Chapter 387
2011 -- H 6142 SUBSTITUTE A
Enacted 07/13/11
A N A C T
RELATING TO
FINANCIAL INSTITUTIONS
Introduced By: Representative Brian P. Kennedy
Date Introduced: May 17, 2011
It is enacted by the
General Assembly as follows:
SECTION 1. Section 19-2-12 of the General Laws in Chapter
19-2 entitled "Creation and
Expansion" is hereby
amended to read as follows:
19-2-12.
Relocation of branches. -- (a) Any financial institution or credit union may
relocate a branch upon sixty (60) days prior written notice
to the director or the director's
designee, upon
written application to the director or the director's designee, provided
that the
relocated branch is:
(1) To be located
within the same city or town as the existing branch; or
(2) To be located
within a one mile radius of the existing branch; and
(3) The existing branch
will be closed upon construction and/or occupancy of the
relocated branch.
(b) The director or
the director's designee shall review all written applications for
relocation of branches and may approve these applications at his
or her discretion.
SECTION 2. Sections 19-5-10, 19-5-13 and 19-5-15 of the
General Laws in Chapter 19-5
entitled "Credit Unions" are hereby amended to read
as follows:
19-5-10.
Appointment and term of credit committee members Credit Committee.
--
The board of directors shall appoint a credit
committee of no fewer than three (3) members, who
shall serve at the pleasure of the board of directors. If the bylaws provide for a credit committee,
then pursuant to the provisions of the bylaws, the board
of directors may appoint, or the members
may elect, a credit committee which shall consist of an
odd number of members of the credit
union. The method used shall be set forth in the bylaws.
19-5-13.
Loan applications. -- The credit committee or duly
appointed loan officer shall
approve, in writing, every loan or advance made by the credit
union, subject to any limitations
which may be set from time to time by the board of
directors. Every application for a loan shall
be made in writing and shall state the purpose for which
the loan is desired and the security
offered. No loan shall be made unless the credit committee or
loan officer is satisfied that it
promises to benefit the borrower, nor unless it has been
approved by the committee or duly
appointed loan officer in accordance with applicable credit
union bylaw provisions. The applicant
for a loan may appeal the decision of the credit
committee or loan officer to the board of
directors. If written approval of the credit committee or loan
officer is obtained, nothing
contained in this section shall prevent a credit union from
extending credit to a member in any
manner in which it sees fit; provided that no extension of
credit shall be made upon an unsecured
revolving credit plan, line of credit, or letter of credit in
which the credit authorization exceeds
five thousand dollars ($5,000), unless the credit
authorization is reviewed at least annually by the
credit committee, if one exists, or by the board of
directors.
19-5-15.
Investment of funds -- Powers. -- The capital, deposits, and surplus of
the
credit union shall be lent to the members for the purposes and
upon the security and terms as the
credit committee shall approve, as authorized by a written
loan policy, duly adopted by the board
of directors. Funds not used in loans to members may be
deposited in authorized reserve agents,
or invested in the same manner as allowed by the
national credit union administration rules and
regulations, or in the following manner:
(1) Without limitation,
in securities issued as direct obligations of the
government and in securities guaranteed by the
as to principal and interest, and in any trust or trusts
established for investing directly or
collectively in these securities only;
(2) An amount not
exceeding one third (1/3) of the assets may be invested in:
(i)
Investments other than those described above but which are legal for the
investment
of funds of financial institutions of this state,
subject to the same limitations and restrictions by
which financial institutions are governed, provided that
credit unions with assets of less than ten
million dollars ($10,000,000) may not invest pursuant to the
"prudent person" provisions.
(ii) Deposits in
financial institutions incorporated under the laws of this state or under
federal law and doing business in this state or in those
other institutions that may be approved by
the director or the director's designee.
(iii) Any corporation
incorporated by CUNA International, Inc. or its successor, or any
associated or subsidiary corporation, for the purpose of
providing investment opportunity for
credit unions, or any investment or interlending
program managed or sponsored by any of these
corporations; provided that deposit or investment under this
subsection shall be made only after
the director or the director's designee has approved the
corporation for investment, or the
investment or interlending program.
