Washington State Department of Financial Institutions

DIVISION OF CREDIT UNIONS

BULLETINS 2001

Part C-Bulletins 01-11 to 01-15

 

DCU Bulletin

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

PART D-BULLETINS 16-01 TO CURRENT

May 30, 2001
No. B-01-11

Information Systems and Technology
 Exams
Beginning July 2, 2001

Results of Initial Exams

As reported in Bulletin B-01-01, the Division conducted eight IS & T exams during the first four months of this year.  We solicited comments from the credit unions examined to aid us in structuring the IS & T exams from this point forward.

Those exams were conducted using the FFIEC Information Services rating system adapted to credit unions.  Attachment I provides a description of those ratings.  The distribution of ratings was: four “1” rated, three “2” rated, and one “3” rated credit union.  In general, most credit unions are working hard to provide all of the key elements of a sound information system (IS). 

However, we did find a number of areas of surprising weakness.  While there was no single weakness that was common to all eight credit unions, areas of weakness included: inadequate audit of IS functions, lack of board approval of IS policies and plans, inadequate system security or security reviews, and inadequate disaster recovery planning or testing.

Future IS & T Exams

On July 2, 2001, the Division will begin the IS & T exams for all credit unions.  Those exams will generally occur during the regularly scheduled safety and soundness exams.  However, our third party contractor, DHK Associates, will be conducting the IS & T portions of the exams.  We will be using the NCUA’s E-commerce and Electronic Data Processing Review Questionnaires as the starting point for the exams.  Those questionnaires may be found at http://www.ncua.gov/, under Information Systems & Technology, under Letters to Credit Unions. 

We will bill each credit union for the cost of each I S & T exam as permitted by WAC 208-418-070 (3).  We anticipate that most IS & T examinations will be completed in three to five days and that all credit unions will receive their first I S & T examination within the next eighteen months. 

The safety and soundness report will be modified to include a separate rating and findings comments for the IS & T efforts of each credit union.  The ratings reflected in Attachment I will continue to be used for this element of the exam.  While that rating will be reflected separately in the report, it will also be necessary to incorporate the effects of the IS & T rating into the Management component to maintain consistency with NCUA’s CAMEL ratings. 

The Division will generally be sending a first day Summary of Information request list for IS & T items to credit unions eight to ten weeks before the exam.  That request list has been abbreviated and adapted to be consistent with the NCUA E-commerce and Electronic Data Processing Review Questionnaires.  A copy of that list is included as Attachment II and is available on the Division web site at www.dfi.wa.gov/cu/

When the IS & T portion of the exam identifies areas of weakness, those items will generally be incorporated into the Items for Management Action page of the safety and soundness exam for CAMEL 1 and 2 rated credit unions and into Supervisory Agreements for 3, 4 or 5 rated credit unions. 

If you have questions about I S & T examinations, please call Mike Delimont at (360) 902-8790.


Attachment I

IS & T Composite Ratings

The composite rating can range from 1 through 5, with 1 representing the best and 5 the worst rating.  To arrive at the composite rating, the interrelationships and relative importance of the functions rated under the component category must be considered.  Occasionally there will be factors that are not reflected in any specific performance rating, but are important to the credit union’s overall condition.  They should be reflected in the organization’s final composite rating.  Each composite rating is described as follows:

IS & T Composite – 1

Credit unions in this group are sound in almost every respect.  If deficiencies are noted, they are minor and can be handled routinely and without further supervisory involvement. 

IS & T Composite – 2

Credit unions in this group are fundamentally sound, but may reflect modest weaknesses.  Deficiencies are generally corrected in the normal course of business.  Therefore, the need for supervisory response is usually limited.

IS & T Composite – 3

Credit unions in the group experience a combination of adverse factors that require timely corrective action.  Problems are well defined and require more than ordinary supervisory concern and monitoring.  The overall strength of management and supporting staff and the financial capacity of the data center is such as to make operation failure only a remote possibility.

IS & T Composite – 4

Credit unions in this group are operating under unacceptable conditions that could impair future viability.  A high potential for operational and/or financial failure is present.  Still weaknesses are not so severe as to threaten the immediate failure of the data center.  Immediate affirmative action and supervision by the regulator are necessary.

IS & T Composite – 5

Credit unions in this group exhibit a combination of weaknesses and adverse trends that are pronounced to a point that threatens the ultimate continuation of the operation.  Immediate affirmative action and continuous supervision, as required by the regulator, are necessary.

Components

IS & T components will not receive separate ratings.  The components that will be considered will include a general category, risk assessment, compliance and legal, audit and consulting services, vendor management, member service and support, personnel, systems architecture and controls, security controls, business continuity and performance monitoring.


Attachment II

Information Services & Technology (IS & T)

Summary of Information Request

Exam cutoff date: July 1, 2001
Previous examination date: Not Applicable
Projected examination start date: July 2, 2001

 

DFI takes steps to protect the confidentiality of personal information, to the extent permitted by law.  However, all information collected by DFI becomes a public record and may be subject to inspection and copying by the public, unless an exemption or other protection in law exists.  A copy of our privacy policy is available upon request.

