THE

FEDERAL

CREDIT UNION

ACT

REVISED OCTOBER 1998

NATIONAL CREDIT UNION ADMINISTRATION

WASHINGTON, D.C. 20456

NCUA 8002 M 3601

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402
2

FOREWORD

This publication contains the provisions of the Federal Credit Union Act of June 26, 1934, as amended. In the left

margin of this publication, opposite each section, is printed the section number of such provision in Title 12 of the United

States Code and supplements thereto. The number in the right-hand margin is the section of the Federal Credit Union Act,

as amended, of which the provision is a part, unless another statute is cited.

The symbol ‘‘12 U.S.C.’’ refers to Title 12 of the United States Code and supplements thereto. The symbol ‘‘FCU Act’’

refers to the Federal Credit Union Act, as amended.

Amendments to this publication will be provided from time to time as the FCU Act is amended.

The administration of the Federal Credit Union Act was originally vested in the Farm Credit Administration and in

the Governor thereof. (Act of June 26, 1934, 48 Stat. 1216.) Executive Order No. 9148, dated April 27, 1942 (7 F.R. 3145),

transferred the functions, powers and duties of the Farm Credit Administration and of the Governor under the Federal Credit

Union Act, as amended, to the Federal Deposit Insurance Corporation. This transfer became effective on May 16, 1942, and

was to expire at the termination of Title I of the First War Powers Act, 1941 (Public Law 354, 77th Cong.). Reorganization

Plan No. 1, effective July 1, 1947 (61 Stat. 952, 12 F.R. 4534), made the transfer permanent. Effective July 29, 1948, the

powers, duties and functions transferred to the Federal Deposit Insurance Corporation were transferred to the Federal Security Agency. (Act of June 29, 1948, 62 Stat. 1091.) Reorganization Plan No. 1 of 1953, effective April 11, 1953, abolished

the Federal Security Agency and transferred the Bureau of Federal Credit Unions, together with other agencies of the Federal Security Agency, to the Department of Health, Education, and Welfare. (67 Stat. 631, 18 F.R. 2053.)

Public Law 86–354 (73 Stat. 628, et seq.) approved on September 22, 1959, amended the Federal Credit Union Act.

(June 26, 1934, 48 Stat. 1216; 12 U.S.C. Sec. 1751–1772) and reenacted the entire act. Public Law 88–150 (Oct. 17, 1963,

77 Stat. 270) amended sections 11 and 13. Public Law 88–353 (July 2, 1964, 78 Stat. 269) amended sections 8, 12, 14, and

15, and made section 1014 of Title 18 of the United States Code applicable to Federal credit unions.

Public Law 90–188 (December 13, 1967, 81 Stat. 567) amended sections 15 and 18 of the Federal Credit Union Act.

Public Law 89–429 (May 24, 1966, § 7, 80 Stat. 167) and Public Law 90–44 (July 3, 1967, §§ 2, 3, 81 Stat. 110) amended

section 8 of the Act. In addition, Public Law 89–287 (October 22, 1965, § 16, 79 Stat. 1048, 20 U.S.C. § 995) and Public Law

89–329 (November 8, 1965, § 434, 79 Stat. 1247, 20 U.S.C. § 1084) made the provisions of the National Vocational Student

Loan Insurance Act of 1965 and the insured student loan provisions (Part B, Title IV) of the Higher Education Act of 1965

applicable to Federal credit unions. Public Law 90–575 (October 16, 1968, § 116, 82 Stat. 1024) repealed the National Vocational Student Loan Insurance Act of 1965 and merged the program into the Higher Education Act. The law also amended

section 434 of the Higher Education Act to permit continued participation by Federal credit unions in both programs under

the same restrictions as previously authorized.

Public Law 90–375 (July 5, 1968, 82 Stat. 284) amended sections 8, 14, 15, 16, and 21 of the Federal Credit Union

Act and added a new section 28. Public Law 90–448 (August 1, 1968, § 807, 82 Stat. 545) amended section 8.

Public Law 91–206 (March 10, 1970, 84 Stat. 49) amended sections 2, 3, and 21 of the Federal Credit Union Act. It

created the National Credit Union Administration as an independent agency and transferred all of the functions of the

Bureau of Federal Credit Unions to the new Administration.

Public Law 91–468 (October 19, 1970, 84 Stat. 994) redesignated sections 2–28 as sections 101–127, respectively;

amended sections 101, 107, and 116; and enacted Title II—Share Insurance.

Public Law 92–221 (December 23, 1971, 85 Stat. 796) amended section 201(c)(2); added a new section 201(c)(3); and

amended section 208(a)(2).

Public Law 93–383 (August 22, 1974, 88 Stat. 739) amended sections 107(6), (8)(e), and (9), 113, 115, 117, 126, 202(h),

206 (a), (c), and (d), and 208(a)(1).

Public Law 93–495 (October 29, 1974, 88 Stat. 1500) amended sections 107(7), 111, and 207(c).

Public Law 93–569 (December 31, 1974, 88 Stat. 1866) amended section 107(5).

Public Law 93–604 (January 2, 1975, 88 Stat. 1964) amended section 209(b)(2).

Public Law 94–273 (April 21, 1976, 90 Stat. 375) amended section 203(d)(2).

Public Law 95–22 (April 19, 1977, 91 Stat. 49) amended sections 101, 107 (5), (6), (7), (8), (13), and (14), 113, 114,

116, 117, 120, 201(c)(3), 206 (g)(1) and (g)(2).

Public Law 95–147 (October 28, 1977, 91 Stat. 1227) added a new section 210 and redesignated section 210 as section

211.

Public Law 95–630 (November 10, 1978, 92 Stat. 3641) amended sections 101, 102, 105, 106, 107, 201, 202, 206(e),

206(f) (1) and (2), 206(g) (3) and (4), 206(h), 206(i) (1) and (2), 208; renumbered sections 101 and 206(j); added new sections

206(j)(1), and 207(c)(3); and enacted Title III, the Central Liquidity Facility, sections 301–310. In addition to creating the

National Credit Union Central Liquidity Facility, the law restructured this Agency from an Administrator to a three-person

Board.

Public Law 96–153 (December 21, 1979, 93 Stat. 1120) amended sections 107(6) and 207 of the Federal Credit Union

Act to permit the acceptance of share purchases and insurance coverage of such purchases by offices, employees or agents

of Indian tribes having official custody of tribal funds.

Public Law 96–221 (March 31, 1980, 94 Stat. 132) amended sections 101, 107, 117, 205, 207, 302, 304, 305, 307, and

308. These amendments included increased maximum loan rates for Federal credit unions, permanent share draft authority

for all federally-insured credit unions, increased share insurance coverage from $40,000 to $100,000 per member, a six-year

phase out of controls on Federal credit union dividend rates, a Federal override of certain state usury ceilings for federallyinsured state credit unions, and settlement and share draft processing authority for the Central Liquidity Facility.
Public Law 97–320 (October 15, 1982, 96 Stat. 1469) amended sections 101, 102, 103, 105, 107, 110, 111, 112, 113,

114, 117, 118, 120, 124, 125, 202, 203, 205, 206 and 307 of the Federal Credit Union Act and added a new section 311.

(Note: The amendments to sections 205 and 206 are terminated on October 14, 1985.)

Public Law 97–457 (January 12, 1983, 96 Stat. 2507) amended sections 107, 113, 124, and 202. These were technical

corrections to Public Law 97–320.

Public Law 98–369 (July 18, 1984, 98 Stat. 1203) amended sections 201(b)(8), 202 (b), (c), (c)(3); repealed section

202(c)(4); amended sections 202 (d), (e), (f), (g), (h)(1), (h)(2), and (h)(3), 203(b), 206(d)(1), and 303 of the Federal Credit Union

Act and added a new section 312. These amendments included share insurance capitalization and CLF tax exemption.

Public Law 100–86 (August 10, 1987, 101 Stat. 652) (CEBA) amended sections 107(5)(A)(ii), 107(6), 112, 113(1), 118,

120(i)(2), 128, 129, 206 (g), (h), (h)(1), (h)(2)(b), and 207(a)(1).

Public Law 101–73, the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) (August 9, 1989)

amended sections 120, 202, 203, 204, 205, 206, and 207 and added sections 212, 213 and 214.

Public Law 101–647, the Crime Control Act of 1990 (November 29, 1990) amended sections 206(j)(1) and 206(s), and

added sections 206 (t) and (u), and 207(b)(2) (G), (H) and (I), 207(b)(16), and 207 (q) and (r).

Public Law 102–242, the Federal Deposit Insurance Corporation Improvement Act (FDICIA), (December 19, 1991)

amended section 202(d) and 213.

Public Law 102–550, the Housing Community Development Act, (October 28, 1992) added section 131 and amended

sections 202, 206 and 213.

Public Law 103–60, the National Defense Authorization Act (November 30, 1993) amended section 124.

Public Law 103–322, the Violent Crime Control and Law Enforcement Act of 1994 (September 13, 1994) amended Section 205(d).

Public Law 103–325, the Riegle Community Development and Regulatory Improvement Act of 1994 (September 23,

1994) added new sections 107(15)(C), 130 and 204(e) and deleted section 120(k).

Public Law 104–208, Economic Growth and Regulatory Reduction Act of 1996 (September 30, 1996) amended section

107(5)(A)(iv) and (v) and added a new subsection (e) to section 201.

Public Law 105–164, Examination Parity and Year 2000 Readiness for Financial Institutions Act (March 20, 1998)

added new section 206A. This section ceases to be effective as of 12/31/2001 (see section 206A(f)).

Public Law 105–219, Credit Union Membership Access Act (August 7, 1998) amended sections 102a(b), 109, 202(a)(6),

202(b), 202(c), 202(h), 205(b), 206(h), 206(k), and 207(a); repealed section 116; and added new sections 107A and 216.
FEDERAL CREDIT UNION ACT

TABLE OF CONTENTS

Sec.

1751. Short title.

TITLE I—GENERAL PROVISIONS

1752. Definitions.

1752a. National Credit Union Administration.

(a) Establishment; management under National Credit Union Administration Board.

(b) Membership of Board; designation of Chairman.

(c) Term of office.

(d) Management of Administration vested in Board; adoption of rules; quorum; report to

President and Congress.

(e) Functions of Chairman.

(f) Audit by General Accounting Office.

1753. Federal credit union organization.

1754. Approval of organization certificate.

1755. Fees.

(a) Payment by Federal credit unions to Administration.

(b) Determination of amount, assessment periods, and payment dates.

(c) Supervision charge exception; waiver of payment.

(d) Payment into Treasury of United States.

(e) Investment by Treasury.

1756. Reports and examinations.

1757. Powers.

1757a. Limitation on member business loans.

1758. Bylaws.

1759. Membership.

(a) General.

(b) Membership field.

(c) Exceptions.

(d) Multiple common-bond credit union group requirements.

(e) Additional membership eligibility provisions.

(f) Criteria for expansion of multiple common-bond credit unions.

(g) Regulations required for community credit unions.

1760. Members’ meetings.

1761. Management; board of directors; credit committee; supervisory committee; compensation.

1761a. Executive officers; general manager.

1761b. Board of directors; meetings; powers and duties; executive committee; membership officers;

membership application.

1761c. Credit committee; meetings; powers and duties; loans and lines of credit; security.

1761d. Supervisory committee; powers and duties; suspension of members; passbook.

1763. Dividends.

1764. Expulsion and withdrawal.

1765. Minors.

1766. Powers of Board and Administration personnel.

1767. Fiscal agents and depositories.

1768. Taxation.

1769. Separability of provisions; right to alter, amend, or repeal chapter.

1770. Allotment of space in Federal buildings.

1771. Conversion from Federal to State credit union and from State to Federal credit union.

1772. Territorial application of chapter.

1772a. Gifts; acceptance of conditional gifts; deposit.
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1772b. Apportionment.

1772c. Trust Fund.

1772c-1. Community development revolving loan fund for credit unions.

1772d. Forfeiture of organization certificate for money laundering or cash transaction reporting

offenses.

TITLE II—SHARE INSURANCE

1781. Insurance of member accounts.

(a) Eligibility.

(b) Application; agreement.

(c) Approval of application.

(d) Certificate of insurance.

(e) Prohibition on certain associations.

1782. Administration of insurance fund.

(a) Reports of condition.

(b) Certified statements.

(c) Deposit with National Credit Union Share Insurance Fund; amount, return,

distribution, etc.

(d) Remedy for failure to report; penalty for failure to file certified statement or pay

premium; dispute as to deposit of premium charge; prohibition on distribution of

assets or dividends while in default.

(e) Recovery of unpaid deposit or premium; limitations.

(f) Penalty for failure to comply with section; court determination of failure; remedies not

exclusive.

(g) Records.

(h) Definitions.

1782a. Administration of insurance fund.

(a) Reports of condition.

(b) Certified statements.

(c) Deposit with National Credit Union Share Insurance Fund; amount, return,

distribution, etc.

(d) Remedy for failure to report; penalty for failure to file certified statement or pay

premium; dispute as to deposit of premium charge; prohibition on distribution of

assets or dividends while in default.

(e) Recovery of unpaid deposit or premium; limitations.

(f) Penalty for failure to comply with section; court determination of failure; remedies not

exclusive.

(g) Records.

(h) Definitions.

1783. National Credit Union Share Insurance Fund.

(a) Creation; use of fund.

(b) Deposit of deposits and premium charges; reporting requirements.

(c) Investment authorization.

(d) Loans to fund; limitation and terms; interest accrual; determination of interest rate.

(e) Excess funds credited against loans.

(f) Authorization for fund to borrow from Central Liquidity Facility.

1784. Examination of insured credit unions.

(a) Examiners and claim agents; powers; report by examiner; jurisdiction of court.

(b) Power of Board; jurisdiction of court.

(c) Court orders enforcing subpoenas; immunity.

(d) Administration acceptance of State board reports; reports of Board furnished to State

board.

(e) Flood insurance compliance by insured credit unions.

1785. Requirements governing insured credit unions.

(a) Advertisement of insured status; exemptions; regulation of signs.

(b) Restrictions.

(c) Considerations for waiver of enforcement of restrictions.

(d) Prohibitions.
(e) Security standards; reports; penalty.

(f) Share draft accounts; maintenance, loans, etc.

(g) Interest rates.

(h) Emergency merger.

(i) Emergency purchase of assets; conversion to insured deposits.

1786. Termination of insured credit union status; cease and desist orders; removal or suspension

from office; procedure.

(a) Termination of insurance.

(b) Unsound condition of credit union; notice to correct condition; hearing; judicial review.

(c) Notice to members of termination of insured status.

(d) Continuation of insurance for one year; approval of conversion of status; procedure

subsequent to approval; reduction of premium charges.

(e) Opinion of Board as to unsound condition of credit union; notice of charges; hearing;

order to cease and desist; judicial review.

(f) Temporary cease and desist order; injunctive procedure.

(g) Removal and prohibition authority.

(h) Board’s self-appointment as conservator; consultation with state authority.

(i) Suspension or removal of director, officer, or committee member charged with crime.

(j) Jurisdiction of hearing; procedure; judicial review.

(k) Jurisdiction and enforcement; penalty.

(l) Criminal penalty for violation of certain orders.

(m) Definitions.

(n) Notice or order to State board supervising State-chartered credit union.

(o) Notice of proceedings to State board supervising State-chartered credit union; effect of

corrective action by State board; attack on validity of notice or order.

(p) Proceedings, powers of Board; court enforcement of subpoenas; witness fees; expenses

and attorneys’ fees.

