C.S.H.B. 1307 78(R) BILL ANALYSIS
C.S.H.B. 1307
By: Marchant
Financial Institutions
Committee Report (Substituted)
BACKGROUND AND PURPOSE
The Credit Union Department ("the department") oversees 249
state-chartered credit unions that have assets totaling more than $16.7
billion. The department is comprised of the Credit Union Commission ("the
commission"), the commissioner, and the department's staff. Section
15.103, Finance Code requires the department to perform a comprehensive
study of the credit union statutes on a periodic basis.
Following the completion of such a study, the department met with
representatives of the credit union industry to develop a bill to
modernize the credit union statutes. This cooperative effort was intended
to enable the credit union statutes to allow credit unions to provide
financial services in a responsive, efficient manner and the department to
ensure that credit unions operate in a safe and sound manner.
C.S.H.B. 1307 proposes the revisions to the credit union statutes
recommended by the department and the credit union industry.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is expressly
granted to the Credit Union Commission in SECTION 3 (Section 15.4032,
Finance Code), SECTION 5 (Section 15.414, Finance Code), SECTION 13
(Section 122.014, Finance Code), SECTION 35 (Section 123.111, Finance
Code), SECTION 36 (Section 123.211, Finance Code), and SECTION 45 (Section
126.002, Finance Code) of this bill.
ANALYSIS
C.S.H.B. 1307 amends various sections of the Finance Code relating to the
administration, operation, and regulation of credit unions.
Regulatory Changes
C.S.H.B. 1307 authorizes the credit union commissioner to issue, amend, or
repeal interpretive statements on matters of general policy and opinions
on specific matters affecting credit unions. An interpretive statement or
opinion has the force of law and is a rule if the commission adopts it
pursuant to the Administrative Procedures Act (Chapter 2001, Government
Code). An interpretive statement or opinion may be relied upon by credit
unions operating in this state and is entitled to great weight if it is
reasonable and does not conflict with applicable law.
C.S.H.B. 1307 expressly allows the credit union commissioner to convene
hearings regarding any matter under the commission's jurisdiction.
Matters considered confidential by law must be considered in a closed
hearing. The bill expressly permits the commissioner to examine entities
related to credit unions including a credit union service organization, a
credit union management organization, and a third-party contractor
providing member services for a credit union. The commissioner may collect
a fee from these related entities to cover the cost of the examination.
The bill permits the department to accept gifts of money or property for
any purpose authorized by statute. A gift must be used for the specific
purpose identified by the grantor. The commission must approve acceptance
and use of any gift. The bill expressly permits the commissioner to
contract for professional or personal services to carry out the
department's duties. The commission shall adopt rules for soliciting and
awarding contracts.
C.S.H.B. 1307 establishes criteria that the commission shall consider when
adopting rules, and it clarifies that the commission's rulemaking
authority is neither enlarged nor diminished by the presence or absence of
specific rulemaking authority in Chapter 15 or Subtitle D, Title 3,
Finance Code. The bill clarifies the commission's authority to administer
and enforce the laws under its jurisdiction and to establish reasonable
and necessary fees for this administration.
The bill expands the list of reasons for which the commissioner may revoke
or suspend the authority of a foreign credit union by adding operating in
an unsafe or unsound condition and engaging in a pattern of unsafe or
unsound practices. The bill clarifies that a foreign credit union cannot
exercise powers or authorities available to it in its home jurisdiction
that are not exercised by credit unions in Texas without the
commissioner's approval. If the commissioner approves such a power or
authority, then all credit unions would be authorized to use such a power
or authority in this state. However, a Texas credit union would not have
the field of membership powers of a foreign credit union operating in this
state.
C.S.H.B. 1307 clarifies the commissioner's authority to accept credible
evidence, other than through an examination, including reports of other
regulators, auditors, and accountants. The bill permits the commissioner
to issue a determination letter to a credit union that would outline the
requirements a credit union must satisfy to avert further administrative
action. Such a determination letter would be confidential, but the
commissioner may release information regarding the existence of a final
order if doing so would enhance effective enforcement of the order. The
bill clarifies provisions related to the disclosure of confidential
information, including disclosure to the commissioner, to an individual
conducting discovery under subpoena or other legal process, and to credit
union officials and employees. The bill confirms the authority of the
commissioner to issue subpoenas.
The bill enables the commissioner to prohibit a person from participating
any further in the affairs of any credit union in addition to removing the
person from a credit union's office or terminating the person's employment
at a credit union. The bill provides that a certificate from the
commissioner indicating the failure to pay an administrative penalty is
prima facie evidence of the imposition of the penalty and the department's
compliance with the law. The attorney general is entitled under the bill
to recover reasonable attorney's fees from the credit union or a
designated person, or both, if the state prevails in a judicial action for
collection of an administrative penalty.
The bill authorizes the commissioner to release limited information
concerning a conservatorship order and related documents to the public and
to determine and recoup conservatorship expenses. In such cases, the
department has a lien against the credit union, and this lien has a higher
priority than all other liens against the credit union. The bill
clarifies the department's responsibilities when the National Credit Union
Administration is the liquidating agent for a state credit union. The
bill clarifies the requirement that all suits against a credit union under
conservatorship be filed in Travis County. The bill provides procedures
for withdrawals and issuance of credit when a credit union's members are
considering a voluntary liquidation. A credit union in the process of a
voluntary liquidation is still subject to laws governing credit unions.