General Directions

Reports and information should be prepared as of the exam cutoff date.  Management may wish to discuss individual credit union report options with the Examination Supervisor or the EIC examiner prior to the exam start.  If you cannot provide the documents or answers requested, please indicate why.  If a particular question is not applicable, simply indicate N/A.

Supporting Documentation

Some questions in the EC-1 questionnaire require supporting documentation in order to verify the response given.  For each of the major sections of the EC-1 questionnaire, examples of supporting documentation are listed below.  To the extent appropriate, please have this documentation available for the examiners.

Section 1. General:

1.1
Please complete the attached EC-1 Questionnaire

1.2
Provide all written policies and procedures that relate to information technology management, E-commerce, electronic delivery systems, and information technology security

1.3
Board packets for the most recent 12 months, including reports from the Supervisory Committee and any other committees involved in technology initiatives

1.4

  1. Credit Union organizational charts, including
  2. IT and E-Commerce departments

1.5
Copies of any strategic or business plans related to technology initiatives

Section 2.  Risk Assessment

2.1

  1. Risk Assessments of E-Commerce, Information Technology and related activities.
  2. Include any responses and evidence of corrective actions.

Section 3.  Compliance and Legal

3.1

  1. Legal opinions or
  2. other related correspondence from counsel related to E-Commerce.

3.2.

  1. Most recent insurance coverage review and
  2. recommendations performed by the bonding company, as well as a
  3. copy of the current bond policy.

Section 4.  Audit and Consulting Services

4.1.

  1. The resume and
  2. job description for the internal auditor

4.2.

  1. Audit standards,
  2. schedules and
  3. programs for IT and EC activities.

4.3.

  1. Internal and
  2. external audit reports issued within the past eighteen months,
  3. including management responses and evidence of corrective actions.

4.4 Copies of any

  1. internal or
  2. external reports related to penetration testing and intrusion detection.

Section 5.  Vendor Management

5.1
Audit reports (e.g. SAS70) from vendors of core business systems, including all E-Commerce systems.

5.2
Evidence of the financial stability of primary IT/EC vendors.

5.3
Vendor contracts and service agreements.

5.4
Outline participation in user groups, advisory councils, etc.

5.5
Performance reports and logs of member service calls

Section 6.  Member Service and Support

6.1
Incident reporting logs and reports.

6.2
Member help documentation for E-Commerce applications.

Section 7. Personnel

7.1.

  1. Training plans and
  2. profiles for IT personnel

7.2.
Certification and other professional credentials possessed by staff

7.3.

  1. Employee development plans and
  2. succession plans

Section 8.  System Architecture and Controls

8.1
Network Topology Diagram (Do not include actual IP addresses)

8.2
Hardware and Software inventory (Do not include individual Workstations)

Section 9.  Security Controls

9.1
Inventory of Security hardware and software, including firewalls, intrusion detection, user access controls, encryption devices, secure modems, user authentication components, virus protection software, etc.

9.2
Copies of recent reports related to authentication and intrusion detection.

9.3
Access control logs showing addition, changes and deletion of user privileges, including evidence of periodic management review

9.4
Description of physical security controls for IT hardware and software.

9.5
Evidence of updates to virus protection and intrusion detection applications.

Section 10.  Business Continuity

10.1
Copy of the Disaster Recovery and/or Business Continuity Plan.

10.2
Copies of reports related to tests of the Disaster Recovery/Business Continuity plans done within last 18 months.

10.3
List of the backup tapes, disks, documentation, supplies, etc. kept at your off-premises storage facility.

10.4
Copies of Disaster Recovery Plans and agreements with Service Providers.

Section 11.  Performance Monitoring

11.1
Reports related to E-Commerce usage and activity levels.

11.2
Member feedback regarding E-Commerce applications.


 

DCU Bulletin

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

June 1, 2001
No. B-01-12

Division Adopts Final Rule
Increasing Assessment and Fee Rates

On May 23, the Division finalized its rule increasing the rate of assessments and fees paid to the Division by credit unions and other persons.  We have attached a copy of the CR-103 that we filed with the Code Reviser for this purpose.  The CR-103 includes a copy of the final version of the rule.  The rule takes effect on June 23, 2001

Summary of final rule

The rule:

On June 23, 2001, increases the rate of the Division’s assessments and hourly fees by 2.87%, the fiscal growth factor for fiscal year 2001 (July 1, 2000 to June 30, 2001).  These increases are reflected in the figures in Section 208-418-010(2) and –040(2).  Refer to Appendix A to this Bulletin.

On July 1, 2001, increases the rate of assessments and hourly fees by 2.79% (the amount of the fiscal growth factor for fiscal year 2002).  See Section 208-418-090(1).  Refer to Appendix B to this Bulletin.

On July 1, 2002, increases the rate of assessments and hourly fees by the amount of the fiscal growth factor for fiscal year 2003 (currently estimated at 2.98%.)  See Section 208-418-090(1).  Refer to Appendix C to this Bulletin. 

Expresses the Division’s intent to increase the rate of assessments and fees over several bienniums.  See Section 208-418-090.

Provides that the Director may waive any assessment or fee, under certain conditions.

Creates a new definitional section for the Chapter.  See Section 208-418-010 WAC.

Confirms that the Division may charge hourly fees rather than asset assessments to out-of-state and foreign credit unions that operate a branch in Washington.  See 208-418-040(4).