(q) Compliance with monetary transaction recordkeeping and report requirements.

(r) Institution-affiliated party defined.

(s) Public disclosure of agency action.

(t) Regulation of certain forms of benefits to institution-affiliated parties.

(u) Foreign investigations.

1786a. Regulation and examination of credit union organizations and service providers.

1787. Payment of insurance.

(a) Liquidation by Board; show cause order; notice to claimants; subrogation; dividend

payments; bond; appointment of agent; fees to be fixed by Board.

(b) Powers and duties of Board as conservator or liquidating agent.

(c) Provisions relating to contracts entered into before appointment of conservator or

liquidating agent.

(d) Payment of insured deposits.

(e) Subrogation of Board.

(f) Valuation of claims in default.

(g) Limitation on court action.

(h) Liability of directors and officers.

(i) Damages.

(j) Board as liquidating agent of State-chartered credit union.

(k) Payment of insured accounts; extent of insurance coverage; proof of claims; insurance

of public funds; insurance regarding pension and profit-sharing plans.

(l) Payment; discharge of liability.

(m) Undisclosed names.

(n) Withholding of payment due to liability of credit union member.

(o) Unclaimed insured accounts; limitations.

(p) Sale of assets; security for loans; approval of court; agreements affecting interest of

Board in any asset acquired by it.

(q) Prohibition on certain acquisitions of assets.

(r) Foreign investigations.

1788. Special assistance to avoid liquidation.
4

(a) Loans; purchase of assets; establishing accounts; agreements affecting interest of Board

in any asset acquired by it.

(b) Protection of Fund.

(c) Money paid into Fund.

1789. Administrative provisions.

1789a. Credit unions as depositories of public money; fiscal agents; duties.

1790. Nondiscriminatory provisions.

1790a. Board disapproval of directors, committee members, and senior executive officers of insured

credit unions.

(a) Prior notice required.

(b) Disapproval by the Board.

(c) Exception in extraordinary circumstances.

(d) Additional information.

(e) Standard for disapproval.

(f) Definition regulations.

1790b. Credit union employee protection remedy.

(a) Prohibition against discrimination against whistleblowers.

(b) Enforcement.

(c) Remedies.

(d) Limitations.

1790c. Reward for information leading to recovery or civil penalties.

1790d. Prompt corrective action.

TITLE III—CENTRAL LIQUIDITY FACILITY

1795. Congressional findings.

1795a. Definitions.

1795b. National Credit Union Administration Central Liquidity Facility; establishment;

management; jurisdiction.

1795c. Membership.

(a) Credit unions serving natural persons.

(b) Credit unions serving other credit unions.

(c) Stock subscription requirements.

(d) Functions of Agent members of Facility.

(e) Withdrawal from or termination of membership.

1795d. Capital stock.

(a) Opening of books; minimum subscription.

(b) Requirements.

(c) Redemption of stock.

(d) Use of subscription amount.

(e) Restriction on advances to credit unions.

1795e. Extensions of credit.

1795f. Powers of Board.

(a) General authorities.

(b) Collection and settlement of checks, share drafts, etc.; charges; rules and regulations.

1795g. Depositories, custodians, and fiscal agents.

1795h. Audit of financial transactions.

1795i. Annual report.

1795j. Agent of Federal Reserve System.

1795k. State and local tax exemption.

(a) Franchise, activities, etc., of Central Liquidity Facility; exception.

(b) Notes, bonds, debentures and other obligations of Central Liquidity Facility; exceptions.

(c) Definition; tax status.
OCTOBER 1998 1

FEDERAL CREDIT UNIONS

Chapter 14 of Title 12 of the United States Code, as

revised November 1989

§ 1751

Short Title.—This chapter may be cited as

the ‘‘Federal Credit Union Act.’’

Act of June 26, 1934, cited to the text was

entitled ‘‘An Act to establish a Federal Credit

Union System, to establish a further market for

securities of the United States and to make

more available to people of small means credit

for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States.’’

Title I—General Provisions

§ 1752 § 101

Definitions.—As used in this chapter—

(1) the term ‘‘Federal credit union’’ means a

cooperative association organized in accordance

with the provisions of this chapter for the purpose of promoting thrift among its members and

creating a source of credit for provident or

productive purposes;

(2) the term ‘‘Chairman’’ means the Chairman of the National Credit Union Administration Board;

(3) the term ‘‘Administration’’ means the

National Credit Union Administration; and

(4) the term ‘‘Board’’ means the National

Credit Union Administration Board;

(5) the terms ‘‘member account’’ and

‘‘account’’ mean a share, share certificate, or

share draft account of a member of a credit

union of a type approved by the Board which

evidences money or its equivalent received or

held by a credit union in the usual course of

business and for which it has given or is obligated to give credit to the account of the member, and, in the case of a credit union serving

predominantly low-income members (as defined

by the Board), such terms (when referring to the

account of a nonmember served by such credit

union) mean a share, share certificate, or share

draft account of such nonmember which is of a

type approved by the Board and evidences

money or its equivalent received or held by such

credit union in the usual course of business and

for which it has given or is obligated to give

credit to the account of such nonmember, and

such terms mean share, share certificate, or

share draft accounts of nonmember credit

unions and nonmember units of Federal, State,

or local governments and political subdivisions

thereof enumerated in section 207 of this Act,

and such terms mean custodial accounts established for loans sold in whole or in part pursuant to section 107(13) of this Act: Provided,

That for purposes of insured State credit

unions, reference in this paragraph to ‘‘share,’’

‘‘share certificate’’ or ‘‘share draft’’ accounts

includes, as determined by the Board, the

equivalent of such accounts under State law;

(6) the terms ‘‘State credit union’’ and

‘‘State-chartered credit union’’ mean a credit

union organized and operated according to the

laws of any State, the District of Columbia, the

several territories and possessions of the United

States, the Panama Canal Zone, or the

Commonwealth of Puerto Rico, which laws provide for the organization of credit unions similar

in principle and objectives to Federal credit

unions;

(7) the term ‘‘insured credit union’’ means

any credit union the member accounts of which

are insured in accordance with the provisions of

subchapter II of this chapter, and the term

‘‘noninsured credit union’’ means any credit

union the member accounts of which are not so

insured;
2 OCTOBER 1998

(8) The term ‘‘Fund’’ means the National

Credit Union Share Insurance Fund; and

(9) The term ‘‘branch’’ includes any branch

credit union, branch office, branch agency, additional office, or any branch place of business

located in any State of the United States, the

District of Columbia, the several territories,

including the trust territories, and possessions

of the United States, the Panama Canal Zone,

or the Commonwealth of Puerto Rico, at which

member accounts are established or money lent.

The term ‘‘branch’’ also includes a suboffice,

operated by a Federal credit union or by a credit

union authorized by the Department of Defense,

located on an American military installation in

a foreign country or in the trust territories of

the United States.

§ 1752a § 102

National Credit Union Administration.—

(a) There is hereby established in the executive branch of the Government an independent

agency to be known as the National Credit

Union Administration. The Administration shall

be under the management of a National Credit

Union Administration Board.

(b) Membership and Appointment of

Board.—

(1) In general.—The Board shall consist of

three members, who are broadly representative

of the public interest, appointed by the President, by and with the advice and consent of the

Senate. In appointing the members of the

Board, the President shall designate the Chairman. Not more than two members of the Board

shall be members of the same political party.

(2) Appointment criteria—

(A) Experience in financial services.—

In considering appointments to the Board under

paragraph (1), the President shall give consideration to individuals who, by virtue of their education, training, or experience relating to a

broad range of financial services, financial services regulation, or financial policy, are especially

qualified to serve on the Board.

(B) Limit on appointment of credit

union officers.—Not more than one member of

the Board may be appointed to the Board from

among individuals who, at the time of the

appointment, are, or have recently been,

involved with any insured credit union as a

committee member, director, officer, employee,

or other institution-affiliated party.

(c) The term of office of each member of the

Board shall be six years except that the terms

of the two members, other than the Chairman,

initially appointed shall expire one upon the

expiration of two years after the date of

appointment, and the other upon the expiration

of four years after the date of appointment.

Board members shall not be appointed to succeed themselves except the initial members

appointed for less than a six-year term may be

reappointed for a full six-year term and future

members appointed to fill unexpired terms may

be reappointed for a full six-year term. Any

Board member may continue to serve as such

after the expiration of said member’s term until

a successor has qualified.

(d) The management of the Administration

shall be vested in the Board. The Board shall

adopt such rules as it sees fit for the transaction

of its business and shall keep permanent and

complete records and minutes of its acts and

proceedings. A majority of the Board shall constitute a quorum. Not later than April 1 of each

calendar year, and at such other times as the

Congress shall determine, the Board shall make

a report to the President and to the Congress.

Such a report shall summarize the operations of

the Administration and set forth such information as is necessary for the Congress to review

the financial program approved by the Board.

(e) The Chairman of the Board shall be the

spokesman for the Board and shall represent

the Board and the National Credit Union

Administration in its official relations with

other branches of the Government. The Chairman shall determine each Board member’s area

of responsibility and shall review such assignments biannually. It shall be the Chairman’s

responsibility to direct the implementation of

the adopted policies and regulations of the

Board.

(f) The financial transactions of the Administration shall be subject to audit by the General

Accounting Office in accordance with the principles and procedures applicable to commercial

corporate transactions and under such rules and

regulations as may be prescribed by the

Comptroller General of the United States. The

audit shall be conducted at the place or places

where the accounts of the Administration are

kept.

§ 1753 § 103

Federal credit union organization.—Any

seven or more natural persons who desire to
OCTOBER 1998 3

form a Federal credit union shall each subscribe

either individually or collectively before some

officer competent to administer oaths an

organization certificate in duplicate which shall

specifically state—

(1) the name of the association;

(2) the location of the proposed Federal

credit union and the territory in which it will

operate;

(3) the names and addresses of the

subscribers to the certificate and the number of

shares subscribed by each;

(4) the initial par value of the shares;

(5) the proposed field of membership, specified in detail;

(6) the term of the existence of the corporation, which may be perpetual; and

(7) the fact that the certificate is made to

enable such persons to avail themselves of the

advantages of this chapter.

Such organization certificate may also contain

any provisions approved by the Board for the

management of the business of the association

and for the conduct of its affairs and relative to

the powers of its directors, officers, or stockholders.

§ 1754 § 104

Approval of organization certificate.—

The organization certificate shall be presented

to the Board for approval. Before any organization certificate is approved, an appropriate

investigation shall be made for the purpose of

determining (1) whether the organization certificate conforms to the provisions of this chapter;

(2) the general character and fitness of the

subscribers thereto; and (3) the economic advisability of establishing the proposed Federal

credit union. Upon approval of such organization certificate by the Board it shall be the charter of the corporation, and one of the originals

thereof shall be delivered to the corporation

after the payment of the fee required therefor.

Upon such approval the Federal credit union

shall be a body corporate and as such, subject to

the limitations herein contained, shall be vested

with all of the powers and charged with all of

the liabilities conferred and imposed by this

chapter upon corporations organized hereunder.

§ 1755 § 105

Fees.—(a) In accordance with rules prescribed by the Board, each Federal credit union

shall pay to the Administration an annual

operating fee which may be composed of one or

more charges identified as to the function or

functions for which assessed.

(b) The fee assessed under this section shall

be determined according to a schedule, or schedules, or other method determined by the Board

to be appropriate, which gives due consideration

to the expenses of the Administration in carrying out its responsibilities under this Act and to

the ability of Federal credit unions to pay the

fee. The Board shall, among other things, determine the periods for which the fee shall be

assessed and the date or dates for the payment

of the fee or increments thereof.

(c) If the annual operating fee is composed of

separate charges, no supervision charge shall be

payable by a Federal credit union, and the

Board may waive payment of any or all other

charges comprising the fee, with respect to the

year in which its charter is issued, or in which

final distribution is made in its liquidation or

the charter canceled.

(d) All operating fees shall be deposited with

the Treasurer of the United States for the

account of the Administration and may be

expended by the Board to defray the expenses

incurred in carrying out the provisions of this

Act including the examination and supervision

of Federal credit unions.

(e)(1) Upon request of the Board, the Secretary of the Treasury shall invest and reinvest

such portions of the annual operating fees

deposited under subsection (d) as the Board

determines are not needed for current operations.

(2) Such investments may be made only in

interest bearing securities of the United States

with maturities requested by the Board bearing

interest at rates determined by the Secretary of

the Treasury, taking into consideration current

market yields on outstanding marketable obligations of the United States of comparable maturities.

(3) All income derived from such investments and reinvestments shall be deposited to

the account of the Administration described in

subsection (d).
4 OCTOBER 1998

§ 1756 § 106

Reports and examinations.—Federal credit

unions shall be under the supervision of the

Board, and shall make financial reports to it as

and when it may require, but at least annually.

Each Federal credit union shall be subject to

examination by, and for this purpose shall make

its books and records accessible to, any person

designated by the Board.

§ 1757 § 107

Powers.—A Federal credit union shall have

succession in its corporate name during its

existence and shall have power—

(1) to make contracts;

(2) to sue and be sued;

(3) to adopt and use a common seal and

alter the same at pleasure;

(4) to purchase, hold, and dispose of property necessary or incidental to its operations;

(5) to make loans, the maturities of which

shall not exceed twelve years except as otherwise provided herein, and extend lines of credit

to its members, to other credit unions, and to

credit union organizations and to participate

with other credit unions, credit union organizations, or financial organizations in making loans

to credit union members in accordance with the

following:

(A) Loans to members shall be made in

conformity with criteria established by the

board of directors: Provided, That—

(i) a residential real estate loan on a

one-to-four-family dwelling, including an

individual cooperative unit, that is or will be the

principal residence of a credit union member,

and which is secured by a first lien upon such

dwelling, and may have a maturity not exceeding thirty years or such other limits as shall be

set by the National Credit Union Administration Board (except that a loan on an individual

cooperative unit shall be adequately secured as

defined by the Board), subject to the rules and

regulations of the Board;

(ii) a loan to finance the purchase of a

mobile home, which shall be secured by a first

lien on such mobile home, to be used by the

credit union member as his residence, a loan for

the repair, alteration, or improvement of a residential dwelling which is the residence of a

credit union member, or a second mortgage loan

secured by a residential dwelling which is the

residence of a credit union member, shall have

a maturity not to exceed 15 years or any longer

term which the Board may allow.

