules preempt the application of any less restrictive state MBL laws to federally-insured, state credit unions. However, the NCUA board may exempt state credit unions in a given state from NCUA's MBL rules if the NCUA approves the state's MBL rules for state credit unions (exemption determination). 12 C.F.R. Section 741.203(a), 723.20. Although in the past the NCUA would not issue an exemption determination unless the state MBL rules were virtually identical to the NCUA's, the NCUA has relaxed its standards for such a determination in Section 741.203(1) and 723.20.

DCU believes that new state MBL rules should be adopted and that they should be submitted to the NCUA board for an exemption determination. DCU believes that MBL rules could be crafted that are more flexible than DCU's prior MBL rules, and more flexible than NCUA's MBL rules, while preserving the safety and soundness of state credit unions. More flexible rules will allow credit unions to better serve the needs of their members.

DCU's new MBL rules will not take effect until the NCUA board has issued an exemption determination under 12 C.F.R. Section 741.203(a) and 723.20.

Substance of DCU's New MBL Rules: DCU intends to use the NCUA's new MBL rules as a starting point for drafting DCU's new MBL rules. See the NCUA's final MBL rules at 64 Federal Register 28721, May 27, 1999.

Included with this CR-101 is a preliminary draft of DCU's new MBL rules. DCU has worked with a task force of state credit union representatives to develop the preliminary draft.

  1. Additional Powers: Washington state law grants state credit unions the powers and authorities conferred on federal credit unions as of December 31, 1993. Since that date, state credit union powers and authorities have fallen behind some powers and authorities of federal credit unions. State law permits the director by rule to update these additional powers for state credit unions, if the director finds that the exercise of the power or authority:

1. Serves the convenience and advantage of members of credit unions; and

2. Maintains the fairness of competition and parity between state and federal credit unions. RCW 31.12.404 (2).

The DCU intends to update these powers and authorities through this rule making. Included with this CR-101 is a preliminary draft of DCU's new wording to do so.

  1. Regulatory Reform: DCU intends to review its rules through this and other rule-making proceedings, in accordance with Governor Locke's Executive Order 97-02 (EO 97-02) and DFI's regulatory improvement plan.

EO 97-02 requires agencies to review their rules using the following criteria:

  1. Need. Is the rule necessary to comply with the statutes that authorize it? Is the rule obsolete, duplicative, or ambiguous to a degree that warrants repeal or revision? Have laws or other circumstances changed so that the rule should be amended or repealed? Is the rule necessary to protect or safeguard the health, welfare, or safety of Washington's citizens?
  2. Effectiveness and Efficiency. Is the rule providing the results that it was originally designed to achieve in a reasonable manner? Are there regulatory alternatives or new technologies that could more effectively or efficiently achieve the same objectives?
  3. Clarity. Is the rule written and organized in a clear and concise manner so that it can be readily understood by those to whom it applies?
  4. Intent and Statutory Authority. Is the rule consistent with the legislative intent of the statutes that authorize it? Is the rule based upon sufficient statutory authority? Is there a need to develop a more specific legislative authorization in order to protect the health, safety, and welfare of Washington's citizens?
  5. Coordination. Could additional consultation and coordination with other governmental jurisdictions and state agencies with similar regulatory authority eliminate or reduce duplication and inconsistency?
  6. Cost. Have qualitative and quantitative benefits of the rule been considered in relation to its cost?
  7. Fairness. Does the rule result in equitable treatment of those required to comply with it? Should it be modified to eliminate or minimize any disproportionate impacts on the regulated community? Should it be strengthened to provide additional protection?

The DCU is interested in your comments on the MBL rules that DCU will develop in this rule-making proceeding in light of these criteria.

Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: NCUA regulates MBL by federally-insured, state credit unions. However, as permitted by NCUA rules, and explained in more detail above, DCU's MBL rules may supersede the NCUA's MBL rules upon an exemption determination by the NCUA board. As indicated above, DCU's MBL rules will not take effect until the NCUA board has made such a determination. Consequently, state credit unions will not be subject to overlapping MBL rules at the state and federal level.

Process for Developing New Rule: The division solicits input from credits unions and related parties.

Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication by providing comments and questions on the rules to Parker Cann, Director of Credit Unions, 210 11th Street S.W., Room 300, P.O. Box 41200, Olympia, WA 98504-1200, phone (360) 902-8778, fax (360) 704-8778, e-mail pcann@dfi.wa.gov.

July 21, 2000

John L. Bley

Director

 

 


 

OTS-3919.4

Chapter 208-460 WAC

MEMBER BUSINESS LOANS


NEW SECTION
WAC 208-460-010
What is a member business loan?

  1. Definition of MBL. "Member business loan" or "MBL" includes any loan, line of credit, letter of credit, or any unfunded commitment to make a loan, where the borrower intends to use the proceeds for any of the following purposes:
  1. Commercial;
  2. Corporate;
  3. Investment property;
  4. Business venture; or
  5. Agricultural.
  1. Exemptions. The following are not member business loans:
  1. A business purpose loan fully secured by a lien on a one to four family dwelling that is the member's primary residence;
  2. A business purpose loan fully secured by shares or deposits in the credit union making the extension of credit or in other credit unions, or by deposits in other financial institutions;
  3. One or more business purpose loans to a member or any associated member which in the aggregate do not exceed the amount of fifty thousand dollars. The entire amount of such a loan that exceeds fifty thousand dollars, or that causes the aggregate to exceed fifty thousand dollars, is a MBL;
  4. A business purpose loan where a federal or state agency or any of its political subdivisions fully insures repayment, or fully guarantees repayment, or provides an advance commitment to purchase in full; or
  5. A loan granted by a corporate credit union to another credit union.
  1. Other definitions. Certain other terms used in this chapter are defined in WAC 208-460-170 .

