Chapter 299
2012 -- H 7691 AS AMENDED
Enacted 06/20/12
A N A C T
RELATING TO
FINANCIAL INSTITUTIONS - CREDIT UNIONS
Introduced By: Representatives Kennedy, San Bento, Lally, and McNamara
Date Introduced: February 16, 2012
It is enacted by the
General Assembly as follows:
SECTION 1. Section 19-5-15.1 of the General Laws in Chapter
19-5 entitled "Credit
Unions" is hereby
amended to read as follows:
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 or portfolio of loans and
includes a
participation interest in a loan or group or portfolio of loans.
(2) “Participation
Interest” means a loan where one or more federally-insured financial
institutions or federally-insured credit unions participate
pursuant to a written agreement with the
originating lender.
(2)(3)
"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) Participation
interests in loans made by federally-insured financial institutions or
federally-insured credit unions; and
(v)(vi) 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 National
Credit Union Association Administration is obtained
before consummation of such purchase.; and
(iv) For purchases
under paragraph (b)(1)(v) of this section, fifteen
(15) business days
prior written notice is given to the director or the
director’s designee. Such notice shall set forth
such information as the director or the director’s designee
shall from time to time require. In the
event the director or the director’s designee fails to
object to the proposed purchase within the
fifteen (15) business day notice period, the purchase shall
be deemed approved.
(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)
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 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 unimpaired 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 2. This act shall take effect upon passage.
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LC01710
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