(iii) a loan secured by the insurance or

guarantee of, or with advance commitment to

purchase the loan by, the Federal Government,

a State government or any agency of either may

be made for the maturity and under the terms

and conditions specified in the law under which

such insurance, guarantee, or commitment is

provided;

(iv) a loan or aggregate of loans to a

director or member of the supervisory or credit

committee of the credit union making the loan

which exceeds $20,000 plus pledged shares, be

approved by the board of directors;

(v) loans to other members for which

directors or members of the supervisory or

credit committee act as guarantor or endorser

be approved by the board of directors when such

loans standing alone or when added to any

outstanding loan or loans of the guarantor or

endorser exceeds $20,000;

(vi) the rate of interest may not exceed

15 per centum per annum on the unpaid balance inclusive of all finance charges, except that

the Board may establish—

(I) after consultation with the appropriate

committees of the Congress, the Department of

Treasury, and the Federal financial institution

regulatory agencies, an interest rate ceiling

exceeding such 15 per centum per annum rate,

for periods not to exceed 18 months, if it determines that money market interest rates have

risen over the preceding six-month period and

that prevailing interest rate levels threaten the

safety and soundness of individual credit unions

as evidenced by adverse trends in liquidity, capital, earnings, and growth; and

(II) a higher interest rate ceiling for Agent

members of the Central Liquidity Facility in

carrying out the provisions of title III for such

periods as the Board may authorize,

(vii) the taking, receiving, reserving, or

charging of a rate of interest greater than is

allowed by this paragraph, when knowingly

done, shall be deemed a forfeiture of the entire

interest which the note, bill, or other evidence of

debt carries with it, or which has been agreed

to be paid thereon. If such greater rate of

interest has been paid, the person by whom it

has been paid, or his legal representatives, may

recover back from the credit union taking or

receiving the same, in an action in the nature of
OCTOBER 1998 5

an action of debt, the entire amount of interest

paid; but such action must be commenced

within two years from the time the usurious

collection was made;

(viii) a borrower may repay his loan,

prior to maturity in whole or in part on any

business day without penalty, except that on a

first or second mortgage loan a Federal credit

union may require that any partial prepayments (I) be made on the date monthly installments are due and (II) be in the amount of that

part of one or more monthly installments which

would be applicable to principal;

(ix) loans shall be paid or amortized in

accordance with rules and regulations prescribed by the Board after taking into account

the needs or conditions of the borrowers, the

amounts and duration of the loans, the interests

of the members and the credit unions, and such

other factors as the Board deems relevant;

(x) loans must be approved by the

credit committee or a loan officer, but no loan

may be made to any member if, upon the making of that loan, the member would be indebted

to the Federal credit union upon loans made to

him in an aggregate amount which would

exceed 10 per centum of the credit union’s

unimpaired capital and surplus.

(B) A self-replenishing line of credit to a

borrower may be established to a stated maximum amount on certain terms and conditions

which may be different from the terms and

conditions established for another borrower.

(C) Loans to other credit unions shall be

approved by the board of directors.

(D) Loans to credit union organizations

shall be approved by the board of directors and

shall not exceed 1 per centum of the paid-in and

unimpaired capital and surplus of the credit

union. A credit union organization means any

organization as determined by the Board, which

is established primarily to serve the needs of its

member credit unions, and whose business

relates to the daily operations of the credit

unions they serve.

(E) Participation loans with other credit

unions, credit union organizations, or financial

organizations shall be in accordance with written policies of the board of directors. Provided,

That a credit union which originates a loan for

which participation arrangements are made in

accordance with this subsection shall retain an

interest of at least 10 per centum of the face

amount of the loan.

(6) To receive from its members, from other

credit unions, from an officer, employee, or

agent of those nonmember units of Federal,

Indian Tribal, State, or local governments and

political subdivisions thereof enumerated in section 207 of this Act and in the manner so prescribed, from the Central Liquidity Facility, and

from nonmembers in the case of credit unions

serving predominantly low-income members (as

defined by the Board) payments, representing

equity, on—(A) shares which may be issued at

varying dividend rates; (B) share certificates

which may be issued at varying dividend rates

and maturities; and (C) share draft accounts

authorized under Section 205(f); subject to such

terms, rates, and conditions as may be established by the board of directors, within limitations prescribed by the Board.

(7) To invest its funds (A) in loans exclusively to members; (B) in obligations of the

United States of America, or securities fully

guaranteed as to principal and interest thereby;

(C) in accordance with rules and regulations

prescribed by the Board, in loans to other credit

unions in the total amount not exceeding 25 per

centum of its paid-in and unimpaired capital

and surplus; (D) in shares or accounts of savings and loan associations or mutual savings

banks, the accounts of which are insured by the

Federal Savings and Loan Insurance Corporation or the Federal Deposit Insurance Corporation; (E) in obligations issued by banks for

cooperatives, Federal land banks, Federal intermediate credit banks, Federal home loan banks,

the Federal Home Loan Bank Board, or any corporation designated in 31 USC 9101(3) as a

wholly owned Government corporation; or in

obligations, participations, or other instruments

of or issued by, or fully guaranteed as to principal and interest by, the Federal National

Mortgage Association or the Government

National Mortgage Association; or in mortgages,

obligations, or other securities which are or ever

have been sold by the Federal Home Loan Mortgage Corporation pursuant to Section 305 or

Section 306 of the Federal Home Loan Mortgage

Corporation Act; or in obligations or other

instruments or securities of the Student Loan

Marketing Association; or in obligations, participations, securities, or other instruments of, or

issued by, or fully guaranteed as to principal

and interest by any other agency of the United

States and a Federal credit union may issue

and sell securities which are guaranteed pursuant to section 306(g) of the National Housing

Act; (F) in participation certificates evidencing

beneficial interests in obligations, or in the right
6 OCTOBER 1998

to receive interest and principal collections

therefrom, which obligations have been subjected by one or more Government agencies to a

trust or trusts for which any executive department, agency, or instrumentality of the United

States (or the head thereof) has been named to

act as trustee; (G) in shares or deposits of any

central credit union in which such investments

are specifically authorized by the board of directors of the Federal credit union making the

investment; (H) in shares, share certificates, or

share deposits of federally insured credit

unions; (I) in the shares, stocks, or obligations

of any other organization, providing services

which are associated with the routine operations of credit unions, up to 1 per centum of

the total paid in and unimpaired capital and

surplus of the credit union with the approval of

the Board: Provided, however, That such authority does not include the power to acquire control

directly or indirectly, of another financial

institution, nor invest in shares, stocks or

obligations of an insurance company, trade

association, liquidity facility or any other similar organization, corporation, or association,

except as otherwise expressly provided by this

Act; (J) in the capital stock of the National

Credit Union Central Liquidity Facility; and (K)

investments in obligations of, or issued by, any

State or political subdivision thereof (including

any agency, corporation, or instrumentality of a

State or political subdivision), except that no

credit union may invest more than 10 per centum of its unimpaired capital and surplus in the

obligations of any one issuer (exclusive of general obligations of the issuer).

(8) to make deposits in national banks and

in State banks, trust companies, and mutual

savings banks operating in accordance with the

laws of the State in which the Federal credit

union does business, or in banks or institutions

the accounts of which are insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation,

and for Federal credit unions or credit unions

authorized by the Department of Defense

operating suboffices on American military

installations in foreign countries or trust territories of the United States to maintain demand

deposit accounts in banks located in those countries or trust territories, subject to such regulations as may be issued by the Board and provided such banks are correspondents of banks

described in this paragraph;

(9) to borrow in accordance with such rules

and regulations as may be prescribed by the

Board, from any source, in an aggregate amount

not exceeding, except as authorized by the

Board in carrying out the provisions of title III,

50 per centum of its paid-in and unimpaired

capital and surplus: Provided, That any Federal

credit union may discount with or sell to any

Federal intermediate credit bank any eligible

obligations up to the amount of its paid-in and

unimpaired capital;

(10) to levy late charges, in accordance with

the bylaws, for failure of members to meet

promptly their obligations to the Federal credit

union;

(11) to impress and enforce a lien upon the

shares and dividends of any member, to the

extent of any loan made to him and any dues or

charges payable by him;

(12) in accordance with rules and regulations prescribed by the Board, to sell to members negotiable checks (including travelers

checks), money orders and other similar money

transfer instruments; and to cash checks and

money orders for members, for a fee;

(13) in accordance with rules and regulations prescribed by the Board, to purchase, sell,

pledge, or discount or otherwise receive or dispose of, in whole or in part, any eligible obligations (as defined by the Board) of its members

and to purchase from any liquidating credit

union notes made by individual members of the

liquidating credit union at such prices as may

be agreed upon by the board of directors of the

liquidating credit union and the board of directors of the purchasing credit union, but no purchase may be made under authority of this

paragraph if, upon the making of that purchase,

the aggregate of the unpaid balances of notes

purchased under authority of this paragraph

would exceed 5 per centum of the unimpaired

capital and surplus of the credit union; and

(14) to sell all or a part of its assets to

another credit union, to purchase all or part of

the assets of another credit union and to

assume the liabilities of the selling credit union

and those of its members subject to regulations

of the Board;

(15) to invest in securities that—

(A) are offered and sold pursuant to section 4(5) of the Securities Act of 1933 (15

U.S.C. 77d(5)); or

(B) are mortgage related securities (as

that term is defined in section 3(a)(41) of

the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(41)), subject to such regula-
OCTOBER 1998 7

tions as the Board may prescribe, including regulations prescribing minimum size

of the issue (at the time of initial distribution) or minimum aggregate sales

prices, or both;

(C) are small business related securities

(as defined in section 3(a)(53) of the Securities Exchange Act of 1934), subject to

such regulations as the Board may prescribe, including regulations prescribing

the minimum size of the issue (at the

time of the initial distribution), the minimum aggregate sales price, or both.

(16) subject to such regulations as the

Board may prescribe, to provide technical assistance to credit unions in Poland and Hungary;

and

(17) to exercise such incidental powers as

shall be necessary or requisite to enable it to

carry on effectively the business for which it is

incorporated.

§ 1757a § 107A

Limitation on member business loans.—

(a) In general.—On and after the date of

enactment of this section, no insured credit

union may make any member business loan

that would result in a total amount of such

loans outstanding at that credit union at any

one time equal to more than the lesser of—

(1) 1.75 times the actual net worth of the

credit union; or

(2) 1.75 times the minimum net worth

required under section 216(c)(1)(A) for a credit

union to be well capitalized.

(b) Exceptions.—Subsection (a) does not

apply in the case of—

(1) an insured credit union chartered for the

purpose of making, or that has a history of primarily making, member business loans to its

members, as determined by the Board; or

(2) an insured credit union that—

(A) serves predominantly low-income

members, as defined by the Board; or

(B) is a community development financial

institution, as defined in section 103 of the

Community Development Banking and Financial Institutions Act of 1994.

(c) Definitions.—As used in this section—

(1) the term ‘member business loan’—

(A) means any loan, line of credit, or letter of credit, the proceeds of which will be used

for a commercial, corporate or other business

investment property or venture, or agricultural

purpose; and

(B) does not include an extension of

credit—

(i) that is fully secured by a lien on a

1- to 4-family dwelling that is the primary residence of a member;

(ii) that is fully secured by shares in

the credit union making the extension of credit

or deposits in other financial institutions;

(iii) that is described in subparagraph

(A), if it was made to a borrower or an associated member that has a total of all such extensions of credit in an amount equal to less than

$50,000;

(iv) the repayment of which is fully

insured or fully guaranteed by, or where there

is an advance commitment to purchase in full

by, any agency of the Federal Government or of

a State, or any political subdivision thereof; or

(v) that is granted by a corporate credit

union (as that term is defined by the Board) to

another credit union.

(2) the term ‘net worth’—

(A) with respect to any insured credit

union, means the credit union’s retained earnings balance, as determined under generally

accepted accounting principles; and

(B) with respect to a credit union that

serves predominantly low-income members, as

defined by the Board, includes secondary capital

accounts that are—

(i) uninsured; and

(ii) subordinate to all other claims

against the credit union, including the claims of

creditors, shareholders, and the Fund; and

(3) the term ‘associated member’ means any

member having a shared ownership, investment, or other pecuniary interest in a business

or commercial endeavor with the borrower.

(d) Effect on Existing Loans.—An insured

credit union that has, on the date of enactment

of this section, a total amount of outstanding

member business loans that exceeds the amount

permitted under subsection (a) shall, not later

than 3 years after that date of enactment,

reduce the total amount of outstanding member

business loans to an amount that is not greater
8 OCTOBER 1998

than the amount permitted under subsection

(a).

(e) Consultation and Cooperation With

State Credit Union Supervisors.—In

implementing this section, the Board shall consult and seek to work cooperatively with State

officials having jurisdiction over State-chartered

insured credit unions.

§ 1758 § 108

Bylaws.—In order to simplify the organization of Federal credit unions the Board shall

from time to time cause to be prepared a form

of organization certificate and a form of bylaws,

consistent with this chapter, which shall be

used by Federal credit union incorporators, and

shall be supplied to them on request. At the

time of presenting the organization certificate

the incorporators shall also submit proposed

bylaws to the Board for its approval.

§ 1759 § 109

Membership.—(a) In general.—Subject to

subsection (b), Federal credit union membership

shall consist of the incorporators and such other

persons and incorporated and unincorporated

organizations, to the extent permitted by rules

and regulations prescribed by the Board, as may

be elected to membership and as such shall

each subscribe to at least one share of its stock

and pay the initial installment thereon and a

uniform entrance fee if required by the board of

directors. Shares may be issued in joint tenancy

with right of survivorship with any persons designated by the credit union member, but no

joint tenant shall be permitted to vote, obtain

loans, or hold office, unless he is within the field

of membership and is a qualified member.

(b) Membership field.—Subject to the other

provisions of this section, the membership of

any Federal credit union shall be limited to the

membership described in one of the following

categories:

(1) Single common-bond credit union.—

One group that has a common bond of occupation or association.

(2) Multiple common-bond credit

union.—More than one group—

(A) each of which has (within the group)

a common bond of occupation or association; and

(B) the number of members, each of

which (at the time the group is first included

within the field of membership of a credit union

described in this paragraph) does not exceed

any numerical limitation applicable under subsection (d).

(3) Community credit union.—Persons or

organizations within a well-defined local

community, neighborhood, or rural district.

(c) Exceptions.—

(1) Grandfathered members and

groups.—

(A) In general.—Notwithstanding subsection (b)—

(i) any person or organization that is a

member of any Federal credit union as of the

date of enactment of the Credit Union Membership Access Act may remain a member of the

credit union after that date of enactment; and

(ii) a member of any group whose members constituted a portion of the membership of

any Federal credit union as of that date of

enactment shall continue to be eligible to

become a member of that credit union, by virtue

of membership in that group, after that date of

enactment.

(B) Successors.—If the common bond of

any group referred to in subparagraph (A) is

defined by any particular organization or business entity, subparagraph (A) shall continue to

apply with respect to any successor to the

organization or entity.

(2) Exception for underserved areas.—

Notwithstanding subsection (b), in the case of a

Federal credit union, the field of membership

category of which is described in subsection

(b)(2), the Board may allow the membership of

the credit union to include any person or

organization within a local community,

neighborhood, or rural district if—

(A) the Board determines that the local

community, neighborhood, or rural district—

(i) is an ‘investment area’, as defined in

section 103(16) of the Community Development

Banking and Financial Institutions Act of 1994

(12 U.S.C. 4703(16)), and meets such additional

requirements as the Board may impose; and

(ii) is underserved, based on data of the

Board and the Federal banking agencies (as

defined in section 3 of the Federal Deposit

Insurance Act), by other depository institutions

(as defined in section 19(b)(1)(A) of the Federal

Reserve Act); and
OCTOBER 1998 9

(B) the credit union establishes and maintains an office or facility in the local community,

neighborhood, or rural district at which credit

union services are available.

(d) Multiple Common-Bond Credit Union

Group Requirements.—

(1) Numerical limitation.—Except as provided in paragraph (2), only a group with fewer

than 3,000 members shall be eligible to be

included in the field of membership category of

a credit union described in subsection (b)(2).