(iv)
Common or preferred stocks other than those permitted above to the
extent of not
over five percent (5%) of the assets of investing credit
unions with assets less than ten million
dollars ($10,000,000) and to the extent of not over ten
percent (10%) of the assets of investing
credit unions with assets of ten million dollars
($10,000,000) or more; provided, however, that
any of these securities shall be listed on a national
stock exchange or on the National Market
System of the NASDAQ stock market; that dividends have
been paid by the corporation issuing
the security and any predecessor corporation or
corporations for at least four (4) of the last five
(5) years; that the issuing
corporation has, as shown by its last audited statement, total assets of at
least one hundred million dollars ($100,000,000), and a
stockholders' equity of not less than forty
percent (40%) of the amount of its total assets; and
provided, further, that the security shall have
been approved for investment by the director or the
director's designee. The director or the
director's designee shall have absolute discretion in approving
individual securities, provided they
meet the requirements set forth above. No credit union
shall invest in securities under the terms of
this subdivision unless it shall have at least one million
dollars ($1,000,000) in total assets as
shown by its last annual report. No credit union shall
invest more than one percent (1%) of its
assets in any one security under the terms of this section.
(v) Funds not used in
loans to members may be invested in capital shares, obligations,
preferred stock issues of any agency or association organized
either as a stock company, mutual
association, or membership corporation, provided the membership
or stockholding, as the case
may be, of the agency or association is confined or
restricted to credit unions or organizations of
credit unions, and provided the purposes for which the
agency or association is organized are
designed to serve or otherwise assist credit union operations
and provided the director or the
director's designee has approved this investment is authorized by law or regulation for
federal
credit unions, including, without limitation, an investment
in credit union service organizations
("CUSO") as described in subsection
19-5-15(2)(vi).
(vi)
Subject to the department of business regulation and the National Credit Union
Administration's power to limit any CUSO activities or
services at any time based upon
supervisory, legal or safety and soundness reasons or to refuse
to permit any CUSO activities or
services, a credit union may invest in, loan to and/or
contract with only those CUSOs that are
sufficiently bonded or insured for their specific operations and
engaged in the preapproved
activities and services related to the routine daily operations
of credit unions. The director, or
director's designee, shall promulgate regulations delineating
specific preapproved activities and
criteria.
In applying the
limitations and restrictions as to percentages prescribed in the law
governing investments by financial institutions, percentages
shall be computed based on the total
assets of the credit union.
(3) Every credit union
shall have the power to exercise, by its board of directors or duly
authorized officers or agents, all incidental powers necessary
to carry on the business of a credit
union including, but not limited to, the power:
(i)
To receive, upon deposit and for safekeeping, property of every description,
upon
terms prescribed by the credit union and to construct, own,
lease, and maintain safe deposit
vaults, with suitable boxes and places for the reception and
deposit of the property, and lease the
use of these places and boxes to individuals and
corporations, upon those terms that the credit
union may prescribe. The credit union shall in no case
incur any liability on account of the
deposit of any property so made with it, or by reason of the
leasing of any place of deposit, other
than that liability as the credit union shall expressly
assume in each case by the terms of the
contract or receipt under which it shall accept the deposit or
shall have let the place of deposit;
(ii) To act as a
depositary of public money or a financial agent; and
(iii) To purchase,
sell and pledge eligible obligations and assets as set forth in section 19-
5-15.1; and
(iv)(iii)
To exercise additional powers, not inconsistent with the carrying on of a
credit
union business, with the approval of the director or the
director's designee.
SECTION 3. Chapter 19-5 of the General Laws entitled
"Credit Unions" is hereby
amended by adding thereto the following section:
19-5-15.1.
Purchase, sale and pledge of eligible obligations and assets.–
(a) For
purposes of this section:
(1) "Eligible
Obligation" means a loan or group of loans.
(2) "Student
loan" means a loan granted to finance the borrower's attendance at an
institution of higher education or at a vocational school, which
is secured by and on which
payment of the outstanding principal and interest has been
deferred in accordance with the
insurance or guarantee of the federal government, of a state
government, or any agency of either.
(b) Purchase.
(1) A credit union
may purchase, in whole or in part, within the limitations of the board
of directors' written purchase policies:
(i)
Eligible obligations of its members, from any source, if either:
(A) They are loans it
is empowered to grant; or
(B) They are
refinanced with the consent of the borrowers, within sixty (60) days after
they are purchased, so that they are loans it is empowered
to grant;
(ii) Eligible
obligations of a liquidating credit union's individual members, from the
liquidating credit union;
(iii) Student loans,
from any source, if the purchaser is granting student loans on an
ongoing basis and if the purchase will facilitate the
purchasing credit union's packaging of a pool
of such loans to be sold or pledged on the secondary
market;
(iv)
Real estate-secured loans, from any source, if the purchaser is
granting real estate-
secured loans on an ongoing basis and if the purchase will
facilitate the purchasing credit union's
packaging of a pool of such loans to be sold or pledged on the
secondary mortgage market. A
pool must include a substantial portion of the credit
union's members' loans and must be sold
promptly; and
(v) An indirect
lending or indirect leasing arrangement shall be classified as a loan and is
not the purchase of an eligible obligation because the
credit union makes the final underwriting
decision and the sales or lease contract is assigned to the
credit union very soon after it is signed
by the member and the dealer or leasing company.