Makes clarifying wording changes. See Section 208-418-020, -040(1), (3), (4); 208-418-050; 208-418-070.

Repeals Section 208-418-060 (“One-time special assessment for fiscal 1997”).

Contact person at the Division on the rule: 

Parker Cann, Director of Credit Unions
(360) 902-8778
pcann@dfi.wa.gov


Appendix A

DCU Assessment and Fee Rates

June 23, 2001 through June 30, 2001

A. Hourly fee:  $57.42

B. Asset assessments:

Credit Union’s
Total Assets

Quarterly
Asset Assessment

over $500M

$18,883 + .00001543 x total assets over $500M

over $100M up to $500M

$5,250 + .00003408 x total assets over $100M

over $25M up to $100M

.00005250 x total assets

over $10M up to $25M

$1,157

over $2M up to $10M

$771

over $500K up to $2M

$514

up to $500K

$0

M = Million
K = Thousand

 


Appendix B

DCU Assessment and Fee Rates
July 1, 2001 through June 30, 2002

A. Hourly fee:  $59.02
B. Asset assessments:

 

Credit Union’s
Total Assets

Quarterly
Asset Assessment

over $500M

$19,409 + .00001586 x total assets over $500M

over $100M up to $500M

$5,396 + .00003503 x total assets over $100M

over $25M up to $100M

.00005396 x total assets

over $10M up to $25M

$1,189

over $2M up to $10M

$792

over $500K up to $2M

$528

up to $500K

$0

M = Million
K = Thousand

 

Apendix C

ESTIMATED DCU Assessment and Fee Rates
Beginning July 1, 2002

A. Hourly fee: $60.78
B. Asset assessments:

 

Credit Union’s
Total Assets

Quarterly
Asset Assessment

over $500M

$19,987 + .00001633 x total assets over $500M

over $100M up to $500M

$5,556 + .00003607 x total assets over $100M

over $25M up to $100M

.00005556 x total assets

over $10M up to $25M

$1,224

over $2M up to $10M

$815

over $500K up to $2M

$543

up to $500K

$0

M = Million
K = Thousand

 

RULE-MAKING ORDER(RCW 34.05.360)

CR-103 (12/31/00)

Agency:   Department of Financial Institutions

  x Permanent Rule

  p Emergency Rule

(1)   Date of adoption:   May 23, 2001

  p Expedited Repeal

(2)   Purpose:   To increase assessments and fees paid by credit unions and other parties to the Division of Credit Unions

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

 Repealed:  WAC 208-418-060
 Amended:   WAC 208-418-020, -040, -050, -070
Suspended:

(4) Statutory authority for adoption: RCW 31.12.426(1), RCW 31.12.516(2), RCW 43.320.040

          Other Authority:                 

PERMANENT RULE ONLY (Including EXPEDITED ADOPTION

Adopted under notice filed as WSR  01-07-082   on March 21, 2001.

Describe any changes other than editing from proposed to adopted version:  Based on comments received, the Division changed the rule in its final version to limit to two the number of automatic annual increases in the rate of assessments/fees: one on July 1, 2001, and one on July 1, 2002. 

EMERGENCY RULE ONLY

Under RCW 34.05.350 the agency for good cause finds:

p    (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.

          p (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               

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
Director

Date
May 1, 2001

 

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: New 0 Amended 0 Repealed 0
Federal rules or standards: New 0 Amended 0 Repealed 0
Recently enacted state statutes: New 0 Amended 0 Repealed 0
The number of sections adopted at the request of nongovernmental entity:
New 0 Amended 0 Repealed 0
The number of sections adopted on the agency’s own initiative:
New 3 Amended 4 Repealed 1
The number of sections adopted in order to clarify, streamline, or reform agency procedures:
New 0 Amended 0 Repealed 0
The number of sections adopted using:
Negotiated rule making: New 0 Amended 0 Repealed 0
Pilot rule making: New 0 Amended 0 Repealed 0
Other alternative rule making: New 0 Amended 0 Repealed 0

DCU Bulletin

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

September 19, 2001
No. B-01-13

Division Issues Summary of 2001 Bill (HB 1366)
Amending Washington State Credit Union Act and
Washington State Corporate Credit Union Act

HB 1366, effective July 22, 2001, revised the Washington State Credit Union Act, Chapter 31.12 RCW, and the Washington State Corporate Credit Union Act, Chapter 31.13 RCW.  Enclosed is a copy of our summary of the primary revisions made by HB 1366 and a copy of HB 1366.