Definitional Changes
C.S.H.B. 1307 redefines capital as "equity capital," which consists of
retained earnings; appropriated retained earnings, including net worth and
other reserves; undivided earnings; and other forms of capital in
accordance with generally accepted accounting practices approved by the
commissioner. The bill redefines reserves as "net worth reserves" and
requires a credit union to contribute to net worth reserves to protect the
interests of its members.
The bill provides new definitions for "membership share," "organization,"
"unsafe or unsound condition," and "unsafe or unsound practice." It
establishes that an "individual development account" is a type of deposit
account. The bill also provides a definition of "secondary capital
account" with respect to the powers of an underserved-area credit union.
The bill clarifies that confidential information provided to credit
unions, organizations, or service providers of credit unions by the
department remains the confidential property of the department and may not
be disclosed except under certain circumstances. The bill clarifies what
constitutes a quorum for purposes of a vote of a credit union's members on
voluntary liquidation.
Credit Union Operational Changes
C.S.H.B. 1307 clarifies several matters related to shares and permits a
credit union to limit the number of membership shares that may be owned by
a member, so long as the limitation applies to all members. Membership
shares may not be pledged as security for any loan. The bill clarifies
who may be admitted to membership and enhances a credit union's ability to
terminate or suspend a person's membership, including for an act of
physical or verbal abuse toward another member or employee.
C.S.H.B. 1307 permits a credit union to sell check and money transfer
services for a fee to people within their field of membership. The bill
permits a credit union to engage in any activity or action believed to be
reasonably necessary to mitigate or avoid a loss as authorized by law or
commission rule. The bill requires credit unions to submit call reports
to the department more frequently, changing the interval to quarterly from
semiannually. The bill clarifies procedures for serving claims against
credit unions.
The commission by rule may authorize a credit union to issue certificates
of indebtedness that are subordinate to all other claims of credit union
creditors. The bill clarifies that a senior management employee may act as
comaker, guarantor, or endorser of a loan or receive a loan or line of
credit. A credit union is not permitted to contract out or delegate the
management responsibilities for the credit union to an organization or
individual who is not an officer, director, or employee of the credit
union without the commissioner's written approval.
The bill defines a credit union's responsibilities related to a trust
account with limited documentation, permits a credit union to accept and
administer such a trust, and provides procedures for the payment of
proceeds from such a trust on the death of the trustee or the last
survivor of two or more trustees.
Credit Union Organizational Changes
C.S.H.B. 1307 adds a three-year business plan to the list of requirements
for an application to incorporate a credit union. The bill permits the
credit union commissioner to make approval of an application subject to
any conditions. The bill permits the use of the abbreviation "CU" in lieu
of the words "credit union" for the name of a credit union. The bill
expressly requires credit unions to follow the laws of this state
regarding interest rates, loan fees, and other applicable licensing and
regulatory requirements.
The bill permits a credit union to apply for designation as an
underserved-area credit union and indicates the minimum criteria for the
commissioner to approve the application. Such credit unions may issue
secondary capital accounts with the advance approval of the commissioner
and may accept shares and deposits from nonmembers, powers not available
to all credit unions. The bill allows the commission to adopt rules
governing the organization and operation of underserved-area credit
unions.
C.S.H.B. 1307 requires a credit union board to meet at least monthly. It
permits a credit union board to authorize voting by an electronic means
and to permit a director to participate in a board meeting by means of
electronic communications. The bill specifies that an amendment of a
credit union's articles of incorporation or bylaws requires a two-thirds
vote of the board. If an amendment is a standard bylaw previously adopted
by the commission, then the commissioner would not be required to approve
the amendment. A credit union board may also establish a minimum age
requirement for a member to be able to vote.
The bill provides that the president or an employee of a credit union may
serve as a director only as permitted by the credit union's bylaws, and
only if the president and employees never constitute a majority of the
board. A director's office becomes vacant if a director is absent from
more meetings than permitted by commission rule. The bill clarifies that
the board shall elect its officers annually at an organizational meeting,
and the offices of secretary and treasurer may be held by the same person.
A credit union board may also establish a minimum age requirement to hold
office in the credit union. C.S.H.B. 1307 specifies that a board member
holds office until a successor is elected or appointed.
EFFECTIVE DATE
September 1, 2003
COMPARISON OF ORIGINAL TO SUBSTITUTE
The substitute adds language specifying that a credit union must follow
the laws of this state regarding interest rates, loan fees, and other
applicable licensing and regulatory requirements. The substitute deletes
a provision of the original permitting a credit union to purchase the
assets of another financial institution with the prior approval of the
commissioner.
The substitute adds language requiring the commissioner's approval before
a credit union may contract with a person who is not an officer, director,
or employee of the credit union or with an organization that manages
credit unions. The substitute clarifies the definition of "equity
capital" from the original to specify that "other forms of capital" must
be in accordance with generally accepted accounting principles.
The substitute adds language permitting a credit union to sell check and
money transfer services for a fee to people within their field of
membership. The substitute adds language specifying that the commission
must use a gift for purposes specified by the grantor and must approve use
of the gift.
The substitute makes numerous other technical and conforming changes.