[]

Reviser's note: The typographical error in the above section occurred in the copy filed by the agency and appears in the Register pursuant to the requirements of RCW 34.08.040 .
NEW SECTION
WAC 208-460-020
What member business loans are prohibited?

  1. Who is ineligible to receive a member business loan? You may not grant a member business loan to the following:
  1. Your chief executive officer (typically this individual holds the title of president or treasurer/manager);
  2. Any assistant chief executive officers (e.g., assistant president, vice-president, or assistant treasurer/manager);
  3. Your chief financial officer (comptroller); or
  4. Any associated member or immediate family member of anyone listed in (a) through (c) of this subsection.
  1. Equity agreements/joint ventures. You may not grant a member business loan if any additional income received by senior management employees is tied to the profit or sale of the business or commercial endeavor for which the loan is made.

[]


NEW SECTION
WAC 208-460-030
What are the requirements for MBL development and construction lending?

Unless the director grants a waiver, a credit union that makes MBL development or construction loans is subject to the following requirements:

  1. The aggregate of all such loans may not exceed twenty percent of net worth. To determine the aggregate, you may exclude any portion of a loan:
  1. Secured by shares or deposits in the credit union making the extension of credit or in other credit unions, and by deposits in another financial institution;
  2. Insured or guaranteed by any agency of the federal government, state, or any of its political subdivisions; or
  3. Subject to an advance commitment to purchase by any agency of the federal government, state, or any of its political subdivisions;
  1. The borrower on such loans must have a minimum:
  1. Thirty percent equity interest in the project being financed if the loan is for land development; and
  2. Twenty-five percent equity interest in the project being financed if the loan is for construction or for a combination of development and construction;
  1. The funds for such loans may be released only after on-site inspections, documented in writing, by qualified personnel and according to a preapproved draw schedule and any other conditions as set forth in the loan documentation; and
  2. The credit union may not make such loans unless it utilizes the services of an individual with at least five years direct experience in development and construction lending.

[]

NEW SECTION
WAC 208-460-040
How do you implement a member business loan program?

The board of directors must adopt specific member business loan policies and review them at least annually. The credit union must utilize the services of an individual with at least two years direct experience with the type of lending the credit union will be engaging in, except as required by WAC 208-460-030 (4).

Credit unions do not have to hire staff to meet the requirements of this section; however, credit unions must ensure that the expertise is available. A credit union can meet the experience requirement through various approaches. For example, a credit union can use the services of a credit union service organization, an employee of another credit union, an independent contractor, or other third parties. However, the actual decision to grant a loan must reside with the credit union.

[]

NEW SECTION
WAC 208-460-050
What must your member business loan policy address?

At a minimum, your member business loan policy must address the following:

  1. The types of MBL you will make;
  2. The maximum amount of your assets, in relation to net worth, that you will invest in MBL;
  3. The maximum amount of your assets, in relation to net worth, that you will invest in a given type of MBL;
  4. The maximum amount of your assets, in relation to net worth, that you will loan to a member or associated members, subject to WAC 208-460-070 ;
  5. The qualifications and experience of personnel (minimum of two years) involved in making and administering loans;
  6. A requirement for analysis and documentation of the ability of the borrower to repay the loan;
  7. Receipt and periodic updating of financial statements and other documentation, including tax returns;
  8. Documentation sufficient to support each request to extend credit, or increase an existing loan or line of credit, except where the board of directors finds that the required documentation is not generally available for a particular type of loan and states the reasons for those findings in the credit union's written policies. At a minimum, the documentation must include the following:
  1. Balance sheet;
  2. Cash flow analysis;
  3. Income statement;
  4. Tax data;
  5. Analysis of leveraging; and
  6. Comparison with industry average or similar analysis;
  1. Collateral requirements, including:
  1. Loan-to-value ratios;
  2. Determination of value;
  3. Determination of ownership;
  4. Steps to secure various types of collateral; and
  5. How often the credit union will reevaluate the value and marketability of collateral;
  1. The interest rates and maturities of the loans;
  2. General MBL procedures which include:
  1. Loan monitoring;
  2. Servicing and follow-up; and
  3. Collection;
  1. Identification of those individuals prohibited from receiving member business loans; and
  2. Guidelines for purchase and sale of member business loans and loan participations, if the credit union engages in that activity.

The division recognizes that all of the provisions of the policy may not apply to every MBL.

[]

NEW SECTION
WAC 208-460-060
What are the collateral and security requirements?