DCU Summary of

HB 1366 (Chapter 83, Laws of 2001), amending
Washington State Credit Union Act,
Chapter 31.12 RCW,
and
Washington State Corporate Credit Union Act,
Chapter 31.13 RCW

Effective July 22, 2001
DCU Opinion No. O-01-7
Dated September 19, 2001
Prepared by Parker Cann, Director of Credit Unions

 

Table of Contents

Definitions

Branch…………………………………………………4
Business loan…………………………………………5
Capital
Consumer loan
CUSO
Membership share
Net worth
Operating officer
Out-of-state credit union
Senior operating officer (new term)
Small credit unions (new term)..……………….......6

Corporate Governance

Bylaw requirements…...……………………………7
Articles of incorporation of new credit union
Amendments to Articles
Amendments to Bylaws
Board vacancies
Regular board meetings
Automatic termination of director for absence
Notice of automatic termination of director
Operating officers and employees on board………………..8
Board duties – deletion of unnecessary wording
Board duties - budgets
Board duties – delegation of duties
Fiduciary duties of officers
Automatic termination of Supervisory Committee members for absence
Notice of automatic termination of Supervisory Committee member
Qualifications for Supervisory Committee members
Supervisory Committee chair
Vacancies on Supervisory Committee……………………...9
Frequency of Supervisory Committee meetings
Supervisory Committee duties
Director compensation
Loans to Supervisory and Credit Committee members
Bond and insurance requirements

Powers of Credit Unions

Power of credit unions to sell insurance…………………10
Dormant account determination
Parity powers
Low-income credit unions

Loans

Loan rules……………………………………………………11
Preference for consumer loans
Loans-to-one-borrower limit

Investments

Limit on investments-to funds in excess of loans        12
CUSO investments/loans

Mergers, Conversions, and Voluntary Liquidations

Discharge of debts in a merger of Washington Credit Unions        13
Effective date of mergers of Washington Credit UnionsMergers of Washington credit unions into federal, out-of-state or foreign credit unionsMergers of out-of-state, federal or foreign credit unions into Washington credit unions Foreign and out-of-state credit unions operating a branch in Washington Requirements for foreign and out-of-state credit unions to operate a branch in Washington

FOM and deposit insurance requirements for foreign and out-of-state credit unions
     operating a branch in Washington

Fee authority for out-of-state and foreign credit unions        14
Member approval of voluntary liquidation

Examination and Supervision

WCUSGA references…...……………………………………15
Director’s authority to require compliance
Regulatory relief for small credit unions
Requirements for non-federally insured credit unions
Fee authority
Director’s access to records and authority to revalue investments
Director’s authority to require reserves or require charge-offs
Director’s authority to examine and investigate certain parties
Director’s access to books and records of out-of-state and foreign credit unions, and certain other parties Director’s authority to administer oaths and issue subpoenas….16

Reports
Compliance with GAAP
Notice of intent to operate branch
Director’s removal authority
Enforcement hearings
Cease and desist (C&D) orders
Temporary C&D orders
Notice of permanent order
Credit union action to enjoin temporary order
Director action to enjoin violation of temporary order….…17

Application of APA

Other

Corporate credit unions…….………………………………….18
Repealers
Decodification of RCW 31.13.900……..…………………..19
Severability provision

 

DCU Summary of
HB 1366 (Chapter 83, Laws of 2001)

Effective July 22, 2001

DCU’s 2001 Departmental Request bill, HB 1366, took effect on July 22, 2001.  The following is a summary of the significant revisions of the bill, identified by page and line number.  A copy of the bill is also enclosed for your convenience.

Please note that the bill did not revise every section of the Credit Union Act, Chapter 31.12 RCW. 

If you have questions about the provisions of the bill, please feel free to contact Parker Cann at the Division, at (360) 902-8778 or pcann@dfi.wa.gov.

Summary

Definitions

Page 2; lines 1-17:  The definition of “branch.”

We intended the changes to clarify, rather than change, the definition of “branch.”  A credit union’s facility is not a branch unless it meets all three criteria set forth in subsection (3)(a), (b) and (c). 

For example, an office or facility of Credit Union A is not a “branch” of Credit Union A unless all three of the following criteria are satisfied:

  1. The facility is a staffed, physical facility.  This rules out the Internet, the mail and the phone system as somehow constituting a branch.  However, this criterion is satisfied whether or not the staff at the facility is staff of Credit Union A.
  2. The facility is owned or leased in whole or in part by Credit Union A or its CUSO.  An accommodation arrangement or other sharing arrangement between Credit Union A and another credit union to take deposits or allow withdrawals for Credit Union A’s members at the other credit union’s office or facility does not satisfy this criterion, unless Credit Union A or its CUSO leases the facility, in whole or in part.
  3. Deposits and withdrawals may be made to/from Credit Union A, or shares purchased from Credit Union A, through staff at the facility.  This rules out ATMs and other facilities where loans are originated but no deposit or share business is done in person.  However, this criterion is satisfied whether or not the staff at the facility is staff of Credit Union A. 

Page 2; lines 18-19:  The definition of “business loan.”

The definition is no longer needed – the term is defined by Division rules.  See WAC 208-460-010 (revised effective June 1, 2001).

Page 2; lines 21-23:  The definition of “capital.”

The allowance is actually for loan and lease losses, and the changes reflect this fact. 

The definition of capital has been amended to include other Director-approved forms of capital.  However, until the National Credit Union Administration (NCUA) amends its Prompt Corrective Action (PCA) rules to include other forms of capital in the definition of net worth, such other forms of capital will not count as net worth for PCA purposes.

Page 2; lines 24-25:  The definition of “consumer loan.”

The definition is no longer needed because the term has been deleted from Chapter 31.12 by the bill.

Page 2; line 31:  The definition of “CUSO.”

For completeness, the changes add credit union service organizations (CUSOs) of foreign credit unions to the definition of a CUSO.

Page 3; lines 30-31:  The definition of “membership share.”

The changes clarify the definition to reflect that credit union members are not required by statute to purchase a membership share.