(2) Exceptions.—In the case of any Federal credit union, the field of membership category of which is described in subsection (b)(2),

the numerical limitation in paragraph (1) of this

subsection shall not apply with respect to—

(A) any group that the Board determines,

in writing and in accordance with the guidelines

and regulations issued under paragraph (3),

could not feasibly or reasonably establish a new

single common-bond credit union, the field of

membership category of which is described in

subsection (b)(1) because—

(i) the group lacks sufficient volunteer

and other resources to support the efficient and

effective operation of a credit union;

(ii) the group does not meet the criteria

that the Board has determined to be important

for the likelihood of success in establishing and

managing a new credit union, including demographic characteristics such as geographical

location of members, diversity of ages and

income levels, and other factors that may affect

the financial viability and stability of a credit

union; or

(iii) the group would be unlikely to

operate a safe and sound credit union;

(B) any group transferred from another

credit union—

(i) in connection with a merger or

consolidation recommended by the Board or any

appropriate State credit union supervisor based

on safety and soundness concerns with respect

to that other credit union; or

(ii) by the Board in the Board’s capacity

as conservator or liquidating agent with respect

to that other credit union; or

(C) any group transferred in connection

with a voluntary merger, having received conditional approval by the Administration of the

merger application prior to October 25, 1996,

but not having consummated the merger prior

to October 25, 1996, if the merger is consummated not later than 180 days after the

date of enactment of the Credit Union Membership Access Act.

(3) Regulations and guidelines.—The

Board shall issue guidelines or regulations,

after notice and opportunity for comment, setting forth the criteria that the Board will apply

in determining under this subsection whether or

not an additional group may be included within

the field of membership category of an existing

credit union described in subsection (b)(2).

(e) Additional Membership Eligibility

Provisions.—

(1) Membership eligibility limited to

immediate family or household members.—

No individual shall be eligible for membership

in a credit union on the basis of the relationship

of the individual to another person who is

eligible for membership in the credit union,

unless the individual is a member of the immediate family or household (as those terms are

defined by the Board, by regulation) of the other

person.

(2) Retention of membership.—Except as

provided in section 118, once a person becomes

a member of a credit union in accordance with

this title, that person or organization may

remain a member of that credit union until the

person or organization chooses to withdraw

from the membership of the credit union.

(f) Criteria for Approval of Expansion of

Multiple Common-Bond Credit Unions.—

(1) In general.—The Board shall—

(A) encourage the formation of separately

chartered credit unions instead of approving an

application to include an additional group

within the field of membership of an existing

credit union whenever practicable and consistent with reasonable standards for the safe and

sound operation of the credit union; and

(B) if the formation of a separate credit

union by the group is not practicable or consistent with the standards referred to in subparagraph (A), require the inclusion of the group in

the field of membership of a credit union that is

within reasonable proximity to the location of

the group whenever practicable and consistent

with reasonable standards for the safe and

sound operation of the credit union.

(2) Approval criteria.—The Board may

not approve any application by a Federal credit

union, the field of membership category of
10 OCTOBER 1998

which is described in subsection (b)(2) to include

any additional group within the field of membership of the credit union (or an application by

a Federal credit union described in subsection

(b)(1) to include an additional group and become

a credit union described in subsection (b)(2)),

unless the Board determines, in writing, that—

(A) the credit union has not engaged in

any unsafe or unsound practice (as defined in

section 206(b)) that is material during the 1-

year period preceding the date of filing of the

application;

(B) the credit union is adequately capitalized;

(C) the credit union has the administrative capability to serve the proposed membership group and the financial resources to meet

the need for additional staff and assets to serve

the new membership group;

(D) any potential harm that the expansion of the field of membership of the credit

union may have on any other insured credit

union and its members is clearly outweighed in

the public interest by the probable beneficial

effect of the expansion in meeting the convenience and needs of the members of the group

proposed to be included in the field of membership; and

(E) the credit union has met such additional requirements as the Board may prescribe,

by regulation.

(g) Regulations Required for Community

Credit Unions.—

(1) Definition of well-defined local

community, neighborhood, or rural district.—The Board shall prescribe, by regulation,

a definition for the term ‘well-defined local

community, neighborhood, or rural district’ for

purposes of—

(A) making any determination with

regard to the field of membership of a credit

union described in subsection (b)(3); and

(B) establishing the criteria applicable

with respect to any such determination.

(2) Scope of application.—The definition

prescribed by the Board under paragraph (1)

shall apply with respect to any application to

form a new credit union, or to alter or expand

the field of membership of an existing credit

union, that is filed with the Board after the date

of enactment of the Credit Union Membership

Access Act.

§ 1760 § 110

Members’ meetings.—The fiscal year of all

Federal credit unions shall end December 31.

The annual meeting of each Federal credit

union shall be held at such place as its bylaws

shall prescribe. Special meetings may be held in

the manner indicated in the bylaws. No member

shall be entitled to vote by proxy, but a member

other than a natural person may vote through

an agent designated for the purpose. Irrespective of the number of shares held, no member

shall have more than one vote.

§ 1761 § 111

Management; board of directors; credit

committee; supervisory committee; compensation.—(a) The management of a Federal

credit union shall be by a board of directors, a

supervisory committee, and where the bylaws so

provide, a credit committee. The board shall

consist of an odd number of directors, at least

five in number, to be elected annually by and

from the members as the bylaws provide. Any

vacancy occurring on the board shall be filled

until the next annual election by appointment

by the remainder of the directors.

(b) The supervisory committee shall be

appointed by the board of directors and shall

consist of not less than three members nor more

than five members, one of whom may be a director other than the compensated officer of the

board. A record of the names and addresses of

the executive officers, members of the supervisory committee, credit committee, and loan

officers, shall be filed with the Administration

within ten days after their election or appointment.

(c) No member of the board or of any other

committee shall, as such, be compensated,

except that reasonable health, accident, similar

insurance protection, and the reimbursement of

reasonable expenses incurred in the execution of

the duties of the position shall not be considered

compensation.

§ 1761a § 112

Executive officers; general manager.—At

their first meeting after the annual meeting of

the members, the directors shall elect from their

number the board officers specified in the

bylaws. Only one board officer may be compensated as an officer of the board and the

bylaws shall specify such position as well as the
OCTOBER 1998 11

specific duties of each of the board officers. The

board shall elect from their number a financial

officer who shall give adequate fidelity coverage

in accordance with section 113(2) of this Act.

§ 1761b § 113

Board of directors; meetings; powers and

duties; executive committee; membership

officers; membership applications.—The

board of directors shall meet at least once a

month and shall have the general direction and

control of the affairs of the Federal credit union.

Minutes of all meetings shall be kept. Among

other things, the board of directors shall—

(1) act upon applications for membership or

appoint membership officers from among the

members of the credit union, other than the

board member paid as an officer, the financial

board officer, any assistant to the paid officer of

the board or to the financial officer, or any loan

officer;

(2) provide adequate fidelity coverage for

officers and employees having custody of or handling funds according to regulations issued by

the Board;

(3) fill vacancies on the board of directors

until successors elected at the next annual

meeting have qualified;

(4) if the bylaws provide for an elected

credit committee, fill vacancies on the credit

committee until successors elected at the next

annual meeting have qualified;

(5) appoint the members of the supervisory

committee and, if the bylaws so provide, appoint

the members of the credit committee;

(6) have charge of investments including

the right to designate an investment committee

of not less than two to act on its behalf;

(7) determine the maximum number of

shares, share certificates, and share draft

accounts, and the classes of shares, share certificates, and share draft accounts;

(8) subject to any limitations of this subchapter, determine the interest rates on loans,

the security, and the maximum amount which

may be loaned and provided in lines of credit;

(9) authorize interest refunds to members of

record at the close of business on the last day

of any dividend period from income earned and

received in proportion to the interest paid by

them during that dividend period;

(10) if the bylaws so provide, appoint one or

more loan officers and delegate to these officers

the power to approve or disapprove loans, lines

of credit, or advances from lines of credit;

(11) establish the par value of the share;

(12) subject to the limitations of this title

and the bylaws of the credit union, provide for

the hiring and compensation of officers and

employees;

(13) if the bylaws so provide, appoint an

executive committee of not less than three directors to act on its behalf and any other committees to which it can delegate specific functions;

(14) prescribe conditions and limitations for

any committee which it appoints;

(15) review at each monthly meeting a list

of approved or pending applications for membership received since the previous monthly meeting together with such other related information

as it or the bylaws require;

(16) provide for the furnishing of the written reasons for any denial of a membership

application to the applicant upon the written

request of the applicant;

(17) in the absence of a credit committee,

and upon the written request of a member,

review a loan application denied by a loan officer;

(18) declare the dividend rate to be paid on

shares, share certificates, and share draft

accounts pursuant to the terms and conditions

of section 117;

(19) establish and maintain a system of

internal controls consistent with the regulations

of the Board;

(20) establish lending policies; and

(21) do all other things that are necessary

and proper to carry out all the purpose and

powers of the Federal credit union, subject to

regulations issued by the Board.

§ 1761c § 114

Credit committee; meetings; powers and

duties; loans and lines of credit; security.—

(a) 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, but which shall not include more

than one loan officer. The method used shall be

set forth in the bylaws. The credit committee
12 OCTOBER 1998

shall hold such meetings as the business of the

Federal credit union may require, not less frequently than once a month, to consider applications for loans or lines of credit. Reasonable

notice of such meetings shall be given to all

members of the committee. Except for those

loans or lines of credit required to be approved

by the board of directors in section 107(5) of this

Act, approval of an application shall be by

majority of the committee who are present at

the meeting at which it is considered provided

that a majority of the full committee is present.

The credit committee may appoint and delegate

to loan officers the authority to approve applications.

(b) If the bylaws provide for a credit committee, all applications not approved by the loan

officer shall be reviewed by the credit committee, and the approval of a majority of the members who are present at the meeting when such

review is undertaken shall be required to

reverse the loan officer’s decision provided a

majority of the full committee is present. If

there is not a credit committee, a member shall

have the right upon written request of review

by the board of directors of a loan application

which has been denied. No individual shall have

authority to disburse funds of the Federal credit

union with respect to any loan or line of credit

for which the application has been approved by

him in his capacity as a loan officer.

§ 1761d § 115

Supervisory committee; powers and

duties; suspension of members; passbook.—

The supervisory committee shall make or cause

to be made an annual audit and shall submit a

report of that audit to the board of directors and

a summary of the report to the members at the

next annual meeting of the credit union; shall

make or cause to be made such supplementary

audits as it deems necessary or as may be

ordered by the Board, and submit reports of the

supplementary audits to the board of directors;

may by a unanimous vote suspend any officer of

the credit union or any member of the credit

committee or of the board of directors, until the

next members’ meeting, which shall be held not

less than seven nor more than fourteen days

after any such suspension, at which meeting

any such suspension shall be acted upon by the

members; and may call by a majority vote a special meeting of the members to consider any violation of this chapter, the charter, or the

bylaws, or any practice of the credit union

deemed by the supervisory committee to be

unsafe or unauthorized. Any member of the

supervisory committee may be suspended by a

majority vote of the board of directors. The

members shall decide, at a meeting held not

less than seven nor more than fourteen days

after any such suspension, whether the suspended committee member shall be removed

from or restored to the supervisory committee.

The supervisory committee shall cause the passbooks and accounts of the members to be verified with the records of the treasurer from time

to time, and not less frequently than once every

two years. As used in this section, the term

‘‘passbook’’ shall include any book, statement of

account, or other record approved by the Board

for use by Federal credit unions.

§ 1762 § 116

Repealed by P.L. 105–219, see section 216.

§ 1763 § 117

Dividends.—At such intervals as the board

of directors may authorize, and after provision

for required reserves, the board of directors may

declare a dividend to be paid at different rates

on different types of shares, at different rates

and maturity dates in the case of share certificates, and at different rates on different types of

share draft accounts. Dividends credited may be

accrued on various types of shares, share certificates, and share draft accounts as authorized by

the board of directors. If the par value of a

share exceeds $5, dividends shall be paid on all

funds in the regular share account once a full

share has been purchased.

§ 1764 § 118

Expulsion and withdrawal.—(a) Except as

provided in subsection (b) of this section, a

member may be expelled by a two-thirds vote of

the members of a Federal credit union present

at a special meeting called for the purpose, but

only after opportunity has been given him to be

heard.

(b) The board of directors of a Federal credit

union may, by majority vote of a quorum of

directors, adopt and enforce a policy with

respect to expulsion from membership based on

nonparticipation by a member in the affairs of

the credit union. In establishing its policy, the

board should consider a member’s failure to vote

in annual credit union elections or failure to
OCTOBER 1998 13

purchase shares from, obtain a loan from, or

lend to the Federal credit union. If such a policy

is adopted, written notice of the policy as

adopted and the effective date of such policy

shall be mailed to each member of the credit

union at the member’s current address appearing on the records of the credit union not less

than 30 days prior to the effective date of such

policy. In addition, each new member shall be

provided written notice of any such policy prior

to or upon applying for membership.

(c) Withdrawal or expulsion of a member

pursuant to either subsection (a) or (b) of this

section shall not operate to relieve him from

liability to the Federal credit union. The amount

to be paid a withdrawing or expelled member by

a Federal credit union shall be determined and

paid in a manner specified in the bylaws.

§ 1765 § 119

Minors.—Shares may be issued in the name

of a minor or in trust, subject to such conditions

as may be prescribed by the bylaws. When

shares are issued in trust, the name of the

beneficiary shall be disclosed to the Federal

credit union.

§ 1766 § 120

Powers of the Board and Administration

personnel.—(a) The Board may prescribe rules

and regulations for the administration of this

chapter (including, but not by way of limitation,

the merger, consolidation, and dissolution of corporations organized under this chapter). Any

central credit union chartered by the Board

shall be subject to such rules, regulations, and

orders as the Board deems appropriate and,

except as otherwise specifically provided in such

rules, regulations, or orders, shall be vested

with or subject to the same rights, privileges,

duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to all

Federal credit unions under this Act.

(b)(1) The Board may suspend or revoke the

charter of any Federal credit union, or place the

same in involuntary liquidation and appoint a

liquidating agent therefor, upon its finding that

the organization is bankrupt or insolvent, or has

violated any of the provisions of its charter, its

bylaws, this chapter, or any regulations issued

thereunder.

(2) The Board, through such persons as it

shall designate, may examine any Federal credit

union in voluntary liquidation and, upon its

finding that such voluntary liquidation is not

being conducted in an orderly or efficient manner or in the best interests of its members, may

terminate such voluntary liquidation and place

such organization in involuntary liquidation and

appoint a liquidating agent therefor.

(3) Such liquidating agent shall have power

and authority, subject to the control and supervision of the Board and under such rules and

regulations as the Board may prescribe, (A) to

receive and take possession of the books,

records, assets, and property of every description of the Federal credit union in liquidation,

to sell, enforce collection of, and liquidate all

such assets and property, to compound all bad

or doubtful debts, and to sue in its own name or

in the name of the Federal credit union in liquidation, and defend such actions as may be

brought against it as liquidating agent or

against the Federal credit union; (B) to receive,

examine, and pass upon all claims against the

Federal credit union in liquidation, including

claims of members on member accounts; (C) to

make distribution and payment to creditors and

members as their interests may appear; and (D)

to execute such documents and papers and to do

such other acts and things which it may deem

necessary or desirable to discharge its duties

hereunder.