  1. Unless the director grants a waiver:
  1. All member business loans must be secured by collateral in accordance with this subsection (1), except the following:
  1. A credit card line of credit granted to nonnatural persons that is limited to routine purposes normally made available under such lines of credit;
  2. A loan made by a credit union that meets each of the following criteria:
  1. The amount of the loan does not exceed one hundred thousand dollars;
  2. The aggregate of unsecured MBL under subsection (a)(ii) of this section does not exceed ten percent of the credit union's net worth; and
  3. The credit union has a net worth of at least seven percent;
  1. In the case of a member business loan secured by collateral on which the credit union will have a first lien, you may grant the loan with a LTV ratio in excess of eighty percent only where the value in excess of eighty percent is:
  1. Covered through acquisition of private mortgage or equivalent type insurance provided by an insurer acceptable to the credit union; or
  2. Insured or guaranteed, or subject to advance commitment to purchase, by an agency of the federal government, state, or any of its political subdivisions;

In no case may the LTV ratio exceed ninety-five percent;

  1. In the case of a member business loan secured by collateral on which the credit union will have a second or lesser priority lien, you may not grant the loan(s) with a LTV ratio in excess of eighty percent; and
  2. In the case of member business loans secured by the same collateral:
  1. On which the credit union will have a first lien as well as other lesser priority liens, you may grant the loans with a LTV ratio in excess of eighty percent only if subsection (b)(i) or (ii) of this section is satisfied. In no case may the LTV ratio exceed ninety-five percent; and
  2. On which the credit union will have lesser priority liens but no first lien, you may not grant the loans with a LTV ratio in excess of eighty percent.
  1. Unless the director grants a waiver, principals must provide their personal liability and guarantee, other than:
  1. Principals of a not-for-profit organization as defined by the Internal Revenue Code (26 U.S.C. 501);
  2. Principals of a nonnatural person that is the borrower on a credit card line of credit that is limited to routine purposes normally made available under such lines of credit;
  3. Principals of publicly held corporations or partnerships;
  4. Persons holding minority interests, unless no one person holds a majority interest; and
  5. Principals of a borrower on an income property loan with a LTV ratio no greater than sixty percent and a debt service coverage of at least one and one-quarter percent.

[]

NEW SECTION
WAC 208-460-070
How much may a member or associated members borrow?

Unless the director grants a waiver for a higher amount, the aggregate amount of outstanding member business loans to a member or associated members may not exceed the greater of:

  1. Fifteen percent of the credit union's net worth; or
  2. One hundred thousand dollars.

[]


NEW SECTION
WAC 208-460-080
How do you calculate the aggregate fifteen percent limit?

  1. Step 1. Calculate the numerator by adding together the amount of the member business loans to the member and associated members (if any). From this amount, subtract any portion:
  1. Secured by shares or deposits in the credit union making the extension of credit or in other credit unions, or by deposits in other financial institutions;
  2. Insured or guaranteed by any agency of the federal government, state, or any of its political subdivisions; or
  3. Subject to an advance commitment to purchase by any agency of the federal government, state, or any of its political subdivisions.
  1. Step 2. Divide the numerator by net worth.

[]


NEW SECTION
WAC 208-460-090
What waivers are available?

You may seek a waiver for a type of member business loan in the following areas:

  1. Development and construction loan requirements under WAC 208-460-030 ;
  2. Loan-to-value ratios under WAC 208-460-060 (1);
  3. Requirement for personal liability and guarantee under WAC 208-460-060 (2);
  4. Maximum loan amount to a member and associated members under WAC 208-460-070 ; and
  5. Appraisal requirements under Section 722.3 of NCUA rules.

[]


NEW SECTION
WAC 208-460-100
How do you obtain a waiver?

  1. To obtain a waiver under WAC 208-460-090 , a credit union must submit its request to the director. The waiver request must contain the following:
  1. A copy of your member business loan policy;
  2. The higher limit sought (if applicable);
  3. An explanation of the need to raise the limit (if applicable);
  4. Documentation supporting your ability to manage this activity; and
  5. An analysis of the credit union's prior experience making member business loans, including, as a minimum:
  1. The history of loan losses and loan delinquency;
  2. Volume and cyclical or seasonal patterns;
  3. Diversification;
  4. Concentrations of credit to a member and associated members in excess of fifteen percent of net worth;
  5. Underwriting standards and practices;
  6. Types of loans grouped by purpose and collateral; and
  7. The qualifications of personnel responsible for underwriting and administering member business loans.
  1. The director will:
  1. Review the information you provided in your request;
  2. Evaluate the level of risk to your credit union;
  3. Consider your credit union's historical CAMEL composite and component ratings;
  4. Notify you whenever your waiver request is deemed complete; and
  5. Notify you of the action taken within forty-five calendar days of receiving a complete request.
  1. In connection with a waiver request under WAC 208-460-090 (1) through (4):
  1. The waiver is not effective until the director approves it;
  2. If you do not receive notification within forty-five calendar days after the date the complete request was received by the director, the waiver request is deemed approved by the director; and
  3. The director will promptly notify Region VI of the NCUA of his or her decision on the request.
  1. In connection with a waiver request under WAC 208-460-090 (5):
  1. If the director approves the request, the director will promptly forward the request to Region VI of the NCUA for decision under NCUA rules at 12 C.F.R. 723.12;
  2. The waiver is not effective until the regional director of the NCUA approves it in accordance with NCUA rules at 12 C.F.R. 723.12; and
  3. The credit union may appeal the regional director's decision in accordance with NCUA rules at 12 C.F.R. 723.13.

[]

NEW SECTION
WAC 208-460-110
How do I classify member business loans so as to reserve for potential losses?

Nondelinquent member business loans may be classified based on factors such as the adequacy of analysis and supporting documentation. You must classify potential loss loans as either substandard, doubtful, or loss. The criteria for determining the classification of loans are:

  1. Substandard. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. The loan must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. It is characterized by the distinct possibility that the credit union will sustain some loss if the deficiency is not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard;
  2. Doubtful. A loan classified doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include: Proposed merger, acquisition, or liquidation actions; capital injection; perfecting liens on collateral; and refinancing plans; and
  3. Loss. A loan classified loss is considered uncollectible and of such little value that its continuance as a loan is not warranted. This classification does not necessarily mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future.