Page 3; line 33:  The definition of “net worth.”

The changes conform to the term used in the Federal Credit Union Act (FCUA) – “net worth.”

Page 3; lines 35-36:  The definition of “operating officer.”

The changes clarify the definition of “operating officer.”

Page 4; line 6:  The definition of “out-of-state credit union.”

The changes clarify the definition to include credit unions operating under the laws of US possessions.

Page 4; lines 11-13:  A new defined term - “senior operating officer.”

The changes add this new definition.  The fiduciary duties of senior operating officers are recognized by Section 9 of the bill.

Page 4; lines 14-15:  A new defined term – “small credit unions.”

As defined, “small credit unions” are those with up to $10 million in assets.  Section 26(3) of the bill allows the Director to provide appropriate regulatory relief for small credit unions.

Corporate Governance

Page 5; line 11:  Bylaw requirements.

The changes delete the requirement that the bylaws address duties of board officers.  There is no compelling regulatory reason for such a requirement.  Credit unions may decide in their discretion whether to spell out such duties in their bylaws.  Of course, board officers will have duties normally associated with their office if they are not detailed in the bylaws.

Page 6; lines 6-9:  Articles of incorporation of new credit union.

The changes give the Director greater discretion to give start-up credit unions extensions of time to begin conducting business.

Page 6; lines 15-22:  Amendments to Articles.

The changes improve the organization of the section by moving a sentence up from the second subsection, and clarify that articles amendments take effect on filing by the secretary of state.

Page 6; lines 29-33:  Amendments to Bylaws.

The changes clarify the wording in regard to board approval of bylaw amendments other than field of membership amendments, consistent with the section on articles amendments (see Section 4 of the bill).

Page 7; lines 13-17:  Board vacancies.

The changes:

Page 7; lines 20-21:  Regular board meetings.

The changes clarify the meaning of the term “regular board meetings.”

Page 7; lines 27-32:  Automatic termination of director for absence.

The changes clarify the provision for automatic termination of a director.  Unless excused, a director shall no longer serve if he or she misses 4 regular meetings in a 12 month period during the director’s term, consistent with Division interpretation.  The changes are consistent with the section on supervisory committees (see Section 10 of the bill).

Page 7; lines 33-36:  Notice of automatic termination of director.

The changes provide that the board secretary is responsible to provide notice to a director whose term is automatically terminated because of absence.  The failure to provide notice does not affect termination.  The changes are consistent with the supervisory committee provision in Section 10 of the bill.

Page 8; lines 4-7:  Operating officers and employees on board.

The changes clarify that operating officers and employees cannot form a majority of the board, consistent with Division interpretation.

Page 8; lines 22-23:  Board duties – deletion of unnecessary wording.

The changes delete unnecessary wording about automated loan approval programs.  Of course, credit unions may still utilize automated loan approval programs.

Page 8; line 28:  Board duties - budgets.

The two terms used in the prior wording of the section, “budget” and “financial plan,” were intended to encompass the same thing.  “Budget” is the recognized term and should be used here.  The Division appreciates that adequate budgets may vary in complexity, depending on the nature of a credit union’s operation.

Page 8; line 34:  Board duties – delegation of duties.

The changes confirm that the board must carry out the duties listed in subsection (2) unless it has delegated them.

Page 9; lines 13 and 19:  Fiduciary duties of officers.

The changes provide that senior operating officers, not just board officers, have fiduciary responsibilities, consistent with the common law and Division interpretation.

Page 9; lines 30-34:  Automatic termination of Supervisory Committee members for absence.

The changes provide that supervisory committee members that miss over 1/3 of the committee meetings in a 12 month period during their term without being excused shall no longer serve on the committee.  This is an automatic termination, consistent with the section on director absences (see Section 7 of the bill). 

Page 9/lines 35-36 and page 10/lines 1-2:  Notice of automatic termination of Supervisory Committee member.

The supervisory committee is responsible to provide notice to a committee member whose term is terminated because of absence.  The failure to provide notice does not affect termination.  This is consistent with the section on director absences (see Section 7 of the bill).

Page 10; lines 3-6:  Qualifications for Supervisory Committee members.

The changes require supervisory committee members to be natural persons and members of the credit union, consistent with the section on directors (see Section 7 of the bill).

Page 10; lines 7-8:  Supervisory Committee chair.

The changes provide that the chair of the supervisory committee cannot serve as an officer of the board, in order to eliminate this type of conflict of interest.

Page 10; lines 11-13:  Vacancies on Supervisory Committee.

The changes provide that interim supervisory committee members appointed to fill a vacancy created by expansion of the committee may serve until the next annual meeting, consistent with the section on director vacancies (see Section 6 of the bill).

Page 10; line 28:  Frequency of Supervisory Committee meetings.

The changes delete unnecessary wording that the supervisory committee will meet as often as necessary.

Page 10; lines 31-34:  Supervisory Committee duties.

The changes make the section consistent with preemptive NCUA rules on supervisory committee duties.

Page 11; line 9-11:  Director compensation.

The changes improve the organization of the section and confirm Division interpretation that credit unions may provide insurance coverage for directors if the coverage is available to employees generally. 

Page 11; line 16:  Loans to Supervisory and Credit Committee members.