(4) Subject to the control and supervision of

the Board and under such rules and regulations

as the Board may prescribe, the liquidating

agent of a Federal credit union in involuntary

liquidation shall (A) cause notice to be given to

creditors and members to present their claims

and make legal proof thereof, which notice shall

be published once a week in each of three

successive weeks in a newspaper of general circulation in each county in which the Federal

credit union in liquidation maintained an office

or branch for the transaction of business on the

date it ceased unrestricted operations; except

that whenever the aggregate book value of the

assets and property of a Federal credit union in

involuntary liquidation is less than $1,000,

unless the Board shall find that its books and

records do not contain a true and accurate

record of its liabilities, it shall declare such Federal credit union in liquidation to be a ‘‘no

publication’’ liquidation, and publication of

notice to creditors and members shall not be

required in such case; (B) from time to time

make a ratable dividend on all such claims as

may have been proved to its satisfaction or

adjudicated in a court of competent jurisdiction
14 OCTOBER 1998

and, after the assets of such organizations have

been liquidated, make further dividends on all

claims previously proved or adjudicated, and it

may accept in lieu of a formal proof of claim on

behalf of any creditor or member the statement

of any amount due to such creditor or member

as shown on the books and records of the credit

union; but all claims not filed before payment of

the final dividend shall be barred and claims

rejected or disallowed by the liquidating agent

shall be likewise barred unless suit be

instituted thereon within three months after

notice of rejection or disallowance; and (C) in a

‘‘no publication’’ liquidation, determine from all

sources available to it, and within the limits of

available funds of the Federal credit union, the

amounts due to creditors and members, and

after sixty days shall have elapsed from the

date of its appointment distribute the funds of

the Federal credit union to creditors and members ratably and as their interests may appear.

(5) Upon certification by the liquidating

agent in the case of an involuntary liquidation,

and upon such proof as shall be satisfactory to

the Board in the case of a voluntary liquidation,

that distribution has been made and that liquidation has been completed, as provided herein, the Board shall cancel the charter of such

Federal credit union; but the corporate existence

of the Federal credit union shall continue for a

period of three years from the date of such cancellation of its charter, during which period the

liquidating agent, or its duly appointed successor, or such persons as the Board shall designate, may act on behalf of the Federal credit

union for the purpose of paying, satisfying, and

discharging any existing liabilities or obligations, collecting and distributing its assets, and

doing all other acts required to adjust and wind

up its business and affairs, and it may sue and

be sued in its corporate name.

(c) After the expiration of five years from the

date of cancellation of the charter of a Federal

credit union the Board may, in its discretion,

destroy any or all books and records of such

Federal credit union in its possession or under

its control.

(d) The Board is authorized and empowered to

execute any and all functions and perform any

and all duties vested in it hereby, through such

persons as it shall designate or employ; and it

may delegate to any person or persons, including any institution operating under the general

supervision of the Administration, the performance and discharge of any authority, power, or

function vested in it by this chapter.

(e) All books and records of Federal credit

unions shall be kept and reports shall be made

in accordance with forms approved by the

Board.

(f)(1) The Board is authorized to make investigations and to conduct researches and studies

of the problems of persons of small means in

obtaining credit at reasonable rates of interest,

and of the methods and benefits of cooperative

saving and lending among such persons. It is

further authorized to make reports of such

investigations and to publish and disseminate

the same.

(2)(A) The Board is authorized to conduct

directly, or to make grants to or contracts with

colleges or universities, State or local educational agencies, or other appropriate public or

private nonprofit organizations to conduct programs for the training of persons engaged, or

preparing to engage, in the operation of credit

unions, and in related consumer counseling programs, serving the poor. It is authorized to

establish a program of experimental, developmental, demonstration, and pilot projects, either

directly or by grants to public or private nonprofit organizations, including credit unions, or

by contracts with such organizations or other

private organizations, designed to promote more

effective operation of credit unions, and related

consumer counseling programs, serving the

poor.

(B) In carrying out its authority under

this paragraph, the Board shall consult with

officials of the Office of Economic Opportunity

and other appropriate Federal agencies responsible for the administration of projects or programs concerned with problems of the poor. The

development and operation of programs and

projects under this paragraph shall involve

maximum feasible participation of residents of

the areas and members of the groups served by

such programs and projects, with community

action agencies established under the provisions

of the Economic Opportunity Act of 1964 serving, to the extent feasible, as the means through

which such participation is achieved.

(C) In order to carry out the purposes of

this paragraph, there is authorized to be appropriated, as a supplement to any funds that may

be expended by the Board pursuant to sections

105 and 106 of this Act for such purposes, not

to exceed $300,000 for the fiscal year ending

June 30, 1970, and not to exceed $1,000,000 for

the fiscal year ending June 30, 1971.
OCTOBER 1998 15

(g) Any officer or employee of the Administration is authorized, when designated for the purpose by the Board, to administer oaths and

affirmations and to take affidavits and depositions touching upon any matter within the jurisdiction of the Administration.

(h) The Board is authorized, empowered, and

directed to require that every person appointed

or elected by any Federal credit union to any

position requiring the receipt, payment, or custody of money or other personal property owned

by a Federal credit union, or in its custody or

control as collateral or otherwise, give bond in a

corporate surety company holding a certificate

of authority from the Secretary of the Treasury

under the Act approved July 30, 1947 (6 U.S.C.,

§§ 6–13), as an acceptable surety on Federal

Bonds. Any such bond or bonds shall be in a

form approved by the Board or with a view to

providing surety coverage to the Federal credit

union with reference to loss by reason of acts of

fraud or dishonesty including forgery, theft,

embezzlement, wrongful abstraction, or

misapplication on the part of the person,

directly or through connivance with others, and

such other surety coverages as the Board may

determine to be reasonably appropriate or as

elsewhere required by this chapter. Any such

bond or bonds shall be in such an amount in

relation to the money or other personal property

involved or in relation to the assets of the Federal credit union as the Board may from time to

time prescribe by regulation for the purpose of

requiring reasonable coverage. In lieu of individual bonds the Board may approve the use of a

form of schedule or blanket bond which covers

all of the officers and employees of a Federal

credit union whose duties include the receipt,

payment, or custody of money or other personal

property for or on behalf of the Federal credit

union. The Board may also approve the use of

a form of excess coverage bond whereby a Federal credit union may obtain an amount of coverage in excess of the basic surety coverage.

(i) in addition to the authority conferred upon

it by other sections of this Act, the Board is

authorized in carrying out its functions under

this Act—

(1) to appoint such personnel as may be

necessary to enable the Administration to carry

out its functions;

(2) to expend such funds, enter into such

contracts with public and private organizations

and persons, make such payments in advance or

by way of reimbursement, acquire and dispose

of, by lease or purchase, real or personal property, without regard to the provisions of any

other law applicable to executive or independent

agencies of the United States, and perform such

other functions or acts as it may deem necessary or appropriate to carry out the provisions

of this Act, in accordance with the rules and

regulations or policies established by the Board

not inconsistent with this Act.

(3) to pay stipends, including allowances for

travel to and from the place of residence, to any

individual to study in a program assisted under

this Act upon a determination by the Board that

assistance to such individual in such studies

will be in furtherance of the purposes of this

Act.

(j) Staff.—

(1) Appointment and compensation.—

The Board shall fix the compensation and number of, and appoint and direct, employees of the

Board. Rates of basic pay for employees of the

Board may be set and adjusted by the Board

without regard to the provisions of chapter 51

or subchapter III of chapter 53 of title 5, United

States Code.

(2) Additional compensation and benefits.—The Board may provide additional compensation and benefits to employees of the

Board if the same type of compensation or benefits are then being provided by any other Federal bank regulatory agency or, if not then being

provided, could be provided by such an agency

under applicable provisions of law, rule, or regulation. In setting and adjusting the total amount

of compensation and benefits for employees of

the Board, the Board shall seek to maintain

comparability with other Federal bank regulatory agencies.

(3) Funding.—The salaries and expenses of

the Board and employees of the Board shall be

paid from fees and assessments (including

income earned on insurance deposits) levied on

insured credit unions under this Act.

§ 1767 § 121

Fiscal agents and depositories.—(a) Each

Federal credit union organized under this chapter, when requested by the Secretary of the

Treasury, shall act as fiscal agent of the United

States and shall perform such services as the

Secretary of the Treasury may require in

connection with the collection of taxes and other

obligations due the United States and the lending, borrowing, and repayment of money by the
16 OCTOBER 1998

United States, including the issue, sale, redemption, or repurchase of bonds, notes, Treasury

certificates of indebtedness, or other obligations

of the United States; and to facilitate such purposes the Board shall furnish to the Secretary of

the Treasury from time to time the names and

addresses of all Federal credit unions with such

other available information concerning them as

may be requested by the Secretary of the Treasury. Any Federal credit union organized under

this chapter, when designated for that purpose

by the Secretary of the Treasury, shall be a

depository of public money, except receipts from

customs, under such regulations as may be prescribed by the Secretary of the Treasury.

(b) Any Federal credit union, upon the deposit

with it of any funds by the Federal Government,

an Indian tribe, or any State or local government or political subdivision thereof as otherwise authorized by this Act, is authorized to

pledge any of its assets securing the payment of

the funds so deposited.

§ 1768 § 122

Taxation.—The Federal credit unions organized hereunder, their property, their franchises, capital, reserves, surpluses, and other

funds, and their income shall be exempt from

all taxation now or hereafter imposed by the

United States or by any State, Territorial, or

local taxing authority; except that any real

property and any tangible personal property of

such Federal credit unions shall be subject to

Federal, State, Territorial, and local taxation to

the same extent as other similar property is

taxed. Nothing herein contained shall prevent

holdings in any Federal credit union organized

hereunder from being included in the valuation

of the personal property of the owners or holders thereof in assessing taxes imposed by

authority of the State or political subdivision

thereof in which the Federal credit union is

located; but the duty or burden of collecting or

enforcing the payment of such a tax shall not be

imposed upon any such Federal credit union

and the tax shall not exceed the rate of taxes

imposed upon holdings in domestic credit

unions.

§ 1769 § 123

Separability of provisions; right to alter,

amend, or repeal chapter.—(a) If any provision of this chapter, or the application thereof to

any person or circumstance, is held invalid, the

remainder of the chapter, and the application of

such provision to other persons or circumstances, shall not be affected thereby.

(b) The right to alter, amend, or repeal this

chapter or any part thereof, or any charter

issued pursuant to the provisions of this chapter, is expressly reserved.

§ 1770 § 124

Allotment of space in Federal buildings.—Upon application by any credit union

organized under State law or by any Federal

credit union organized in accordance with the

terms of this chapter, which application shall be

addressed to the officer or agency of the United

States charged with the allotment of space in

the Federal buildings in the community or district in which such credit union does business,

such officer or agency may in his or its discretion allot space to such credit union without

charge for rent or services if at least 95 percent

of the membership of the credit union to be

served by the allotment of space is composed of

persons who either are presently Federal

employees or were Federal employees at the

time of admission into the credit union, and

members of their families, and if space is available. For the purpose of this section, the term

‘‘services’’ includes, but is not limited to, the

providing of lighting, heating, cooling, electricity, office furniture, office machines and

equipment, telephone service (including installation of lines and equipment and other expenses

associated with telephone service), and security

systems (including installation of and other

expenses associated with security systems).

Where there is an agreement for the payment of

costs associated with the provision of space or

services, nothing in title 31, United States Code,

or any other provision of law, shall be construed

to prohibit or restrict payment by reimbursement to the miscellaneous receipts or other

appropriate account of the Treasury.

§ 1771 § 125

Conversion from Federal to State credit

union and from State to Federal credit

union.—(a) A Federal credit union may be converted into a State credit union under the laws

of any State, the District of Columbia, the several Territories and possessions of the United

States, the Panama Canal Zone, or the

Commonwealth of Puerto Rico, by complying

with the following requirements:
OCTOBER 1998 17

(1) The proposition for such conversion shall

first be approved, and a date set for a vote

thereon by the members (either at a meeting to

be held on such date or by written ballot to be

filed on or before such date), by a majority of

the directors of the Federal credit union. Written notice of the proposition and of the date set

for the vote shall then be delivered in person to

each member, or mailed to each member at the

address for such member appearing on the

records of the credit union, not more than thirty

nor less than seven days prior to such date.

Approval of the proposition for conversion shall

be by the affirmative vote of a majority of the

members of the credit union who vote on the

proposal. The written notice of the proposition

shall in bold face type state that the issue will

be decided by a majority of the members who

vote.

(2) A statement of the results of the vote,

verified by the affidavits of the president or vice

president and the secretary, shall be filed with

the Administration within ten days after the

vote is taken.

(3) Promptly after the vote is taken and in

no event later than ninety days thereafter, if

the proposition for conversion was approved by

such vote, the credit union shall take such

action as may be necessary under the applicable

State law to make it a State credit union, and

within ten days after receipt of the State credit

union charter there shall be filed with the

Administration a copy of the charter thus

issued. Upon such filing the credit union shall

cease to be a Federal credit union.

(4) Upon ceasing to be a Federal credit

union, such credit union shall no longer be subject to any of the provisions of this chapter. The

successor State credit union shall be vested with

all of the assets and shall continue responsible

for all of the obligations of the Federal credit

union to the same extent as though the conversion had not taken place.

(b)(1) A State credit union, organized under

the laws of any State, the District of Columbia,

the several Territories and possessions of the

United States, the Panama Canal Zone, or the

Commonwealth of Puerto Rico, may be converted into a Federal credit union by (A)

complying with all State requirements requisite

to enabling it to convert to a Federal credit

union or to cease being a State credit union, (B)

filing with the Administration proof of such

compliance, satisfactory to the Board, and (C)

filing with the Administration an organization

certificate as required by this chapter.

(2) When the Board has been satisfied that

all of such requirements, and all other requirements of this chapter, have been complied with,

the Board shall approve the organization certificate. Upon such approval, the State credit union

shall become a Federal credit union as of the

date it ceases to be a State credit union. The

Federal credit union shall be vested with all of

the assets and shall continue responsible for all

of the obligations of the State credit union to

the same extent as though the conversion had

not taken place.

§ 1772 § 126

Territorial application of chapter.—The

provisions of this chapter shall apply to the several States, the District of Columbia, the several

Territories, including the trust territories, and

possessions of the United States, the Panama

Canal Zone, and the Commonwealth of Puerto

Rico.

§ 1772a § 127

Gifts; acceptance of conditional gifts;

deposit.—The Board is authorized to accept

gifts of money made unconditionally by will or

otherwise for the carrying out of any of the

functions under this chapter. A conditional gift

of money made by will or otherwise for such

purposes may be accepted and used in accordance with its conditions, but no such gift shall

be accepted which is conditioned upon any

expenditure not to be met therefrom or from

income thereof unless the Board determines

that supplementation of such gift from the fees

it may expend pursuant to sections 1755 and

1756 of this title or from any funds appropriated

pursuant to section 1766(f)(2)(C) of this title for

the purpose of making such expenditure will not

adversely affect the sound administration of this

chapter. Any such gift shall be deposited in the

Treasury of the United States for the account of

the Administration and may be expended in

accordance with section 1755 or as provided in

the preceding sentence.

§ 1772b § 128

Apportionment.—Notwithstanding any other

provision of law, funds received by the Board

pursuant to any method provided by this Act,

and interest, dividend, or other income thereon,

shall not be subject to apportionment for the

purpose of chapter 15 of title 31, United States

Code, or under any other authority.
18 OCTOBER 1998

§ 1772c § 129

Trust Fund.—Notwithstanding any other

provision of law, all moneys of the Board shall

be treated as trust funds for the purpose of section 256(a)(2) of the Balanced Budget and

Emergency Deficit Control Act of 1985. This section is effective for fiscal year 1986 and every

fiscal year thereafter.

§ 1772c-1 § 130

Community Development Revolving

Loan Fund for Credit Unions.

(a) In General.—The Board may exercise

the authority granted to it by the Community

Development Credit Union Revolving Loan

Fund Transfer Act, including any additional

appropriation made or earnings accrued, subject

only to this section and to regulations prescribed by the Board.

(b) Investment.—The Board may invest

any idle Fund moneys in United States Treasury securities. Any interest accrued such securities shall become a part of the Fund.