[]


NEW SECTION
WAC 208-460-120
How much must I reserve for potential losses?

The following schedule sets the minimum amount you must reserve for classified member business loans:

Classification Amount Required
Substandard 10% of outstanding balance unless other factors (for example, history of such loans at the credit union) indicate a greater or lesser amount is appropriate.
Doubtful 50% of the outstanding balance.
Loss 100% of the outstanding balance.

[]

NEW SECTION
WAC 208-460-130
What is the aggregate member business loan limit?

The aggregate limit on the amount of a credit union's member business loans is the lesser of:

  1. One and three quarters times the credit union's net worth; or
  2. Twelve and one quarter percent of the credit union's total assets.

[]

NEW SECTION
WAC 208-460-140
Are there any exceptions to the aggregate MBL limit?

  1. Credit unions that meet any one of the following four criteria qualify for an exception from the aggregate member business loan limit in WAC 208-460-130 :
  1. Credit unions that have a low-income designation;
  2. Credit unions that participate in the Community Development Financial Institutions program;
  3. Credit unions that are chartered for the purpose of making member business loans, as supported by documentary evidence, such as the credit union's charter, bylaws, business plan, field of membership, board minutes and loan portfolio; and
  4. Credit unions that have a recent history of primarily making member business loans, established by the fact that the outstanding balance of member business loans comprises:
  1. At least twenty-five percent of the outstanding balance of the credit union's loans; or
  2. The largest portion of the outstanding balance of the credit union's loans.

Such facts must be evidenced in an NCUA call report or any equivalent documentation, such as financial statements, for a period within two years before the date of application. For example, a credit union qualifies for the exception under subsection (d)(ii) of this section if, based on the outstanding balance of a credit union's loans, the credit union's loan portfolio is comprised of twenty-three percent member business loans, twenty-two percent first mortgage loans, twenty-two percent new automobile loans, twenty percent credit card loans, and thirteen percent total other real estate loans.

  1. Unless the director gives his or her prior consent, a credit union granted an exception from the aggregate MBL limit may not make MBL in excess of the greater of:
  1. Twelve and one quarter percent of the credit union's total assets; or
  2. Three hundred percent of the credit union's net worth.

[]

NEW SECTION
WAC 208-460-150
How do I obtain an exception?

  1. The exception under WAC 208-460-140 (1)(a) and (b) is effective upon written notice to the director of such designation or participation.
  2. To obtain an exception under WAC 208-460-140 (1)(c) or (d), a credit union must submit its request to the director. An exception is not effective until it is approved by the director. The exception request must include documentation demonstrating that the credit union meets the criteria for one of the exceptions. The exception does not expire unless revoked for safety and soundness reasons by the director.
  3. The director will promptly notify Region VI of the NCUA of his or her decision on the request.

[]


NEW SECTION
WAC 208-460-160
What are the recordkeeping requirements?

You must separately identify member business loans in your records and in the aggregate on your financial reports.

[]


NEW SECTION
WAC 208-460-170
Definitions.

For purposes of this chapter, the following definitions apply:

  1. The "amount" of a MBL includes:
  1. Any unfunded commitment to make the loan;
  2. The outstanding balance of the loan; and
  3. Any undisbursed proceeds of the loan.
  1. A person is "associated" with another if they have a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor.
  2. A "business purpose" loan means a loan where the borrower intends to use the proceeds for any of the purposes listed in WAC 208-460-010 (1).
  3. "Development or construction loan" is a financing arrangement for acquiring real property or rights to real property, including land or structures, with the intent to develop or improve it for:
  1. Residential housing for sale;
  2. Income property;
  3. Commercial use;
  4. Industrial use; or
  5. Similar uses.
  1. "Immediate family member" is a spouse or other family member living in the same household.
  2. "Loan-to-value ratio" or "LTV ratio" is derived by dividing:
  1. The amount of all member business loans by the credit union and loans by other lenders secured by an item of collateral, by
  2. The market value of the item of collateral.
  1. "Member business loan" or "MBL" is defined in WAC 208-460-010 .
  2. "NCUA" means the National Credit Union Administration.
  3. "Net worth" is retained earnings as defined under Generally Accepted Accounting Principles. Retained earnings normally includes undivided earnings, regular reserves and any other appropriations designated by management or regulatory authorities. Net worth does not include the allowance for loan and lease losses.

[]

Reviser's note: The typographical error in the above section occurred in the copy filed by the agency and appears in the Register pursuant to the requirements of RCW 34.08.040 .
NEW SECTION
WAC 208-460-180
Effective date.

This chapter will take effect beginning on the date that the board of the NCUA determines that Washington state-chartered credit unions are exempt from NCUA's member business loan rules pursuant to 12 C.F.R. 723.20.

[]

OTS-4014.2


AMENDATORY SECTION(Amending WSR 97-23-071, filed 11/19/97, effective 3/19/98)

WAC 208-444-050
((Effective date.)) Update of additional powers.

(( WAC 208-444-020 , 208-444-030, and 208-444-040 will take effect on the date that these rules are determined by the Board of the National Credit Union Administration (NCUA) to be substantially equivalent to NCUA rules. )) (1) Notwithstanding any other provision of law, and in addition to all powers and authorities, express or implied, that a credit union has under the laws of this state, a credit union has the powers and authorities that a federal credit union had on December 31, 1993, or a subsequent date not later than (the effective date of this rule).