The changes limit the reach of these conflict of interest provisions, requiring loans to directors and supervisory and credit committee members to be on no more favorable terms and conditions than loans to members generally, consistent with Division rules at WAC 208-444-030.

Page 11; lines 21-29:  Bond and insurance requirements.

The changes make the section consistent with preemptive NCUA insurance rules on bond coverage. 

Powers of Credit Unions

Page 13; lines 1-8:  Power of credit unions to sell insurance.

The changes allow credit unions to sell additional types of insurance to their members, if other state-chartered institutions can do so, subject to the same regulatory requirements.  For example, see FDIC rules at 12 C.F.R. Part 343.

Page 13; line 11:  Dormant account determination.

The changes eliminate the requirement that the board make the dormancy determination.  There is no compelling regulatory reason for such a requirement.  Credit union boards may decide in their discretion whether the board or an officer or employee should set policy on dormancy. 

Page 13; lines 34-37 and page 14/lines1-19:  Parity powers.

The changes:

 

Page 14/lines 29-37 and page 15/lines 1-19:  Low-income credit unions.

This new section 16 provides for the designation of low-income credit unions, subject to rules of the Director.  The Section 16 criteria for such designation are less onerous than the NCUA criteria for such designation.  Section 16 provides incentives for credit unions to seek such a designation – the ability to issue secondary capital, for example.

Loans

Page 15; line 26:  Loan rules.

The changes make it clear that all loans, whether consumer or business loans, may be subject to rules of the Director.  At the present time, the Director has adopted rules on member business loans (see Chapter 208-460 WAC), but has not adopted rules generally on other types of loans.

Page 15; lines 31-34:  Preference for consumer loans.

The changes eliminate the preference for consumer loans and small consumer loans.  It was not clear how the preference should be applied.

Page 16; lines 2-3:  Loans-to-one-borrower limit.

The changes clarify the wording of the section – the loans-to-one-borrower limit applies to all types of loans.

Investments

Page 16; line 11:  Limit on investments-to funds in excess of loans.

The changes eliminate ambiguous wording that limits investments to funds “in excess of loans.”  It was not clear how the quoted phrase should be applied.

Page 17; lines 7-25:  CUSO investments/loans.

The changes:

  • Clarify that the investment/loan limit applies to the aggregate of investments in/loans to all CUSOs by a credit union.
  • Clarify that the primary purpose of a CUSO must be to serve the CU industry or CU members.

Mergers, Conversions, and Voluntary Liquidations

Page 19; lines 5-7  Discharge of debts in a merger of Washington credit unions.

The changes clarify the discharge of debts in a merger of Washington credit unions.

Page 19; lines 11-15:  Effective date of mergers of Washington credit unions.

Consistent with Division interpretation, the changes establish that when two Washington credit unions merge, the merger will be considered legally effective when:

Similar effective date provisions were added to Sections 22 and 23 of the bill, regarding:

Page 19; lines 18-35:  Mergers of Washington credit unions into federal, out-of-state, or foreign credit unions.

The changes expand the section to cover Washington credit union mergers into federal, out-of-state, or foreign credit unions.  The changes require the board secretary, rather than the board itself, to certify member approval of the transaction.

Page 20; lines 14-19:  Mergers of out-of-state, federal or foreign credit unions into Washington credit unions.   

The changes expand the section to cover mergers where an out-of-state, federal or foreign credit union is merging into a Washington credit union. 

Page 21; lines 5-6:  Foreign and out-of-state credit unions operating a branch in Washington.

The changes eliminate confusion between a foreign or out-of-state credit union “doing business” and “operating a branch” here and make it clear that the trigger for requiring prior Director approval is “operating a branch” in Washington.

Page 21; lines 9-37:  Requirements for foreign and out-of-state credit unions to operate a branch in Washington.

The changes delete “applicant” and substitute “credit union,” because some of the requirements apply on an ongoing basis, not just at the time of application.

Page 21; lines 26-30:  FOM and deposit insurance requirements for foreign and out-of-state credit unions operating a branch in Washington.

The changes confirm that out-of-state and foreign credit unions that operate a branch here are subject to:

Page 22; lines 32-34:  Fee authority for out-of-state and foreign credit unions.

The wording is deleted because all of the Director’s fee authority is consolidated in Section 26 of the bill.

Page 22; line 37:  Member approval of voluntary liquidation.

The changes correct the error – the reference should be to a member meeting, not a board meeting.

Examination and Supervision

Page 24; lines 2, 12, 21 and 30:  WCUSGA references.

The changes delete reference to Chapter 31.12A, the WCUSGA Chapter that was repealed on December 31, 2000.

Page 24; lines 4-7:  Director’s authority to require compliance.

The changes eliminate the mandate that the Director require credit unions to comply with applicable laws outside Chapter 31.12. 

Page 24; lines 15-18:  Regulatory relief for small credit unions.

The changes allow the Director to provide regulatory relief for small credit unions.

Page 24; lines 23-27:  Requirements for non-federally insured credit unions.

The changes require nonfederally insured credit unions to comply with safety and soundness requirements of the Director. 

Page 24; lines 29-31:  Fee authority.

The changes clarify that the Director may charge fees to persons that may be examined or investigated by the Division (which includes EDP providers), and to parties that the Division contracts its services to (such as other Divisions or other agencies).