(c) Loans.—The Board may require that

any loans made from the Fund be matched by

increased shares in the borrower credit union.

(d) Interest.—Interest earned by the Fund

may be allocated by the Board for technical

assistance to community development credit

unions, subject to an appropriations Act.

(e) Definitions.—As used in this section,

the term ‘Fund’ means the Community Development Credit Union Revolving Loan Fund.

§ 1772d § 131

Forfeiture of Organization Certificate for

Money Laundering or Case Transaction

Reporting Offenses.—

(a) Forfeiture of Franchise for Money

Laundering or Cash Transaction Reporting

Offenses.—

(1) Conviction of Title 18 offenses.—

(A) Duty to notify.—If a credit union

has been convicted of any criminal offense

under section 1956 or 1957 of Title 18, United

States Code, the Attorney General shall provide

to the Board a written notification of the conviction and shall include a certified copy of the

order of conviction from the court rendering the

decision.

(B) Notice of termination:

pretermination hearing.—After receiving

writing notification from the Attorney General

of such a conviction, the Board shall issue to

such credit union a notice of its intention to

terminate all rights, privileges, and franchises

of the credit union and schedule a

pretermination hearing.

(2) Conviction of Title 31 offenses.—If

a credit union is convicted of any criminal

offense, under section 5322 or 5324 of title 31,

United States Code, after receiving written

notification from the Attorney General, the

Board may issue to such credit union a notice of

its intention to terminate all rights, privileges,

and franchises of the credit union and schedule

a pretermination hearing.

(3) Judicial review.—Section 206(j)

shall apply to any proceeding under this section.

(b) Factors to be considered.—In determining whether a franchise shall be forfeited

under subsection (a), the Board shall take into

account the following factors:

(1) The extent to which directors, committee members, or senior executive officers (as

defined by the Board in regulations which the

Board shall prescribe) of the credit union knew

of, or were involved in, the commission of the

money laundering offense of which the credit

union was found guilty.

(2) The extent to which the offense

occurred despite the existence of policies and

procedures within the credit union which were

designed to prevent the occurrence of any such

offense.

(3) The extent to which the credit union

has fully cooperated with law enforcement

authorities with respect to the investigation of

the money laundering offense of which the

credit union was found guilty.

(4) The extent to which the credit union

has implemented additional internal controls

(since the commission of the offense of which

the credit union was found guilty) to prevent

the occurrence of any other money laundering

offense.

(5) The extent to which the interest of the

local community in having adequate deposit and

credit services available would be threatened by

the forfeiture of the franchise.

(c) Successor liability.—This section shall

not apply to a successor to the interests of, or a

person who acquires, a credit union that vio-
OCTOBER 1998 19

lated a provision of law described in subsection

(a), if the successor succeeds to the interests of

the violator, or the acquisition is made, in good

faith and not for purposes of evading this section or regulations prescribed under this section.

OCTOBER 1998 21

Title II—Share Insurance

§ 1781 § 201

Insurance of member accounts.—

(a) The Board, as hereinafter provided, shall

insure the member accounts of all Federal credit

unions and it may insure the member accounts

of (1) credit unions organized and operated

according to the laws of any State, the District

of Columbia, the several territories, including

the trust territories, and possessions of the

United States, the Panama Canal Zone, or the

Commonwealth of Puerto Rico, and (2) credit

unions organized and operating under the jurisdiction of the Department of Defense if such

credit unions are operating in compliance with

the requirements of title I of this Act and regulations issued thereunder.

(b) Application for insurance of member

accounts shall be made immediately by each

Federal credit union and may be made at any

time by a State credit union or a credit union

operating under the jurisdiction of the Department of Defense. Applications for such insurance shall be in such form as the Board shall

provide and shall contain an agreement by the

applicant—

(1) to pay the reasonable cost of such

examinations as the Board may deem necessary

in connection with determining the eligibility of

the applicant for insurance: Provided, That

examinations required under title I of this Act

shall be so conducted that the information

derived therefrom may be utilized for share

insurance purposes, and examinations conducted by State regulatory agencies shall be utilized by the Board for such purposes to the

maximum extent feasible;

(2) to permit and pay the reasonable cost of

such examinations as in the judgment of the

Board may from time to time be necessary for

the protection of the fund and of other insured

credit unions;

(3) to permit the Board to have access to

any information or report with respect to any

examination made by or for any public regulatory authority, including any commission,

board, or authority having supervision of a

State-chartered credit union, and furnish such

additional information with respect thereto as

the Board may require;

(4) to provide protection and indemnity

against burglary, defalcation, and other similar

insurable losses, of the type, in the form, and in

an amount at least equal to that required by the

laws under which the credit union is organized

and operates;

(5) to maintain such regular reserves as

may be required by the laws of the State, district, territory, or other jurisdiction pursuant to

which it is organized and operated, in the case

of a state-chartered credit union, or as may be

required by section 116 of this Act, in the case

of a Federal credit union;

(6) to maintain such special reserves as the

Board, by regulation or in special cases, may

require for protecting the interest of members or

to assure that all insured credit unions maintain regular reserves which are not less than

those required under title I of this Act;

(7) not to issue or have outstanding any

account or security the form of which, by regulation or in special cases, has not been approved

by the Board except for accounts authorized by

State law for State credit unions;

(8) to pay and maintain its deposit and to

pay the premium charges for insurance imposed

by this title; and

(9) to comply with the requirements of this

title and of regulations prescribed by the Board

pursuant thereto.

(c)(1) Before approving the application of any

credit union for insurance of its member

accounts, the Board shall consider—

(A) the history, financial condition, and

management policies of the applicant;

(B) the economic advisability of insuring

the applicant without undue risk of the fund;

(C) the general character and the fitness

of the applicant’s management;

(D) the convenience and needs of the

members to be served by the applicant; and

(E) whether the applicant 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.

(2) The Board shall disapprove the application of any credit union for insurance of its
22 OCTOBER 1998

member accounts if it finds that its reserves are

inadequate, that its financial condition and policies are unsafe or unsound, that its management is unfit, that insurance of its member

accounts would otherwise involve undue risk to

the fund, or that its powers and purposes are

inconsistent with the promotion of thrift among

its members and the creation of a source of

credit for provident or productive purposes.

(d) Upon the approval of any application for

insurance, the Board shall notify the applicant

and shall issue to it a certificate evidencing the

fact that it is, as of the date of issuance of the

certificate, an insured credit union under the

provisions of this title.

(e) Prohibition on certain associations.—

(1) In general.—No insured credit union

may be sponsored by or accept financial support, directly or indirectly, from any Government-sponsored enterprise, if the credit union

includes the customers of the Government-sponsored enterprise in the field of membership of

the credit union.

(2) Routine business financing.—Paragraph (1) shall not apply with respect to

advances or other forms of financial assistance

generally provided by a Government-sponsored

enterprise in the ordinary course of business of

the enterprise.

(3) Government-sponsored enterprise

defined.—For purposes of this subsection, the

term ‘Government-sponsored enterprise’ has the

meaning given to such term in section

1404(e)(1)(A) of the Financial Institutions

Reform, Recovery, and Enforcement Act of 1989.

(4) Employee credit union.—No provision

of this subsection shall be construed as prohibiting any employee of a Government-sponsored

enterprise from becoming a member of a credit

union whose field of membership is the employees of such enterprise.
OCTOBER 1998 23

* This Section 202 remains in effect until December 31,

1999. On January 1, 2000, changes made to this section by

P.L. 105–219 become effective. Please remove this Section

202 on December 31, 1999. Amended Section 202 is found

immediately following this section 202.

§ 1782 § 202 *

Administration of insurance fund.—(a)(1)

Each insured credit union shall make reports of

condition to the Board upon dates which shall

be selected by it. Such reports of condition shall

be in such form and shall contain such information as the Board may require. The reporting

dates selected for reports of condition shall be

the same for all insured credit unions except

that when any of said reporting dates is a nonbusiness day for any credit union the preceding

business day shall be its reporting date. The

total amount of the member accounts of each

insured credit union as of each reporting date

shall be reported in such reports of condition in

accordance with regulations prescribed by the

Board. Each report of condition shall contain a

declaration by the president, by a vice president, by the treasurer, or by any other officer

designated by the board of directors of the

reporting credit union to make such declaration,

that the report is true and correct to the best of

such officer’s knowledge and belief. Unless such

requirement is waived by the Board, the correctness of each report of condition shall be attested

by the signatures of three of the officers of the

reporting credit union with the declaration that

the report has been examined by them and to

the best of their knowledge and belief is true

and correct.

(2) The Board may call for such other

reports as it may from time to time require.

(3) The Board may require reports of condition to be published in such manner, not

inconsistent with any applicable law, as it may

direct. Any insured credit union which maintains procedures reasonably adapted to avoid

any inadvertent error and, unintentionally and

as a result of such an error, fails to submit or

publish any report required under this subsection or section 106, within the period of time

specified by the Board, or submits or publishes

any false or misleading report or information, or

inadvertently transmits or publishes any report

which is minimally late, shall be subject to a

penalty of not more than $2,000 for each day

during which such failure continues or such

false or misleading information is not corrected.

The insured credit union shall have the burden

of proving that an error was inadvertent and

that a report was inadvertently transmitted or

published late. Any insured credit union which

fails to submit or publish any report required

under this subsection or section 106, within the

period of time specified by the Board, or submits

or publishes any false or misleading report or

information, in a manner not described in the

2nd preceding sentence shall be subject to a

penalty of not more than $20,000 for each day

during which such failure continues or such

false or misleading information is not corrected.

Notwithstanding the preceding sentence, if any

insured credit union knowingly or with reckless

disregard for the accuracy of any information or

report described in such sentence submits or

publishes any false or misleading report or

information, the Board may assess a penalty of

not more than $1,000,000 or 1 percent of total

assets of such credit union, whichever is less,

per day for each day during which such failure

continues or such false or misleading information is not corrected. Any penalty imposed

under any of the 4 preceding sentences shall be

assessed and collected by the Board in the manner provided in section 206(k)(2) (for penalties

imposed under such section) and any such

assessment (including the determination of the

amount of the penalty) shall be subject to the

provisions of such section. Any insured credit

union against which any penalty is assessed

under this subsection shall be afforded an

agency hearing if such insured credit union submits a request for such hearing within 20 days

after the issuance of the notice of assessment.

Section 206(j) shall apply to any proceeding

under this subsection.

(4) The Board may accept any report of

condition made to any commission, board, or

authority having supervision of a State-chartered credit union and may furnish to any such

commission, board, or authority reports of condition made to the Board.

(5) Reports required under title I of this Act

shall be so prepared that they can be used for

share insurance purposes. To the maximum

extent feasible, the Board shall use for insurance purposes reports submitted to State regulatory agencies by State-chartered credit unions.

(6) Audit requirement.—

(A) In general.—Before the end of the

120-day period beginning on the date of the

enactment of the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989 and notwithstanding any other provision of Federal or

State law, the Board shall prescribe, by regula-
24 OCTOBER 1998

tion, audit standards which require an outside,

independent audit of any insured credit union

by a certified public accountant for any fiscal

year (of such credit union)—

(i) for which such credit union has not

conducted an annual supervisory committee

audit;

(ii) for which such credit union has not

received a complete and satisfactory supervisory

committee audit; or

(iii) during which such credit union has

experienced persistent and serious recordkeeping deficiencies, as determined by the

Board.

(B) Unsafe or unsound practice.—The

Board may treat the failure of any insured

credit union to obtain an outside, independent

audit for any fiscal year for which such audit is

required under subparagraph (A) as an unsafe

or unsound practice within the meaning of section 206(b).

(7) Report to independent auditor.—

(A) In general.—Each insured credit

union which has engaged the services of an

independent auditor to audit such depository

institution within the past 2 years shall transmit to such auditor a copy of the most recent

report of condition made by such credit union

(pursuant to this Act or any other provision of

law) and a copy of the most recent report of

examination received by such credit union.

(B) Additional information.—In addition to the copies of the reports required to be

provided to an auditor under subparagraph (A),

each insured credit union shall provide such

auditor with—

(i) a copy of any supervisory memorandum of understanding with such credit union

and any written agreement between the Board

or a State regulatory agency and the credit

union which is in effect during the period covered by the audit; and

(ii) a report of any action initiated or

taken by the Board during such period under

subsection (e), (f), (g), (i), (l), or (q) of section

206, or any similar action taken by a State

regulatory agency under State law, or any other

civil money penalty assessed by the Board

under this Act with respect to—

(I) the credit union; or

(II) any institution-affiliated party.

(b)(1) For each insurance year, each insured

credit union which became insured prior to the

beginning of that year shall file with the Board,

at such time as the Board prescribes, a certified

statement showing the total amount of insured

shares in the credit union at the close of the

preceding insurance year and both the amount

of its deposit or adjustment thereof and the

amount of the premium charge for insurance

due to the fund for that year, both as computed

under subsection (c) of this section.

(2) The certified statements required to be

filed with the Board pursuant to this subsection

shall be in such form and shall set forth such

supporting information as the Board shall

require.

(3) Each such statement shall be certified

by the president of the credit union, or by any

officer of the credit union designated by its

board of directors, that to the best of his knowledge and belief that statement is true, correct,

and complete and in accordance with this title

and regulations issued thereunder.

(c)(1)(A)(i) Each insured credit union shall pay

to and maintain with the National Credit Union

Share Insurance Fund a deposit in an amount

equaling 1 per centum of the credit union’s

insured shares.

(ii) The Board may, in its discretion,

authorize insured credit unions to initially fund

such deposit over a period of time in excess of

one year if necessary to avoid adverse effects on

the condition of insured credit unions.

(iii) The amount of each insured credit

union’s deposit shall be adjusted annually, in

accordance with procedures determined by the

Board, to reflect changes in the credit union’s

insured shares.

(B)(i) The deposit shall be returned to an

insured credit union in the event that its insurance coverage is terminated, it converts to

insurance coverage from another source, or in

the event the operations of the fund are transferred from the National Credit Union Administration Board;

(ii) The deposit shall be returned in

accordance with procedures and valuation methods determined by the Board, but in no event

shall the deposit be returned any later than one

year after the final date on which no shares of

the credit union are insured by the Board.

(iii) The deposit shall not be returned

in the event of liquidation on account of bankruptcy or insolvency.
OCTOBER 1998 25

(iv) The deposit funds may be used by

the fund if necessary to meet its expenses, in

which case the amount so used shall be

expensed and shall be replenished by insured

credit unions in accordance with procedures

established by the Board.

(2) Each insured credit union, at such time

as the Board prescribes, shall pay to the fund a

premium charge for insurance equal to onetwelfth of 1 per centum of the total amount of

the insured shares in such credit union at the

close of the preceding insurance year.

(3) When, at the end of a given insurance

year, any loans to the fund from the Federal

Government and the interest thereon have been

repaid and the equity of the fund exceeds the

normal operating level, the Board shall effect

for that insurance year a pro rata distribution

to insured credit unions of an amount sufficient

to reduce the equity in the fund to its normal

operating level.

(d)(1) Any insured credit union which fails to

make any report of condition under subsection

(a) of this section or to file any certified statement required to be filed by it in connection

with determining the amount of its deposit or

any premium charge for insurance may be compelled to make such report or to file such statement by mandatory injunction or other appropriate remedy in a suit brought for such purpose by the Board against the credit union and

any officer or officers thereof. Any such suit may

be brought in any court of the United States of

competent jurisdiction in the district or territory

in which the principal office of the credit union

is located.