(2) The restrictions, limitations, and requirements applicable to specific powers or authorities of federal credit unions apply to state credit unions exercising those powers or authorities permitted under this section but only insofar as the restrictions, limitations, and requirements relate to the specific exercise of the powers or authorities granted state credit unions solely under this section.

(3) State credit unions exercising a power or authority under this section or RCW 31.12.404 (1) should be:

(a) Knowledgeable about the power or authority under federal law and applicable restrictions, limitations, and requirements in federal law; and

(b) Be able to respond to examiners' questions with citations to the sources of the power or authority and applicable restrictions, limitations, and requirements.

(4) As used in this section, "powers and authorities" include without limitation powers and authorities in corporate governance matters.

[Statutory Authority: RCW 31.12.535 and 43.320.040 . 97-23-071, 208-444-050, filed 11/19/97, effective 3/19/98 by letter filed as WSR 98-10-072 .]

 


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

September 19, 2000
No. B-00-14

DFI’s Securities Division Adopts Final Rule on
Broker-Dealer Operations at Financial Institutions

The Securities Division has adopted a rule regulating broker-dealer operations on the premises of financial institutions (including state and federal credit unions). A copy of the final rule is included.

The rule addresses standards for broker-dealers, communications with the public concerning broker-dealer services, and notification of termination of a broker-dealer’s agent.

Please contact Parker Cann at the Division, at (360) 902-8778, if you would like to discuss the rule.


 

WSR 00-05-055
PERMANENT RULES
DEPARTMENT OF
FINANCIAL INSTITUTIONS

[ Filed February 14, 2000, 3:51 p.m. ]

Date of Adoption: February 9, 2000.

Purpose: The purpose of the rule is to add a new WAC to clarify and make uniform the rules relating to broker-dealers operating on the premises of financial institutions.

Statutory Authority for Adoption: RCW 21.20.100, 21.20.450.

Adopted under notice filed as WSR 00-02-068 on January 4, 2000.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 1, Amended 0, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 1, Amended 0, Repealed 0. Effective Date of Rule: Thirty-one days after filing.

February 14, 2000
John L. Bley
Director


OTS-3585.1

Chapter 460-21C WAC

BROKER-DEALER SERVICES AT FINANCIAL INSTITUTIONS

NEW SECTION
WAC 460-21C-005
Application.

  1. The rules in this chapter apply exclusively to broker-dealer services conducted by broker-dealers on the premises of a financial institution where retail deposits are taken.
  2. These rules do not alter or abrogate a broker-dealer's obligations to comply with other applicable laws, rules, or regulations that may govern the operations of broker-dealers and their agents, including, but not limited to, supervisory obligations.
  3. These rules do not apply to broker-dealer services provided to nonretail customers.

NEW SECTION
WAC 460-21C-010
Definitions.

For purposes of this chapter, the following terms have the meanings indicated:

  1. "Financial institution" means federal and state-chartered banks, savings and loan associations, savings banks, credit unions, and the service corporations of such institutions located in this state.
  2. "Networking arrangement" means a contractual or other arrangement between a broker-dealer and a financial institution pursuant to which the broker-dealer conducts broker-dealer services on the premises of such financial institution where retail deposits are taken.
  3. "Broker-dealer services" means the investment banking or securities business as defined in paragraph (p) of Article I of the By-Laws of the National Association of Securities Dealers, Inc.

[]


NEW SECTION
WAC 460-21C-020
Standards for broker-dealer conduct.

No broker-dealer shall conduct broker-dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer complies initially and continuously with the following requirements:

  1. Setting. Wherever practical, broker-dealer services shall be conducted in a physical location distinct from the area in which the financial institution's retail deposits are taken. In those situations where there is insufficient space to allow separate areas, the broker-dealer has a heightened responsibility to distinguish its services from those of the financial institution. In all situations, the broker-dealer shall identify its services in a manner that clearly distinguishes those services from the financial institution's retail deposit-taking activities. The broker-dealer's name shall be clearly displayed in the area in which the broker-dealer conducts its services.
  2. Networking arrangements and program management. Networking arrangements shall be governed by a written agreement that sets forth the responsibilities of the parties and the compensation arrangements. Networking arrangements must provide that supervisory personnel of the broker-dealer and representatives of state securities authorities, where authorized by state law, will be permitted access to the financial institution's premises where the broker-dealer conducts broker-dealer services in order to inspect the books and records and other relevant information maintained by the broker-dealer with respect to its broker-dealer services. Management of the broker-dealer shall be responsible for ensuring that the networking arrangement clearly outlines the duties and responsibilities of all parties, including those of financial institution personnel.
  3. Customer disclosure and written acknowledgment.
  1. At or prior to the time that a customer's securities brokerage account is opened by a broker-dealer on the premises of a financial institution where retail deposits are taken, the broker-dealer shall:
  1. Disclose, orally and in writing, that the securities products purchased or sold in a transaction with the broker-dealer:
  1. Are not insured by the Federal Deposit Insurance Corporation ("FDIC") or the National Credit Union Administration ("NCUA"), as applicable.
  2. Are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution; and
  3. Are subject to investment risks, including possible loss of the principal invested.
  1. Make reasonable efforts to obtain from each customer during the account opening process a written acknowledgment of the disclosures required by (a)(i) of this subsection.
  1. If broker-dealer services include any written or oral representations concerning insurance coverage, other than FDIC insurance coverage, then clear and accurate written or oral explanations of the coverage must also be provided to the customers when such representations are first made.