Page 25; lines 5-10:  Director’s access to records and authority to revalue investments.
The changes allow the Director access to credit unions’ records, and allow the Director to revalue a credit union’s investments.  These changes are consistent with the state thrift and bank statutes. 

Page 25; lines 11-12:  Director’s authority to require reserves or require charge-offs.

The changes authorize the Director to require credit unions to charge off or set up a special reserve for loans and investments.  The wording is brought over from RCW 31.12.448 (repealed by Section 38 of the bill). Note:  The Division does not view this Section as an exhaustive list of the Director’s powers to appraise or revalue, or require write-offs or reserves for, assets.
 

Page 25; lines 13-30:  Director’s authority to examine and investigate certain parties.

The changes allow the Director to examine and investigate certain credit union-affiliated parties, including EDP providers, as well as out-of-state and foreign credit unions permitted to operate a branch here.

Page 25; lines 31-33:  Director’s access to books and records of out-of-state and foreign credit unions, and certain other parties.

The changes allow the Director access to the records of out-of-state and foreign credit unions, and certain credit union-affiliated parties.

Page 25; lines 34-38 and page 26/lines 1-4:  Director’s authority to administer oaths and issue subpoenas.

The changes allow the Director to administer oaths, issue subpoenas, and require the production of documents.  The changes are consistent with the state thrift and bank statutes.

Page 28; lines 16-24:  Reports.

The changes conform with practice – credit unions must file NCUA-required call reports with the Division.

Page 28; line 28:  Compliance with GAAP.

The changes conform to the law - preemptive federal law requires credit unions with at least $10 million in assets to comply with GAAP requirements.

Page 28; lines 35-36:  Notice of intent to operate branch.

The changes limit the branch notice requirement to instances where the credit union intends to operate a branch in another state or foreign jurisdiction.

Page 29; lines 5-9:  Director’s removal authority.

The changes clarify that the Director may remove an officer or employee from employment, and allow the Director to prohibit a person from participating in the affairs of any credit union.  This enforcement authority is consistent with authority of other state and federal regulators.  See, e.g., 12 U.S.C. 1786(g) (NCUA authority).

Page 29; lines 20-38 and page 30/lines 1-2:  Enforcement hearings.

Certain subsections have been deleted in this and following sections to avoid inconsistency with the State Administrative Procedure Act, Chapter 34.05 RCW (APA).  See page 30, lines 11-34; page 31, lines 16-21; page 32, lines 8-39; and page 33, lines 1-7.  Another section of the bill (Section 35) makes it clear that the agency’s enforcement hearings are governed by the APA. 

Page 30; lines 34-38:  Cease and desist (C&D) orders.

The new wording is brought over from the last sentence of the deleted subsection (2) of this section.

Page 31; lines 5-11:  Temporary C&D orders.

The changes clarify the nature of a temporary cease and desist order – that an order may require a credit union to do or not do something.

Page 31; lines 12-14:  Notice of permanent order.

The changes clarify that the agency will serve notice of charges for a permanent cease and desist order at the same time it serves a temporary order.

Page 31; lines 23-28:  Credit union action to enjoin temporary order.

The new wording is brought over from RCW 31.12.605 (repealed by Section 38 of the bill).

Page 31; lines 29-34:  Director action to enjoin violation of temporary order.

The new wording is brought over from RCW 31.12.615 (repealed by Section 38 of the bill).

Page 31/lines 37-38 and page 32/lines 1-5:  Application of APA.

The changes clarify that the agency’s enforcement hearings are governed by the APA, except to the extent that Chapter 31.12 provides otherwise.

Other

Page 33/lines 10-37 and page 34/lines 1-31:  Corporate credit unions.

Chapter 31.13 RCW governs Washington State-chartered corporate credit unions.  There are currently no Washington State-chartered corporate credit unions. 

Chapter 31.13 is very outdated.  Sections 36 and 37 of the bill extensively revise two sections of the corporate Chapter.  As amended, these sections permit the organization of a Washington corporate with the same powers as federal corporates and Kansas State corporates.  The largest corporate in the nation is chartered by the State of Kansas, and Kansas State law provides detailed corporate credit union regulation.  Section 39 of the bill repeals the remaining three sections of the Corporate Chapter.

Page 34; lines 34-35:  Repeal of RCW 31.12.275.

RCW 31.12.275 provides that the board may remove board officers and committee members (other than supervisory committee members) only for cause.  Because these officers and committee members are appointed by the board without a member vote, the “for cause” requirement is not appropriate.  With the repeal, boards can make the determination to remove such officers and committee members as they see fit. 

Page 34; lines 36-37:  Repeal of RCW 31.12.407.

RCW 31.12.407 (Chapter 5, Section 5, Laws of 1996) requires credit unions to have federal insurance before December 31, 1998.  After December 31, 1998, credit unions were required to have federal insurance or alternative insurance approved by the Director.  See RCW 31.12.408.  Consequently, RCW 31.12.407 is no longer effective and is repealed.

Page 35; lines 1-2:  Repeal of RCW 31.12.445.

RCW 31.12.445 is deleted because the concept is addressed in Section 26 of the bill.

Page 35; lines 3-4:  Repeal of RCW 31.12.448.