(2) Penalty for failure to make accurate

certified statement or to pay deposit or

premium.—

(A) First tier.—Any insured credit union

which—

(i) maintains procedures reasonably

adapted to avoid any inadvertent error and,

unintentionally and as a result of such an error,

fails to submit any certified statement under

subsection (b)(1) within the period of time

required or submits a false or misleading certified statement under such subsection; or

(ii) submits the statement at a time

which is minimally after the time required,

shall be subject to a penalty of not more than

$2,000 for each day during which such failure

continues or such false and misleading information is not corrected. The insured credit union

shall have the burden of proving that an error

was inadvertent or that a statement was

inadvertently submitted late.

(B) Second tier.—An insured credit

union which—

(i) fails to submit any certified statement under subsection (b)(1) within the period

of time required or submits a false or misleading certified statement in a manner not

described in subparagraph (A); or

(ii) fails or refuses to pay any deposit or

premium for insurance required under this title,

shall be subject to a penalty of not more than

$20,000 for each day during which such failure

continues, such false and misleading information is not corrected, or such deposit or premium

is not paid.

(C) Third tier.—Notwithstanding subparagraphs (A) and (B), if any insured credit

union knowingly or with reckless disregard for

the accuracy of any certified statement under

subsection (b)(1) or submits a false or misleading certified statement under such subsection,

the Board may assess a penalty of not more

than $1,000,000 or not more than 1 percent of

the total assets of the institution, whichever is

less, per day for each day during which the failure continues or the false or misleading

information in such statement is not corrected.

(D) Assessment procedure.—Any penalty imposed under this paragraph shall be

assessed and collected by the Board in the manner provided in section 206(k)(2) (for penalties

imposed under such section) and any such

assessment (including the determination of the

amount of the penalty) shall be subject to the

provisions of such section.

(E) Hearing.—Any insured credit union

against which any penalty is assessed under

this paragraph shall be afforded an agency

hearing if the credit union submits a request for

such hearing within 20 days after the issuance

of the notice of the assessment. Section 206(j)

shall apply to any proceeding under this

subparagraph.

(F) Special rule for disputed payments.—No penalty may be assessed for the

failure of any insured credit union to pay any

deposit or premium for insurance if—

(i) the failure is due to a dispute

between the credit union and the Board over
26 OCTOBER 1998

the amount of the deposit or premium which is

due from the credit union; and

(ii) the credit union deposits security

satisfactory to the Board for payment of the

deposit or insurance premium upon final determination of the dispute.

(3) No insured credit union shall pay any

dividends on its insured shares or distribute

any of its assets while it remains in default in

the payment of its deposit or any premium

charge for insurance due to the fund. Any director or officer of any insured credit union who

knowingly participates in the declaration or

payment of any such dividend or in any such

distribution shall, upon conviction, be fined not

more than $1,000 or imprisoned not more than

one year, or both. The provisions of this paragraph shall not be applicable in any case in

which the default is due to a dispute between

the credit union and the Board over the amount

of its deposit or the premium charge due to the

fund if the credit union deposits security satisfactory to the Board for payment of its deposit

or the premium charge upon final determination

of the issue.

(e) The Board, in a suit brought at law or in

equity in any court of competent jurisdiction,

shall be entitled to recover from any insured

credit union the amount of any unpaid deposit

or premium charge for insurance lawfully payable by the credit union to the fund, whether or

not such credit union shall have made any

report of condition under subsection (a) of this

section or filed any certified statement required

under subsection (b) of this section and whether

or not suit shall have been brought to compel

the credit union to make any such report or to

file any such statement. No action or proceeding

shall be brought for the recovery of any deposit

or premium charge due to the fund, or for the

recovery of any amount paid to the fund in

excess of the amount due it, unless such action

or proceeding shall have been brought within

five years after the right accrued for which the

claim is made. Where the insured credit union

has made or filed with the Board a false or

fraudulent certified statement with the intent to

evade, in whole or in part, the payment of its

deposit or any premium charge, the claim shall

not be deemed to have accrued until the discovery by the Board of the fact that the certified

statement is false or fraudulent.

(f) Should any Federal credit union fail to

make any report of condition under subsection

(a) of this section or to file any certified statement required to be filed under subsection (b) of

this section or to pay its deposit or any premium charge for insurance required to be paid

under any provision of this title, and should the

credit union fail to correct such failure within

thirty days after written notice has been given

by the Board to an officer of the credit union citing this subsection and stating that the credit

union has failed to make any such report or file

any such statement or pay any such deposit or

premium charge as required by law, all the

rights, privileges, and franchises of the credit

union granted to it under title I of this Act shall

be thereby forfeited. Whether or not the penalty

provided in this subsection has been incurred

shall be determined and adjudged by any court

of the United States of competent jurisdiction in

a suit brought for that purpose in the district or

territory in which the principal office of such

credit union is located, under direction of and by

the Board in its own name, before the credit

union shall be declared dissolved. The remedies

provided in this subsection and in subsections

(d) and (e) of this section shall not be construed

as limiting any other remedies against any

insured credit union but shall be in addition

thereto.

(g) Each insured credit union shall maintain

such records as will readily permit verification

of the correctness of its reports of condition, certified statements, deposits and premium charges

for insurance. However, no insured credit union

shall be required to retain such records for such

purpose for a period in excess of five years from

the date of the making of any such report, the

filing of any such statement, or the payment of

any deposit or adjustment thereof or any premium charge, except that when there is a dispute between the insured credit union and the

Board over the amount of any deposit or adjustment thereof or any premium charge, for insurance the credit union shall retain such records

until final determination of the issue.

(h) For the purposes of this section—

(1) the term ‘‘insurance year’’ means the

period beginning on January 1 and ending on

the following December 31, both dates inclusive,

unless otherwise prescribed by the Board;

(2) the term ‘‘normal operating level,’’ when

applied to the fund, means an amount equal to

1.3 per centum of the aggregate amount of the

insured shares in all insured credit unions, or

such lower level as the Board may determine;

and
OCTOBER 1998 27

(3) the term ‘‘insured shares’’ when applied

to this section includes share, share draft, share

certificate and other similar accounts as determined by the Board, but does not include

amounts in excess of the insured account limit

set forth in section 207(c)(1).
OCTOBER 1998 23a

* This Section 202 incorporates changes made by P.L.

105–219 (amendments to subsections (a)(6), completely revised subsection (b), (c)(1)(A)(iii), (c)(2), (c)(3), new subsection (c)(4), and completely revised subection (h)). These

changes are not effective until January 1, 2000.

§ 1782a § 202 *

Administration of insurance fund.—(a)(1)

Each insured credit union shall make reports of

condition to the Board upon dates which shall

be selected by it. Such reports of condition shall

be in such form and shall contain such information as the Board may require. The reporting

dates selected for reports of condition shall be

the same for all insured credit unions except

that when any of said reporting dates is a nonbusiness day for any credit union the preceding

business day shall be its reporting date. The

total amount of the member accounts of each

insured credit union as of each reporting date

shall be reported in such reports of condition in

accordance with regulations prescribed by the

Board. Each report of condition shall contain a

declaration by the president, by a vice president, by the treasurer, or by any other officer

designated by the board of directors of the

reporting credit union to make such declaration,

that the report is true and correct to the best of

such officer’s knowledge and belief. Unless such

requirement is waived by the Board, the correctness of each report of condition shall be attested

by the signatures of three of the officers of the

reporting credit union with the declaration that

the report has been examined by them and to

the best of their knowledge and belief is true

and correct.

(2) The Board may call for such other

reports as it may from time to time require.

(3) The Board may require reports of condition to be published in such manner, not

inconsistent with any applicable law, as it may

direct. Any insured credit union which maintains procedures reasonably adapted to avoid

any inadvertent error and, unintentionally and

as a result of such an error, fails to submit or

publish any report required under this subsection or section 106, within the period of time

specified by the Board, or submits or publishes

any false or misleading report or information, or

inadvertently transmits or publishes any report

which is minimally late, shall be subject to a

penalty of not more than $2,000 for each day

during which such failure continues or such

false or misleading information is not corrected.

The insured credit union shall have the burden

of proving that an error was inadvertent and

that a report was inadvertently transmitted or

published late. Any insured credit union which

fails to submit or publish any report required

under this subsection or section 106, within the

period of time specified by the Board, or submits

or publishes any false or misleading report or

information, in a manner not described in the

2nd preceding sentence shall be subject to a

penalty of not more than $20,000 for each day

during which such failure continues or such

false or misleading information is not corrected.

Notwithstanding the preceding sentence, if any

insured credit union knowingly or with reckless

disregard for the accuracy of any information or

report described in such sentence submits or

publishes any false or misleading report or

information, the Board may assess a penalty of

not more than $1,000,000 or 1 percent of total

assets of such credit union, whichever is less,

per day for each day during which such failure

continues or such false or misleading information is not corrected. Any penalty imposed

under any of the 4 preceding sentences shall be

assessed and collected by the Board in the manner provided in section 206(k)(2) (for penalties

imposed under such section) and any such

assessment (including the determination of the

amount of the penalty) shall be subject to the

provisions of such section. Any insured credit

union against which any penalty is assessed

under this subsection shall be afforded an

agency hearing if such insured credit union submits a request for such hearing within 20 days

after the issuance of the notice of assessment.

Section 206(j) shall apply to any proceeding

under this subsection.

(4) The Board may accept any report of

condition made to any commission, board, or

authority having supervision of a State-chartered credit union and may furnish to any such

commission, board, or authority reports of condition made to the Board.

(5) Reports required under title I of this Act

shall be so prepared that they can be used for

share insurance purposes. To the maximum

extent feasible, the Board shall use for insurance purposes reports submitted to State regulatory agencies by State-chartered credit unions.

(6) Audit requirement.—

(A) In general.—Before the end of the

120-day period beginning on the date of the

enactment of the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989 and notwithstanding any other provision of Federal or

State law, the Board shall prescribe, by regula-
24a OCTOBER 1998

tion, audit standards which require an outside,

independent audit of any insured credit union

by a certified public accountant for any fiscal

year (of such credit union)—

(i) for which such credit union has not

conducted an annual supervisory committee

audit;

(ii) for which such credit union has not

received a complete and satisfactory supervisory

committee audit; or

(iii) during which such credit union has

experienced persistent and serious recordkeeping deficiencies, as determined by the

Board.

(B) Unsafe or unsound practice.—The

Board may treat the failure of any insured

credit union to obtain an outside, independent

audit for any fiscal year for which such audit is

required under subparagraph (A) or (D) as an

unsafe or unsound practice within the meaning

of section 206(b).

(C) Accounting principles.—

(i) In general.—Accounting principles

applicable to reports or statements required to

be filed with the Board by each insured credit

union shall be uniform and consistent with generally accepted accounting principles.

(ii) Board determination.—If the

Board determines that the application of any

generally accepted accounting principle to any

insured credit union is not appropriate, the

Board may prescribe an accounting principle for

application to the credit union that is no less

stringent than generally accepted accounting

principles.

(iii) De minimus exception.—This

subparagraph shall not apply to any insured

credit union, the total assets of which are less

than $10,000,000, unless prescribed by the

Board or an appropriate State credit union

supervisor.

(D) Large credit union audit requirement.—

(i) In general.—Each insured credit

union having total assets of $500,000,000 or

more shall have an annual independent audit of

the financial statements of the credit union, performed in accordance with generally accepted

auditing standards by an independent certified

public accountant or public accountant licensed

by the appropriate State or jurisdiction to perform those services.

(ii) Voluntary audits.—If a Federal

credit union that is not required to conduct an

audit under clause (i), and that has total assets

of more than $10,000,000 conducts such an

audit for any purpose, using an independent

auditor who is compensated for his or her audit

services with respect to that audit, the audit

shall be performed consistent with the accountancy laws of the appropriate State or jurisdiction, including licensing requirements.

(7) Report to independent auditor.—

(A) In general.—Each insured credit

union which has engaged the services of an

independent auditor to audit such depository

institution within the past 2 years shall transmit to such auditor a copy of the most recent

report of condition made by such credit union

(pursuant to this Act or any other provision of

law) and a copy of the most recent report of

examination received by such credit union.

(B) Additional information.—In addition to the copies of the reports required to be

provided to an auditor under subparagraph (A),

each insured credit union shall provide such

auditor with—

(i) a copy of any supervisory memorandum of understanding with such credit union

and any written agreement between the Board

or a State regulatory agency and the credit

union which is in effect during the period covered by the audit; and

(ii) a report of any action initiated or

taken by the Board during such period under

subsection (e), (f), (g), (i), (l), or (q) of section

206, or any similar action taken by a State

regulatory agency under State law, or any other

civil money penalty assessed by the Board

under this Act with respect to—

(I) the credit union; or

(II) any institution-affiliated party.

(b) Certified Statement.—

(1) Statement required.—

(A) In general.—For each calendar year,

in the case of an insured credit union with total

assets of not more than $50,000,000, and for

each semi-annual period in the case of an

insured credit union with total assets of

$50,000,000 or more, an insured credit union

shall file with the Board, at such time as the

Board prescribes, a certified statement showing

the total amount of insured shares in the credit

union at the close of the relevant period and

both the amount of its deposit or adjustment of
OCTOBER 1998 25a

deposit and the amount of the insurance charge

due to the Fund for that period, both as computed under subsection (c).

(B) Exception for newly insured

credit union.—Subparagraph (A) shall not

apply with respect to a credit union that became

insured during the reporting period.

(2) Form.—The certified statements required to be filed with the Board pursuant to

this subsection shall be in such form and shall

set forth such supporting information as the

Board shall require.

(3) Certification.—The president of the

credit union or any officer designated by the

board of directors shall certify, with respect to

each statement required to be filed with the

Board pursuant to this subsection, that to the

best of his or her knowledge and belief the

statement is true, correct, complete, and in

accordance with this title and the regulations

issued under this title.

(c)(1)(A)(i) Each insured credit union shall pay

to and maintain with the National Credit Union

Share Insurance Fund a deposit in an amount

equaling 1 per centum of the credit union’s

insured shares.

(ii) The Board may, in its discretion,

authorize insured credit unions to initially fund

such deposit over a period of time in excess of

one year if necessary to avoid adverse effects on

the condition of insured credit unions.

(iii) Periodic adjustment.—The

amount of each insured credit union’s deposit

shall be adjusted as follows, in accordance with

procedures determined by the Board, to reflect

changes in the credit union’s insured shares.

(I) annually, in the case of an insured

credit union with total assets of not more than

$50,000,000; and

(II) semi-annually, in the case of an

insured credit union with total assets of

$50,000,000 or more.

(B)(i) The deposit shall be returned to an

insured credit union in the event that its insurance coverage is terminated, it converts to

insurance coverage from another source, or in

the event the operations of the fund are transferred from the National Credit Union Administration Board;

(ii) The deposit shall be returned in

accordance with procedures and valuation methods determined by the Board, but in no event

shall the deposit be returned any later than one

year after the final date on which no shares of

the credit union are insured by the Board.

(iii) The deposit shall not be returned

in the event of liquidation on account of bankruptcy or insolvency.

(iv) The deposit funds may be used by

the fund if necessary to meet its expenses, in

which case the amount so used shall be

expensed and shall be replenished by insured

credit unions in accordance with procedures

established by the Board.

(2) Insurance premium charges.—

(A) In general.—Each insured credit

union shall, at such times as the Board prescribes (but not more than twice in any calendar

year), pay to the Fund a premium charge for

insurance in an amount stated as a percentage

of insured shares (which shall be the same for

all insured credit unions).