[]


NEW SECTION
WAC 460-21C-030
Communications with the public.

(1)

  1. All of the broker-dealer's confirmations and account statements must indicate clearly that the broker-dealer services are provided by the broker-dealer.
  2. Advertisements and sales literature that announce the location of a financial institution where broker-dealer services are provided by the broker-dealer, or that are distributed by the broker-dealer on the premises of a financial institution, must disclose that securities products: Are not insured by the FDIC or NCUA; are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution; and are subject to investment risks, including possible loss of the principal invested. The shorter, logo format described in subsection (2)(a) of this section may be used to provide these disclosures.
  3. Recommendations by a broker-dealer concerning nondeposit investment products with a name similar to that of a financial institution must only occur pursuant to policies and procedures reasonably designed to minimize risk of customer confusion.
  1. (a) The following shorter, logo format disclosures may be used by a broker-dealer in advertisements and sales literature, including material published, or designed for use, in radio or television broadcasts, automated teller machine ("ATM") screens, billboards, signs, posters and brochures, to comply with the requirements of subsection (1)(b) of this section, provided that such disclosures are displayed in a conspicuous manner:
  1. Not FDIC insured;
  2. Not NCUA insured;
  3. No bank guarantee;
  4. May lose value.
  1. As long as the omission of the disclosures required by subsection (1)(b) of this section would not cause the advertisement or sales literature to be misleading in light of the context in which the material is presented, such disclosures are not required with respect to messages contained in:
  1. Radio broadcasts of thirty seconds or less;
  2. Electronic signs, including billboard-type signs that are electronic, time, and temperature signs and ticker tape signs, but excluding messages contained in such media as television, on-line computer services, or ATMs; and
  3. Signs, such as banners and posters, when used only as location indicators.

[]


NEW SECTION
WAC 460-21C-040
Notification of termination.

The broker-dealer must promptly notify the financial institution if any agent of the broker-dealer who is employed by the financial institution is terminated for cause by the broker-dealer.


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

September 20, 2000
No. B-00-15

Interest Rate Risk

Recent years have shown a significant increase in the level of fixed rate real estate loans on the books of credit unions in Washington and across the country. Accompanying those loans is an increased exposure to interest rate risk. In general, credit unions have not adequately improved their policies and procedures to manage that risk.

In response to these conditions, NCUA provided Letter to Credit Unions 99-CU-12 in August of 1999. Unfortunately, it appears that the attention of many credit unions was focused in other areas and the import of that Letter may have escaped you.

Please be aware that the Division of Credit Unions and NCUA will be focusing increased attention on the interest rate risk management of those credit unions that have significant levels of assets with potential interest rate risk. Such assets include complex investments and loans secured by real estate.

We intend that our emphasis will be graduated and those credit unions with higher levels of risk assets will be expected to have developed more extensive policies, procedures, and competencies. Credit unions with no or limited interest rate risk assets will not be expected to have extensive management controls. Our reviews will evaluate the adequacy of Asset/Liability Management (ALM) policies, ALM planning, liquidity, ALM committee efforts, training and competencies of staff assigned to manage the risk, the adequacy of tools (eg. modeling) used to measure the risk, and the internal estimate of the level of the risk.

We are well aware that education and improvements in this area will require some time. However, affected credit unions should have set in place adequate plans for improved monitoring and control of their interest rate risk.

Please contact Mike Delimont at (360) 902-8790 if you have any additional questions or concerns on the subject.


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

October 26, 2000
No. B-00-16

Division Adopts Final Rule on
Commercial Arrangements

On October 25, 2000, the Division adopted a final rule on commercial arrangements, amending Chapter 208-440 WAC. Enclosed is a copy of the Form CR-103 filed with the Code Reviser for this purpose, which includes the final version of the rule. The rule takes effect on November 25, 2000.

The rule allows credit unions more flexibility to enter into prudent commercial arrangements with third parties to offer products and services to members. The rule places the burden on credit union boards and management to evaluate and manage the risk involved, through policies, and through devices such as insurance and indemnification.

Contact person at the Division on the rule:
Parker Cann, Director of Credit Unions
(360) 902-8778
pcann@dfi.wa.gov


Note: If any category is left blank, it will be calculated as zero.

No descriptive text.

Count by whole WAC sections only, from the WAC number through the history note.
A section may be counted in more than one category.

The number of sections adopted in order to comply with:

Federal Statute:
Federal Rules or Standards:
Recently enacted state statutes:

The number of sections adopted at the request of nongovernmental entity:

The number of sections adopted in the agency’s own initiative:

The number of sections adopted in order to clarify, streamline, or reform agency procedures:

The number of sections adopted using:

Negotiated rule making:
Pilot rule making:
Other alternative rule making:

New   0
New   0
New   0
Amended   0
Amended   0
Amended   0
Repealed   0
Repealed   0
Repealed   0
New   0 Amended   0 Repealed   0
New   0 Amended   1 Repealed   3
New   0 Amended   1 Repealed   3
New   0
New   0
New   0
Amended   0
Amended   0
Amended   0
Repealed   0
Repealed   0
Repealed   0

Chapter 208-440 WAC

((RULES ON)) CREDIT UNION PARTICIPATION IN COMMERCIAL ((BUSINESS ACTIVITIES)) ARRANGEMENTS WITH THIRD PARTIES

AMENDATORY SECTION (Amending WSR 96-17-071, filed 8/20/96, effective 9/20/96)