RCW 31.12.448 is repealed because:

Page 35; lines 5-6:  Repeal of RCW 31.12.555.

RCW 31.12.555 is repealed because the substance of the section is moved to Section 27(3) of the bill. 

Page 35; lines 7-9:  Repeal of RCW 31.12.605.

RCW 31.12.605 is repealed because the wording of the section is moved to Section 34(4) of the bill.

Page 35; lines 10-11:  Repeal of RCW 31.12.615.

RCW 31.12.615 is repealed because the wording of the section is moved to Section 34(5) of the bill.

Page 35; lines 12-13:  Repeal of RCW 31.12.627.

RCW 31.12.627 is repealed to make it clear that these matters are governed by the APA.

Page 35; lines 16-20:  Repeal of RCW 31.13.030, .040, .050.

These three outdated corporate credit union sections are repealed.

Page 35; line 21:  Decodification of RCW 31.13.900.

RCW 31.13.900 is a severability provision from a 1977 bill, and is decodified.

Page 35; lines 22-25:  Severability provision.

Standard severability provision.

Opinion index heading:  Miscellaneous

Opinion index and list descriptor:  Summary of HB 1366 (Chapter 83, Laws of 2001), Effective July 22, 2001


 

DCU Bulletin

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

September 27, 2001
No. B-01-14

Regulatory Developments Resulting From
 the September 11 Terrorist Attacks

Office of Foreign Asset Control

The Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers based on U.S. Foreign policy and national security goals.  On September 24, 2001, the President issued a new Executive Order targeting terrorists and a number of new names have been added to OFAC’s SDN List under the Order.  Their assets need to be blocked and immediate notice given to OFAC.  Credit unions should call OFAC’s Hotline at (202) 622-2490 to report any hits or if you have questions.  Additional information can be found at www.treas.gov/ofac

FBI Search Request

The FBI requests all domestic and foreign banking organizations operating in the United States, including credit unions, to check their records for any relationships or transactions connected with the World Trade Center and Pentagon attacks.  Credit unions are requested to file Suspicious Activity Reports if pertinent information is found.  See NCUA Letter to Credit Unions, 01-CU-15.

Soldiers’ and Sailors’ Civil Relief Act

The President also activated military reserves in the wake of the September 11, 2001 terrorist attacks.  Financial institutions may receive inquiries about the Soldiers’ and Sailors’ Civil Relief Act, which provides for interest rate caps and other protections for active duty military members, reservists, and National Guardsmen who are in active service.  Additional information is available at:  http://usmilitary.about.com/library/milinfo/sscra/blsscra.htm

Federal Banking Agencies Interagency Statement

The federal banking agencies have issued a joint interagency statement dated September 14, 2001 regarding temporary balance sheet growth in the aftermath of the September 11 events.  Credit unions should advise the Division if significant balance sheet changes occur.  The interagency statement is available at:  www.occ.treas.gov (2001 News Releases/Joint Interagency Statement).

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


DCU Bulletin

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

September 28, 2001  
No. B-01-15

Division Begins Process to Amend Rules on Small Credit Unions and on Field of Membership

The Division recently filed two CR-101 forms to begin the rule-making process to amend its rules in two areas:

  1. To provide regulatory relief for small credit unions, in accordance with Section 26(3) of the Division’s recently-enacted Departmental Request bill.
  2. To update and streamline the regulatory review process for the addition of field of membership groups.

Enclosed are copies of the two CR-101 forms. 

We encourage you to submit comments on these rule concepts, and on the proposed rule when it is published.  You may forward your comments to:
 

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

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

 


PREPROPOSAL STATEMENT OF INQUIRY

(RCW 34.05.310)

CR-101 (7/22/01)

Do NOT use for expedited rule making

Agency:   Department of Financial Institutions

Subject of possible rule making: Field of membership

(a) Statutes authorizing the agency to adopt rules on this subject: RCW 31.12.382; 31.12.516(2),(4); 43.320.040

(b) Reasons why rules on this subject may be needed and what they might accomplish:

To update and streamline the regulatory review process for addition of field of membership groups.

(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):

Negotiated rule making
Pilot rule making
Agency study
Other (describe) Consultation with credit unions.

(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
210 11th St. SW  Room 300
PO Box 41200
Olympia, WA 98504-1200

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

 

CODE REVISER USE ONLY

 

NAME (TYPE OR PRINT)

John L. Bley

SIGNATURE

TITLE

Director

DATE

 

PREPROPOSAL STATEMENT OF INQUIRY
(RCW 34.05.310)

CR-101 (7/22/01)

Do NOT use for expedited rule making

Agency: Department of Financial Institutions
Subject of possible rule making: Small credit unions
(a) Statutes authorizing the agency to adopt rules on this subject: RCW 31.12.516(2),(3),(4); 43.320.040
(b) Reasons why rules on this subject may be needed and what they might accomplish:

To implement Section 26(3), Chapter 83, Washington Laws of 2001, to provide appropriate regulatory relief for small 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):

Negotiated rule making
 Pilot rule making
 Agency study
Other (describe) Consultation with credit unions.

(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
211 11th St. SW  Room 300 PO Box 41200
Olympia, WA 98504-1200

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

CODE REVISER USE ONLY

 

 

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

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