Washington State Department of Financial Institutions

DIVISION OF CREDIT UNIONS

OPINION LETTERS 2000

 

DCU Opinion Number 00-1

Date: March 31, 2000

From: Parker Cann, Director

Subject: "Spouses" as Used in RCW 31.12.365(2) includes Spousal Equivalents such as Domestic Partners

Issue

The question has arisen whether the term "spouses" as used in RCW 31.12.365(2) is limited to individuals that are legally married or whether it also includes spousal equivalents such as domestic partners. RCW 31.12.365(2) states:

Directors and members of committees may receive reimbursement for reasonable expenses incurred on behalf of themselves and their spouses in the performance of the director’s and committee members’ duties.

The broader definition would allow credit unions to reimburse credit union directors and committee members for expenses incurred on behalf of themselves and their spouse (including domestic partners) in the performance of their duties as directors or committee members. The term "spouse" was added to this section in 1997. Washington Laws of 1997, Chapter 397, Section 25.

Analysis

The term "spouse" is not defined in Chapter 31.12 RCW. The dictionary defines spouse as "a marriage partner," connoting a legal marriage. Webster’s II New College Dictionary, 1995. However, having been directly involved in the drafting of Chapter 397, I believe that one of the objects of the bill was to update Chapter 31.12 RCW to conform with then current credit union practices. I have been told that, prior to the time the bill was drafted, some credit unions routinely reimbursed directors/committee members for expenses incurred by them and their domestic partners in performance of the director’s/committee member’s duties. We are aware of no compelling policy reason why the term spouse in this context should not include spousal equivalents such as domestic partners.

Conclusion

As used in RCW 31.12.365(2), the term "spouse" includes (1) legally married spouses; and (2) spousal equivalents such as domestic partners. If inclined to do so, credit unions may reimburse directors and committee members for expenses incurred by them and their legally married spouses and spousal equivalents in the performance of their duties as directors/committee members. In such instance, we will leave it up to each credit union to reasonably define "spousal equivalent."

 


DCU Opinion Number 00-2

March 31, 2000

TO: Opinion File

FROM: John L. Bley, Director

SUBJECT: State Credit Unions Can Convert or Merge Into State Mutual Savings Banks

ISSUE

Whether Washington state credit unions operating under Chapter 31.12 RCW can convert or merge into state mutual savings banks operating under Title 32 RCW.

CONCLUSION

As discussed in greater detail below, Washington state credit unions can convert or merge into state mutual savings banks.

ANALYSIS

For convenience, we will refer to Chapter 31.12 RCW as the State CU Act and Title 32 RCW as the State MSB Act.

Conversions

Conversions, unlike mergers, involve only one corporation. In this context, the converting credit union is a credit union one moment and a savings bank the next. The two corporations never exist independently of each other - one changes its form and becomes the other. At the instant the conversion takes effect, the credit union becomes a savings bank subject to the State MSB Act (and no longer subject to the State CU Act). Because only one corporation – a state credit union – is involved up to the moment of conversion, we believe that such conversions may be effectively authorized by wording in the State CU Act alone. It is not necessary for both the State CU and MSB Acts to grant this authority.

The State CU Act does not expressly authorize a state credit union to convert or merge into a state savings bank. However, the State CU Act does grant state credit unions the powers and authorities possessed by federally chartered credit unions as of December 31, 1993. RCW 31.12.404(1). This provision is commonly referred to as the parity provision. For convenience, we will refer to the December 31, 1993 date as the parity strike date.

As of the parity strike date, the Federal Credit Union Act (FCUA) allowed federal credit unions to convert or merge into non-credit union financial institutions, such as state or federal mutual savings banks, but only with the prior written approval of the National Credit Union Administration (NCUA). 12 U.S.C. Section 1785(b)(1), 1752(7) (1994). The FCUA required the NCUA to look at six criteria in approving or disapproving such transactions:

  1. The history, financial condition, and management policies of the credit union;
  2. The adequacy of the credit union's reserves;
  3. The economic advisability of the transaction;
  4. The general character and fitness of the credit union's management;
  5. The convenience and needs of the members to be served by the credit union; and
  6. Whether the credit union is a cooperative association organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes.

12 U.S.C. Section 1785(c) (1994).

As of the parity strike date, there were no NCUA rules which applied to the conversion or merger of federal credit unions into savings banks. 60 Fed. Reg. 12661 (March 8, 1995). Consequently, there were no substantive or procedural requirements in NCUA rules that applied to these conversions and mergers.

However, NCUA rules or policies on this subject, even if they existed, would not necessarily be dispositive of the issues. The Director of Financial Institutions has taken the position that, under the parity provisions in Title 30, 32 and 33 RCW, and Chapter 31.12 RCW, the Director determines what powers and authorities are granted by federal law to federal charters, relying primarily on federal statute and not bound by federal agency rule or interpretation.

