. .,. 

The Attorney General of Texas 

December 21, 1982 

MARK WHITE 

Attorney General 

Supreme Court Building 

P. 0. BOX 12546 

Austin, TX. 76711. 2548 

512,475.2501 

Telex 9101874-1367 

Telecopier 51214750266 

1607 Main St., Suite 1400 

Dallas, TX. 75201.4709 

2141742-6944 

4624 Alberta Ave., Suite 160 

El Paso. TX. 79905.2793 

9151533.3464 

1220 Dallas Ave., Suite 202 

Houston, TX. 77002.6966 

7131650-0666 

606 Broadway. Suite 312 

Lubbock. TX. 79401-3479 

8061747-5238 

4309 N. Tenth. Suite B 

McAllen, TX. 76501-1685 

5121662-4547 

200 Main Plaza, Suite 400 

San Anfonio. TX. 76205-2797 

5121225-4191 

An Equal Opportunity/ 

Affirmative Action Employer 

Honorable Oscar H. Mauzy 

Chairman 

Opinion No. MI.&524 

Senate Committee on Jurisprudence 

Texas State Senate 

State Capitol 

Austin, Texas 78711 

Ret Regulation by credit 

union connnissioner of credit 

union loans 

Dear Senator Mauzy: 

You have inquired about article 2461-7.02, V.T.C.S., of the Texas 

Credit Union Act, which limits the lending powers of credit unions as 

follows: 

No credit union may make a loan or aggregate of 

loans to any one member in an amount greater than 

10 percent of the unimpaired capital and surplus 

of the credit union. 

You pose the following questions regarding the application of 

this article: 

1. Is the credit union commissioner allowed to 

pierce the corporate veil in determining whether 

the ten percent limitation on loans to an official 

of a credit union has been reached; and 

2. Must the commission consider each loan to a 

corporation, whether controlled by an officer of 

the credit union or not, as a separate and 

distinct transaction subject to the ten percent 

limitation? 

YOW questions concerning article 2461-7.02 arise in 

circumstance where a credit union officer and a corporation controlled 

by that officer receive credit union loans, the total amount of which 

exceeds ten percent of the unimpaired capital and surplus of the 

credit union. You ask generally whether the credit union commissioner 

has the power to disregard the controlled corporate entities and 

aggregate the loans in enforcing the ten percent limit of article 

2461-7.02. 

p. 1898 
Honorable Oscar H. Mausy - Page 2 (MW-524) 

Initially, we note that the article 2461-7.02 limitation applies 

to loans made to "members" of a credit union. Indeed, a credit union 

is authorized to make loans only to its members. V.T.C.S. art. 

2461-7.01. Consequently, we answer your inquiries more generally as 

that article applies to loans to any credit union member, not just 

members who are officers. It should be noted, however, that loans to 

officers are subjected to special scrutiny under the act. See 

V.T.C.S. art. 2461-7.05. 

The credit union commissioner has specific statutory authority to 

determine whether a particular practice by a credit union violates the 

Credit Union Act. V.T.C.S. art. 2461-5.09(a)(l), (2). This power to 

find violations necessarily implies the power to decide whether a 

particular practice is, in fact, violating the act, and consequently 

involves interpretation of the act itself. As with all administrative 

adjudications, the commissioner's decision as to whether article 

2461-7.02 is violated involves interpretation of the scope of that 

article. Therefore, it falls under the primary jurisdiction of the 

commissioner to determine whether, under applicable standards of law, 

an aggregation of loans to a member and a corporation controlled by 

that member violates article 2461-7.02. 

Disregarding the corporate entity is an equitable doctrine 

invoked to protect matters of public policy. Pacific American 

Gasoline Company v. Miller, 76 S.W.2d 833, 851 (Tex. Civ. App. - 

Amarillo 1934, writ ref'd); Roylex, Inc. v. Langson Brothers 

Construction Company, 585 S.W.2d 768, 771 (Tex. Civ. App. - Houston 

[lst Dist.] 1979, writ ref'd n.r.e.). Among the reasons justifying 

the application of this doctrine is frustration of a statute's 

purpose. Particularly with regulatory statutes, whenever the use of a 

corporation circumvents the statutory purposes, it is proper to 

disregard the corporate entity in enforcing the statute. Delaney v. 

Fidelity Lease Ltd., 526 S.W.2d 543, 546 (Tex. 1975); Sapphire Homes. 

Inc. V. Gilbert, 426 S.W.2d 278, 283 (Tex. Civ. App. - Dallas 1968, 

writ ref'd n.r.e.); Beneficial Finance Company v. Miskell, 424 S.W.2d 

482, 484 (Tex. Civ. App. - Austin 1968, writ ref'd n.r.e.). 

Turning to the present inquiry, it would be proper to disregard a 

corporation's existence if it was determined that use of the corporate 

entity resulted in circumvention of the purposes of the ten percent 

loan limit of article 2461-7.02. One of the primary purposes of that 

article is to insure credit union solvency and viability by 

prohibiting a concentration of loans in a single entity. Due to the 

inherent limitations on capital infusion available to credit unions, 

it is important to minimize lending risks by diversifying loans among 

borrowers. A high level of concentration of loans in a single 

responsible entity could have severe financial consequences to a 

credit union should that entity go into default. 

p. 1899 
. - 

Honorable Oscar H. Mausy - Page 3 (NW-524) 

In the case of loans to a controlled corporation, it may be 

determined that actual or ultimate responsibility for those loans lies 

with the controlling member. In light of the risk prevention purpose 

of article 2461-7.02, the corporate entity could be ignored and the 

loans could be treated as loans of the member in calculating whether 

the ten percent loan limit has been exceeded. 

Many factors are relevant to a decision to aggregate such 

corporate loans under article 2461-7.02, including the degree of 

control by the member, the capitalization and current financial 

position of the corporation, the use of the loan money, the collateral 

for the loan, and guarantors or co-signers of the loan. In light of 

these and other relevant factors, if the commissioner determines that 

the use of the corporate entity would frustrate the statutory purpose 

he would have authority to aggregate the corporate loans with those 

of the controlling member in enforcing the ten percent loan limit. 

See generally Hamilton, The Corporate Entity, 49 Tex. L.Rev. 979, 

997-998 (1971). 

Therefore, we conclude that when the commissioner determines that 

the purpose or effect of loans to a member and a corporation 

controlled by that member violate the policies of the ten percent loan 

limit of article 2461-7.02, he has authority to disregard the 

corporate entities and aggregate the loans for purposes of enforcing 

that article. 

SUMMARY 

The credit union commissioner has the authority 

to disregard a corporate entity and aggregate 

credit union loans to a corporation with loans to 

the member controlling the corporation, for 

purposes of determining whether the ten percent 

loan limit of article 2461-7.02, V.T.C.S., has 

been violated. 

MARK WHITE 

Attorney General of Texas 

JOHN W. FAINTER, JR. 

First Assistant Attorney General 

RICHARD E. GRAY III 

Executive Assistant Attorney General 

p. 1900 
. . . 

Honorable Oscar H. Mauzy - Page 4 (MW-524) 

Prepared by Thomas M. Pollan 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Susan L. Garrison, Chairman 

Rick Gilpin 

Patricia Hinojosa 

Jim Moellinger 

Thomas M. Pollan 

p. 1901