(2) A credit union
may make purchases in accordance with this section (b), provided:
(i)
The board of directors approves the purchase;
(ii) A written
agreement and schedule of the eligible obligations covered by the
agreement are retained in the purchaser's office; and
(iii) For purchases
under paragraph (b)(1)(ii) of this section, any
advance written
approval required by the national Credit Union Association
Administration is obtained before
consummation of such purchase.
(3) The aggregate of
the unpaid balance of eligible obligations purchased under
paragraph (b) of this section shall not exceed five percent
(5%) of the unimpaired capital and
surplus of the purchaser. The following may be excluded in
calculating this five percent (5%)
limitation:
(i)
Student loans purchased in accordance with paragraph (b)(1)(iii)
of this section;
(ii) Real estate
loans purchased in accordance with paragraph (b)(1)(iv)
of this section;
and
(iii) Eligible
obligations purchased in accordance with paragraph (b)(1)(i) of this section
that are refinanced by the purchaser so that it is a loan
it is empowered to grant;
(c)
its members, eligible obligations purchased in accordance
with paragraph (b)(1)(ii) of this
section, student loans purchased in accordance with paragraph
(b)(1)(iii) of this section, and real
estate loans purchased in accordance with paragraph
(b)(1)(iv) of this section, within the
limitations of the board of directors' written sale policies,
provided:
(1) The board of
directors approves the sale; and
(2) A written
agreement and a schedule of the eligible obligations covered by the
agreement are retained in the seller's office.
(d) Pledge.
(1) A credit union
may pledge, in whole or in part, to any source, eligible obligations of
its members, eligible obligations purchased in accordance
with paragraph (b)(1)(ii) of this
section, student loans purchased in accordance with paragraph
(b)(1)(iii) of this section, and real
estate loans purchased in accordance with paragraph
(b)(1)(iv) of this section, within the
limitations of the board of directors' written pledge policies,
provided:
(i)
The board of directors approves the pledge;
(ii) Copies of the
original loan documents are retained; and
(iii) A written
agreement covering the pledging arrangement is retained in the office of
the credit union that pledges the eligible obligations.
(2) The pledge
agreement shall identify the eligible obligations covered by the
agreement.
(e) Servicing. A
credit union may agree to service any eligible obligation it purchases or
sells in whole or in part.
(f) Ten percent (10%)
limitation. The total indebtedness owing to any credit union by any
person, inclusive of retained and reacquired interests,
shall not exceed ten percent (10%) of its
impaired capital and surplus.
(g) Conflicts of
Interest.
(1) No credit union
official, employee, or their immediate family member may receive,
directly or indirectly, any compensation in connection with
that credit union's purchase, sale, or
pledge of an eligible obligation under the provisions of
this section.
(2) Permissible
payments. This section does not prohibit:
(i)
A credit union's payment of salary to employees;
(ii) A credit union's
payment of an incentive or bonus to an employee based on the credit
union's overall financial performance;
(iii) A credit
union's payment of an incentive or bonus to an employee, other than a senior
management employee, in connection with that credit union's
purchase, sale or pledge of an
eligible obligation. This payment is permissible if the board of
directors establishes a written
policy and internal controls for the incentive or bonus
program and monitors compliance with the
policy and controls at least annually; and
(iv)
Payment by a person other than the credit union of compensation
to a volunteer
official, non-senior management, employee, or their immediate
family member, for a service or
activity performed outside the credit union provided that the
credit union, the official, employee,
or their immediate family member has not made a referral.
(3) Business
associates and family members. All transactions under this section with
business associates or family members not specifically
prohibited by subdivision (g)(1) of this
section must be conducted at arm's length and in the interest
of the credit union.
(4) Definitions.
(i)
"Compensation" includes non-monetary items, except those of nominal
value.
(ii) "Immediate
family member" means a spouse or other family member living in the
same household.
(iii)
"Official" means any member of the board of directors or a volunteer
committee.
(iv)
"Person" means an individual or an organization.
(v) "Senior management employee" means the credit union's
chief executive officer
(typically, this individual
holds the title of President or Treasurer/Manager), any assistant chief
executive officers (e.g., Assistant President, Vice President,
or Assistant Treasurer/Manager), and
the chief financial officer (Comptroller).
(vi) "Volunteer
official" means an official of a credit union who does not receive
compensation from the credit union solely for his or her service
as an official.
SECTION 4. This act shall take effect upon passage.
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LC02644/SUB A
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