WAC 208-440-010   ((Credit union financial interest in commercial enterprise.)) Commercial arrangements with third parties. ((No credit union shall have any direct financial interest in a commercial enterprise by way of stock or other ownership interest in a commercial corporation, by way of partnership interest or participation in a joint venture in a general business enterprise or by way of exchanging money or services for a share of the proceeds of any commercial business enterprise except as provided below:

(1) Any credit union may make loans to commercial enterprises and investments in commercial enterprises to the extent permitted by statute;

(2) Any credit union may engage in the business of renting, leasing or subleasing portions of the land and building(s), in which the credit union carries on its business, to the extent that such land and buildings are not needed for credit union operations;

(3) The director may upon written application grant permission to a credit union to participate in a business enterprise not otherwise authorized by law or by this section, where the director is satisfied that the business enterprise is appropriate and adjunct to ordinary credit union operations and would not be contrary to law.)) (1) Credit unions may enter into arrangements with third parties in order for the third party or credit union to offer the third party's products and services to the credit union's members. These arrangements are referred to in this rule as commercial arrangements.

In connection with commercial arrangements, credit unions may:

  1. Allow third parties to offer products and services to members through the credit union;

  2. Endorse, directly or indirectly, products and services of a third party;

  3. Enter into group purchasing arrangements with third parties;

  4. Receive payment from third parties for participation in commercial arrangements; and

  5. Rent, lease or sublease portions of their land and buildings to third parties to offer products and services to members.

This list is not intended to be exhaustive.

As used in this rule, the term "third party" includes, but is not limited to, credit union service organizations.

  1. Before entering into any commercial arrangements, a credit union's board must adopt a written policy regarding such arrangements. At a minimum, the policy should provide for the:

  1. Evaluation of potential risk of liability; and

  2. Approval of each arrangement, whether by the board or management pursuant to established guidelines.

  1. Before entering into or renewing each commercial arrangement, a credit union must:

  1. Ensure that the arrangement is a prudent one and that it does not present safety and soundness risks to the credit union;

  2. Evaluate the potential risk of liability and ensure that the credit union takes appropriate precautions to reduce or offset such risk, including, but not limited to, the use of such devices as disclaimers/disclosures to members and bond or insurance coverage; and

  3. Ensure that the contract evidencing the arrangement includes provision for indemnification of the credit union by the third party.

  1. Credit unions must comply with applicable laws in entering into and carrying out commercial arrangements, including, but not limited to, any applicable federal or state law on privacy of member information.

  2. This section does not apply to situations where a credit union provides its own products or services to members.

REPEALER
The following sections of the Washington Administrative Code are repealed.

WAC 208-440-020

WAC 208-440-040

WAC 208-440-050

Endorsements of commercial products or services.

Use of credit union space to advertise commercial products and services.

Commercial programs offered to credit union members

 


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

October 30 , 2000
No. B-00-17

Rating Credit Union Earnings

The purpose of this Bulletin is to remind credit unions that the Division and NCUA rely on NCUA’s Letter to Credit Unions No. 161 when determining the CAMEL component for a credit union’s earnings. The following page sets forth the earnings matrix from Letter 161.

According to the matrix, a credit union with over $50 million in assets and a ROAA of 40 basis points should receive a "3" rating in earnings.

The Division will not vary from the matrix unless there is a compelling reason to do so.

Letter 161 may be found at: http://www.ncua.gov/ref/letters/e-let161.html

Letter 161 was last revised in December 1994. We expect the NCUA to revise Letter 161 in the near future to be consistent with the newly-adopted PCA rules. We are not aware whether the earnings portion of Letter 161 will change.

 

Letter 161 Earnings Matrix

Credit unions with assets of $2 million or less

ROAA 1 Rating>1.25% 3 Rating.4 - <.9%
ROAA 4 Rating.2 - <.4%  

Credit unions with assets of $2 - $10 million

ROAA 1 Rating>1% 3 Rating .35-<.8%
ROAA 4 Rating .15 - <.35%  

 

Credit unions with assets of $10 - $50 million
ROAA

1 Rating >1% 

3 Rating .35 - <.8%

ROAA

4 Rating.2 - <.35%

Credit unions with assets of $50 million or more

ROAA

1 Rating>1%

3 Rating.35 - <.8%

ROAA

4 Rating.2 - <.35%


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

October 31, 2000
No. B-00-18

Division Increases Maximum Size of SOG Groups
to 500 Persons

Under Division rules, state credit unions with an approved small occupational group (SOG) bylaw amendment may add SOGs that meet certain restrictions to their field of membership (FOM) without prior Division approval. See WAC 208-472-041. Among these restrictions is a size limit - each SOG may not exceed 100 persons, or a higher number authorized by the Division. The SOG provision was added to Division rules in 1996, and the initial 100-person maximum was increased to 200 in March 1999. See DCU Bulletin No. B-99-8.

In October 2000, the NCUA amended IRPS 99-1 to increase from 200 to 500 the maximum size of small occupational and associational groups that may be added by federally-chartered credit unions to their FOM under the NCUA's streamlined procedure, without regard to overlaps.

We believe that it is appropriate for state credit unions to be able to serve new groups of similar size using streamlined procedures. Consequently, the Division is increasing the maximum size of SOGs from 200 to 500 persons. This change takes effect as of the date of this Bulletin. No other restrictions on SOGs are affected.

However, the Division intends to begin a rule-making proceeding to consider changes to its SOG rule to make it more consistent with the NCUA rule. The Division will consider amending its SOG rule to allow credit unions to:

  1. Use the SOG procedure to add associational groups with up to 500 primary members; and
  2. Allow credit unions to add occupational and associational groups up to 500 persons without regard to overlaps.