Consequently, based on the State CU Act, state credit unions have the authority to convert into state or federal mutual savings banks, subject to approval of the Division of Credit Unions based on the six criteria listed above and subject to requirements of DFI’s Division of Banks under applicable safety and soundness standards inferred in RCW 32.32.500.

Mergers

Unlike conversions, mergers necessarily involve two corporations. In this context, the credit union merges into (combines with) another entity, the savings bank. The two entities can and often do exist independently prior to the merger. Consequently, we believe that a state credit union/state savings bank merger must be authorized by both State Acts. An authorization in the State CU Act alone could not affect the merger authority of state savings banks.

The State MSB Act and State CU Act (as noted above) expressly authorize a state savings bank to merge with a credit union. RCW 32.32.500; RCW 31.12.404(1). Consequently, state credit unions may merge with state mutual savings banks, subject to approval of the Division of Credit Unions based on the six criteria listed above and subject to requirements of DFI’s Division of Banks under applicable safety and soundness standards inferred in RCW 32.32.500.

* * *

This memo does not express any opinions regarding applicable federal law.


DCU Opinion Number 00-3

From: J. Parker Cann, Director of Credit Unions

Date: April 14, 2000

Subject: Credit Unions May Accept Deposits from Nonmember Credit Unions

Issues and Answers

  1. Can a state-chartered credit union from Washington accept deposits from other nonmember credit unions?

    Yes. Washington State-chartered credit unions have the powers and authorities of federal credit unions as of December 31, 1993, pursuant to Section 31.12.404(1) of the Revised Code of Washington. On that date, federal credit unions had the authority to accept shares from nonmember credit unions. See 12 U.S.C. Section 1757(6) (1994). Consequently, we have concluded that Washington State credit unions have the authority to accept shares and deposits from nonmember credit unions.

  2. If the answer is yes, is there a limit to the amount of deposits that the state-chartered credit union can accept from such other credit unions?

Yes, there are limits:

  1. NCUA restrictions and requirements set forth at 12 C.F.R. Section 701.32 apply to the acceptance of such deposits by federally insured, state-chartered credit unions, including those chartered by Washington State. See 12 C.F.R. Section 741.204.
  2. In addition, NCUA restrictions and requirements set forth at 12 C.F.R. Section 701.34 apply to the acceptance of secondary capital accounts by low income-designated, federally insured, state-chartered credit unions, including those chartered by Washington State. See 12 C.F.R. Section 741.204.

For your information, please note that these NCUA restrictions and requirements apply no matter what state the state credit union is chartered in. See 12 C.F.R. Section 741.204.

We do not have separate limits under Washington State law, other than general safety and soundness parameters.

  1. Are there specific guidelines that a state-chartered credit union must adhere to if it has made a decision to accept deposits from such other credit unions?

Yes, see the answer to #2 above.

We do not have separate guidelines under Washington State law, other than general safety and soundness parameters.


DCU Opinion Number 00-4

Date: October 24, 2000

From: Parker Cann, Director

Subject: Interim Director Appointed To Fill A New Board Seat May Serve Only Until The Next Annual Meeting Of Members

Issue

The Board of Directors of a credit union wants to expand the number of Board members from 13 to 15. The Board intends to appoint two interim directors to fill the vacancies created by the expansion of the Board. The directors’ terms are staggered and members serve three-year terms.

How long may the interim directors serve before standing for re-election? More specifically, may they serve out their full term of office (three years), or may they serve only until the next annual meeting of members?

Analysis

The Washington State Credit Union Act (Act), Chapter 31.12 RCW, provides that directors must be elected at the credit union’s annual membership meeting. RCW 31.12.225(2). However, the Act specifies that the Board must appoint interim directors to fill vacancies on the Board, unless the director would serve a term of fewer than 90 days. RCW 31.12.225(4). This provision permits (but does not require) the Board to appoint an interim director if the director would serve a term of fewer than 90 days.

The Act also provides that an interim director will serve out the term of the director they replace, unless the credit union’s bylaws state otherwise. RCW 31.12.225(4). However, the Act does not explicitly address the current issue, where the interim directors are filling vacancies created by an increase in the number of Board members. For ease of reference, the remainder of this opinion refers to "interim replacement directors" as those appointed to fill an existing seat, and "interim new directors" as those appointed to fill vacancies on a Board created by an increase in the number of directors.

In the absence of clear direction in the Act, we looked to see how the legislature has dealt with this issue in parallel contexts. The Washington Business Corporation Act (WBCA), Title 23B RCW, provides that interim directors serve until the next annual meeting of shareholders. RCW 23B.08.050(4). The WBCA does not differentiate between the two types of interim directors we have distinguished above. Other state statutes governing financial institutions with elected directors have similar provisions. See RCW 33.16.010 [savings and loan associations]; RCW 32.32.495(4) [savings banks]; compare RCW 30.12.010 [commercial banks].

It appears that the legislature has generally concluded that interim new directors should serve only until the next regularly scheduled election of directors. We believe that the same conclusion is appropriate for credit unions.

Conclusion

Interim new directors of a credit union may serve only until the next annual meeting of members.