As usual, the Division will notify credit unions when it begins the rule-making proceedings.

 


 

DCU BULLETIN

Division of Credit Unions
Washington State Department of Financial Institutions
Phone: (360) 902-8701 FAX: (360) 704-6901

November 1, 2000
No. B-00- 19

Division Begins Process to Amend Rules on
Small Occupational and Associational Groups

The Division recently filed a CR-101 form to begin the rule-making process to consider amendments to its SOG rule. The Division intends to consider changes to the rule to make it more consistent with recent changes to NCUA rules. Enclosed is a copy of the CR-101.

The Division will consider amending its SOG rule to allow credit unions to use the SOG procedure to add occupational and associational groups with up to 500 primary members, without regard to overlaps.

We encourage you to submit comments on the changes to the rule. We are particularly interested in suggestions on how the rule may be made less burdensome for small credit unions. You may forward your comments to:

Parker Cann Phone:
Director of Credit Unions
PO Box 41200
Olympia, WA 98504-1200

(360) 902-8778
Fax: (360) 704-6978
E-mail: pcann@dfi.wa.gov

 

PREPROPOSAL STATEMENT OF INQUIRY

CR-101 (710/97)

Do NOT use for expedited repeal or adoption

(RCW 34.05.310)

Agency: Department of Financial Institutions
Subject of possible rule making: Small occupational and associational groups, up to 500 persons; amendment of WAC 208-472-041; parity with federal credit unions.
(a) Statutes authorizing the agency to adopt rules on this subject: RCW 31.12.516(2); 43.320.040; 31.12.382
(b) Reasons why rules on this subject may be needed and what they might accomplish:
To provide parity with federal credit unions.
(c) Identify other federal and state agencies that regulate this subject and the process coordinating the rule with these agencies: None.
(d) Process for developing new rule (check all that apply):

p Negotiated rule making
p Pilot rule making
p Agency study
x Other (describe) The Division solicits input from credit unions and related parties.

(e)  How interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication: (List names, addresses, telephone, fax numbers of persons to contact; describe meetings, other exchanges of information, etc.)

Interested parties should provide input on the rule to:

Parker Cann, Director of Credit Unions             Ph.: 360-902-8778
210 11th St. SW Room 300                                  Fax: 360-704-8778
PO Box 41200                                                         E-mail: pcann@dfi.wa.gov
Olympia, WA 98504-1200

 

 

code reviser use only

NAME (TYPE OR PRINT)
John L. Bley
SIGNATURE
TITLE                                                         DATE
Director

 

RULE-MAKING ORDER

(RCW 34.05.360)

 

CR-103 (7/10/97) 

Agency: Department of Financial Institutions

x Permanent Rule
p Emergency Rule
p Expedited Adoption
p Expedited Repeal

(1) Date of adoption: 10-26-00
(2) Purpose: The current rules are outdated and overly restrictive. They impede credit unions’ ability to serve members by unnecessarily restricting credit unions’ authority to enter into prudent commercial arrangements with third parties to provide products and services to members.

The proposed rules amend Chapter 208-440 WAC and extensively revise the regulatory approach to commercial arrangements. The rules recognize that credit unions may enter into prudent commercial arrangements with third parties in order for the third party to directly or indirectly offer products and services to the credit union’s members. The rules also place the burden on credit union boards and management to evaluate and manage the risk involved, through policies, and through devices such as insurance and indemnification.

(3) Citation of existing rules affected by this order:

Repealed: WAC 208-440-020, -040, -050
Amended: WAC 208-440-010
Suspended:

(4) Statutory authority for adoption:      RCW 31.12.516(2),43.320.040
          
Other Authority:
PERMANENT RULE ONLY (Including EXPEDITED ADOPTION)
Adopted under notice filed as WSR 00-13-041 on June 14, 2000.

Describe any changes other than editing from proposed to adopted version: Wording was added to subsection (1) to clarify that credit unions may lease out unused space and engage in group purchasing activities in order to provide third parties’ products and services to members.

A new subsection (5) was added to clarify that the rule does not apply to situations where a credit union offers its own products and services to members.

The changes were not intended to change the substantive effect of the section. The changes were in response to comments and are intended to provide more detail for clarification. 

EMERGENCY RULE ONLY
Under RCW 34.05.350 the agency for good cause finds:

f (a) That immediate adoption, amendment, or repeal of a rule is necessary for the preservation of the public health, safety, or general welfare, and that observing the time requirements of notice and opportunity to comment upon adoption of a permanent rule would be contrary to the public interest.

f (b) That state or federal law or federal rule or a federal deadline for state receipt of federal funds requires immediate adoption of a rule.

Reasons for this finding:                

EXPEDITED REPEAL ONLY
Under Preproposal Statement of Inquiry filed as WSR         on           (date)
(5.3) Any other findings required by other provisions of law as precondition to adoption or effectiveness of rule?:

p Yes      x No     If Yes, explain:               

 

(6) Effective date of rule:
Permanent Rules
or Expedited Repeal

x 31 days after filing

p Other (specify) *

 

Emergency Rules

p Immediately

p Later (specify)             

CODE REVISER USE ONLY

 

 

 

 

*(If less than 31 days after filing, specific
finding in 5.3 under RCW 34.05.380(3) is required)
Name (Type or Print)
John L. Bley
Signature
 
Title
Date
Director