(B) Relation of premium charge to

equity ratio of Fund.—The Board may assess

a premium charge only if—

(i) the Fund’s equity ratio is less than

1.3 percent; and

(ii) the premium charge does not exceed

the amount necessary to restore the equity ratio

to 1.3 percent.

(C) Premium charge required if

equity ratio falls below 1.2 percent.—If the

Fund’s equity ratio is less than 1.2 percent, the

Board shall, subject to subparagraph (B), assess

a premium charge in such an amount as the

Board determines to be necessary to restore the

equity ratio to, and maintain that ratio at, 1.2

percent.

(3) Distributions from Fund required.—

(A) In general.—The Board shall effect a

pro rata distribution to insured credit unions

after each calendar year if, as of the end of that

calendar year—

(i) any loans to the Fund from the Federal Government, and any interest on those

loans, have been repaid;

(ii) the Fund’s equity ratio exceeds the

normal operating level; and

(iii) the Fund’s available assets ratio

exceeds 1.0 percent.

(B) Amount of distribution.—The

Board shall distribute under subparagraph (A)

the maximum possible amount that—
26a OCTOBER 1998

(i) does not reduce the Fund’s equity

ratio below the normal operating level; and

(ii) does not reduce the Fund’s available

assets ratio below 1.0 percent.

(C) Calculation based on certified

statements.—In calculating the Fund’s equity

ratio and available assets ratio for purposes of

this paragraph, the Board shall determine the

aggregate amount of the insured shares in all

insured credit unions from insured credit unions

certified statements under subsection (b) for the

final reporting period of the calendar year

referred to in subparagraph (A).

(4) Timeliness and accuracy of data.—In

calculating the available assets ratio and equity

ratio of the Fund, the Board shall use the most

current and accurate data reasonably available.

(d)(1) Any insured credit union which fails to

make any report of condition under subsection

(a) of this section or to file any certified statement required to be filed by it in connection

with determining the amount of its deposit or

any premium charge for insurance may be compelled to make such report or to file such statement by mandatory injunction or other appropriate remedy in a suit brought for such purpose by the Board against the credit union and

any officer or officers thereof. Any such suit may

be brought in any court of the United States of

competent jurisdiction in the district or territory

in which the principal office of the credit union

is located.

(2) Penalty for failure to make accurate

certified statement or to pay deposit or

premium.—

(A) First tier.—Any insured credit union

which—

(i) maintains procedures reasonably

adapted to avoid any inadvertent error and,

unintentionally and as a result of such an error,

fails to submit any certified statement under

subsection (b)(1) within the period of time

required or submits a false or misleading certified statement under such subsection; or

(ii) submits the statement at a time

which is minimally after the time required,

shall be subject to a penalty of not more than

$2,000 for each day during which such failure

continues or such false and misleading information is not corrected. The insured credit union

shall have the burden of proving that an error

was inadvertent or that a statement was

inadvertently submitted late.

(B) Second tier.—An insured credit

union which—

(i) fails to submit any certified statement under subsection (b)(1) within the period

of time required or submits a false or misleading certified statement in a manner not

described in subparagraph (A); or

(ii) fails or refuses to pay any deposit or

premium for insurance required under this title,

shall be subject to a penalty of not more than

$20,000 for each day during which such failure

continues, such false and misleading information is not corrected, or such deposit or premium

is not paid.

(C) Third tier.—Notwithstanding subparagraphs (A) and (B), if any insured credit

union knowingly or with reckless disregard for

the accuracy of any certified statement under

subsection (b)(1) or submits a false or misleading certified statement under such subsection,

the Board may assess a penalty of not more

than $1,000,000 or not more than 1 percent of

the total assets of the institution, whichever is

less, per day for each day during which the failure continues or the false or misleading

information in such statement is not corrected.

(D) Assessment procedure.—Any penalty imposed under this paragraph shall be

assessed and collected by the Board in the manner provided in section 206(k)(2) (for penalties

imposed under such section) and any such

assessment (including the determination of the

amount of the penalty) shall be subject to the

provisions of such section.

(E) Hearing.—Any insured credit union

against which any penalty is assessed under

this paragraph shall be afforded an agency

hearing if the credit union submits a request for

such hearing within 20 days after the issuance

of the notice of the assessment. Section 206(j)

shall apply to any proceeding under this

subparagraph.

(F) Special rule for disputed payments.—No penalty may be assessed for the

failure of any insured credit union to pay any

deposit or premium for insurance if—

(i) the failure is due to a dispute

between the credit union and the Board over

the amount of the deposit or premium which is

due from the credit union; and

(ii) the credit union deposits security

satisfactory to the Board for payment of the
OCTOBER 1998 27a

deposit or insurance premium upon final determination of the dispute.

(3) No insured credit union shall pay any

dividends on its insured shares or distribute

any of its assets while it remains in default in

the payment of its deposit or any premium

charge for insurance due to the fund. Any director or officer of any insured credit union who

knowingly participates in the declaration or

payment of any such dividend or in any such

distribution shall, upon conviction, be fined not

more than $1,000 or imprisoned not more than

one year, or both. The provisions of this paragraph shall not be applicable in any case in

which the default is due to a dispute between

the credit union and the Board over the amount

of its deposit or the premium charge due to the

fund if the credit union deposits security satisfactory to the Board for payment of its deposit

or the premium charge upon final determination

of the issue.

(e) The Board, in a suit brought at law or in

equity in any court of competent jurisdiction,

shall be entitled to recover from any insured

credit union the amount of any unpaid deposit

or premium charge for insurance lawfully payable by the credit union to the fund, whether or

not such credit union shall have made any

report of condition under subsection (a) of this

section or filed any certified statement required

under subsection (b) of this section and whether

or not suit shall have been brought to compel

the credit union to make any such report or to

file any such statement. No action or proceeding

shall be brought for the recovery of any deposit

or premium charge due to the fund, or for the

recovery of any amount paid to the fund in

excess of the amount due it, unless such action

or proceeding shall have been brought within

five years after the right accrued for which the

claim is made. Where the insured credit union

has made or filed with the Board a false or

fraudulent certified statement with the intent to

evade, in whole or in part, the payment of its

deposit or any premium charge, the claim shall

not be deemed to have accrued until the discovery by the Board of the fact that the certified

statement is false or fraudulent.

(f) Should any Federal credit union fail to

make any report of condition under subsection

(a) of this section or to file any certified statement required to be filed under subsection (b) of

this section or to pay its deposit or any premium charge for insurance required to be paid

under any provision of this title, and should the

credit union fail to correct such failure within

thirty days after written notice has been given

by the Board to an officer of the credit union citing this subsection and stating that the credit

union has failed to make any such report or file

any such statement or pay any such deposit or

premium charge as required by law, all the

rights, privileges, and franchises of the credit

union granted to it under title I of this Act shall

be thereby forfeited. Whether or not the penalty

provided in this subsection has been incurred

shall be determined and adjudged by any court

of the United States of competent jurisdiction in

a suit brought for that purpose in the district or

territory in which the principal office of such

credit union is located, under direction of and by

the Board in its own name, before the credit

union shall be declared dissolved. The remedies

provided in this subsection and in subsections

(d) and (e) of this section shall not be construed

as limiting any other remedies against any

insured credit union but shall be in addition

thereto.

(g) Each insured credit union shall maintain

such records as will readily permit verification

of the correctness of its reports of condition, certified statements, deposits and premium charges

for insurance. However, no insured credit union

shall be required to retain such records for such

purpose for a period in excess of five years from

the date of the making of any such report, the

filing of any such statement, or the payment of

any deposit or adjustment thereof or any premium charge, except that when there is a dispute between the insured credit union and the

Board over the amount of any deposit or adjustment thereof or any premium charge, for insurance the credit union shall retain such records

until final determination of the issue.

(h) Definitions.—For purposes of this section, the following definitions shall apply:

(1) Available assets ratio.—The term

‘available assets ratio’, when applied to the

Fund, means the ratio of—

(A) the amount determined by subtracting—

(i) direct liabilities of the Fund and

contingent liabilities for which no provision for

losses has been made, from

(ii) the sum of cash and the market

value of unencumbered investments authorized

under section 203(c), to

(B) the aggregate amount of the insured

shares in all insured credit unions.
28a OCTOBER 1998

(2) Equity ratio.—The term ‘equity ratio’,

when applied to the Fund, means the ratio of—

(A) the amount of Fund capitalization,

including insured credit unions’ 1 percent

capitalization deposits and the retained earnings balance of the Fund (net of direct liabilities

of the Fund and contingent liabilities for which

no provision for losses has been made); to

(B) the aggregate amount of the insured

shares in all insured credit unions.

(3) Insured shares.—The term ‘insured

shares’, when applied to this section, includes

share, share draft, share certificate, and other

similar accounts as determined by the Board,

but does not include amounts exceeding the

insured account limit set forth in section

207(c)(1).

(4) Normal operating level.—The term

‘normal operating level’, when applied to the

Fund, means an equity ratio specified by the

Board, which shall be not less than 1.2 percent

and not more than 1.5 percent.
OCTOBER 1998 29

§ 1783 § 203

National Credit Union Share Insurance

Fund.—(a) There is hereby created in the

Treasury of the United States a National Credit

Union Share Insurance Fund which shall be

used by the Board as a revolving fund for carrying out the purposes of this title. Money in the

fund shall be available upon requisition by the

Board, without fiscal year limitation, for making

payments of insurance under section 207 of this

title, for providing assistance and making

expenditures under section 208 of this title in

connection with the liquidation or threatened

liquidation of insured credit unions, and for

such administrative and other expenses

incurred in carrying out the purposes of this

title as it may determine to be proper.

(b) All deposits and premium charges for

insurance paid pursuant to the provisions of

section 202 of this title and all fees for examination and all penalties collected by the Board

under any provision of this title shall be deposited in the National Credit Union Share Insurance Fund. The Board shall report annually to

the Committee on Banking, Housing, and Urban

Affairs of the Senate and the Committee on

Banking, Finance and Urban Affairs of the

House of Representatives with respect to the

operating level of the fund. Such report shall

also include the results of an independent audit

of the fund.

(c) The Board may authorize the Secretary of

the Treasury to invest and reinvest such portions of the fund as the Board may determine

are not needed for current operations in any

interest-bearing securities of the United States

or in any securities guaranteed as to both principal and interest by the United States or in

bonds or other obligations which are lawful

investments for fiduciary, trust, and public

funds of the United States, and the income

therefrom shall constitute a part of the fund.

(d)(1) If, in the judgment of the Board, a loan

to the fund is required at any time for carrying

out the purposes of this title, the Secretary of

the Treasury shall make the loan, but loans

under this paragraph shall not exceed in the

aggregate $100,000,000 outstanding at any one

time. Except as otherwise provided in this subsection and in subsection (e) of this section, each

loan under this paragraph shall be made on

such terms as may be fixed by agreement

between the Board and the Secretary of the

Treasury.

(2) Interest shall accrue to the Treasury on

the amount of any outstanding loans made to

the fund pursuant to paragraph (1) of this subsection on the basis of the average daily amount

of such outstanding loans determined at the

close of each fiscal year with respect to such

year, and the Board shall pay the interest so

accruing into the Treasury as miscellaneous

receipts annually from the fund. The Secretary

of the Treasury shall determine the applicable

interest rate in advance by calculating the average yield to maturity (on the basis of daily closing market bid quotations during the month of

September of the preceding fiscal year) on

outstanding marketable public debt obligations

of the United States having a maturity date of

five or less years from the first day of such

month of September and by adjusting such yield

to the nearest one-eighth of 1 per centum.

(3) For the purpose of making loans under

paragraph (1) of this subsection, the Secretary

of the Treasury is authorized to use as a public

debt transaction the proceeds of the sale of any

securities issued under the Second Liberty Bond

Act, as amended, and the purposes for which

securities may be issued under the Second Liberty Bond Act, as amended, are hereby extended

to include such loans. All loans and repayments

under this section shall be treated as public

debt transactions of the United States.

(e) So long as any loans to the fund are

outstanding, the Board shall from time to time,

not less often than annually, determine whether

the balance in the fund is in excess of the

amount which, in its judgment, is needed to

meet the requirements of the fund and shall pay

such excess to the Secretary of the Treasury, to

be credited against the loans to the fund.

(f) In addition to the authority to borrow from

the Secretary of the Treasury provided in subsection (d), if in the judgment of the Board, a

loan to the fund is required at any time for

carrying out the purposes of this title, the fund

is authorized to borrow from the National

Credit Union Administration Central Liquidity

Facility.

§ 1784 § 204

Examination of insured credit unions.—

(a) The Board shall appoint examiners who

shall have power, on its behalf, to examine any

insured credit union, any credit union making

application for insurance of its member

accounts, or any closed insured credit union
30 OCTOBER 1998

whenever in the judgment of the Board an

examination is necessary to determine the

condition of any such credit union for insurance

purposes. Each examiner shall have power to

make a thorough examination of all of the

affairs of the credit union and shall make a full

and detailed report of the condition of the credit

union to the Board. The Board in like manner

shall appoint claim agents who shall have

power to investigate and examine all claims for

insured member accounts. Each claim agent

shall have power to administer oaths and

affirmations, to examine and to take and preserve testimony under oath as to any matter in

respect to claims for insured accounts, and to

issue subpenas and subpenas duces tecum and,

for the enforcement thereof, to apply to the

United States district court for the judicial district or the United States court in any territory

in which the principal office of the credit union

is located or in which the witness resides or carries on business. Such courts shall have jurisdiction and power to order and require compliance with any such subpena.

(b) In connection with examinations of

insured credit unions, or with other types of

investigations to determine compliance with

applicable law and regulations, the Board, or its

designated representatives, shall have power to

administer oaths and affirmations, to examine

and to take and preserve testimony under oath

as to any matter in respect of the affairs of any

such credit union, and to issue subpenas and

subpenas duces tecum and to exercise such

other powers as are set forth in section 206(p),

and, for the enforcement thereof, to apply to the

United States district court for the judicial district or the United States court in any territory

in which the principal office of the credit union

is located or in which the witness resides or carries on business. Such courts shall have jurisdiction and power to order and require compliance with any such subpena.

(c) In cases of refusal to obey a subpena

issued to, or contumacy by, any person, the

Board may invoke the aid of any court of the

United States within the jurisdiction of which

such hearing, examination, or investigation is

carried on, or where such person resides or carries on business, in requiring the attendance

and testimony of witnesses and the production

of books, records, or other papers. Such court

may issue an order requiring such person to

appear before the Board, or before a person designated by it, there to produce records, if so

ordered, or to give testimony touching the matter in question. Any failure to obey such order

of the court may be punished by such court as

a contempt thereof. All process in any such case

may be served in the judicial district whereof

such person is an inhabitant or carries on business or wherever he may be found. No person

shall be excused from attending and testifying

or from producing books, records, or other

papers in obedience to a subpena issued under

the authority of this title on the ground that the

testimony or evidence, documentary or otherwise, required of him may tend to incriminate

him or subject him to penalty or forfeiture, but

no individual shall be prosecuted or subject to

any penalty or forfeiture for or on account of

any transaction, matter, or thing concerning

which he is compelled to testify or produce evidence, documentary or otherwise, after having

claimed his privilege against self-incrimination,

except that such individual so testifying shall

not be exempt from prosecution and punishment

for perjury committed in so testifying.

(d) The Administration may accept any report

of examination made by or to any commission,

board, or authority having supervision of a

State-chartered credit union and may furnish to

any such commission, board, or authority

reports of examination made on behalf of the

Board.

(e) Flood Insurance Compliance by

Insured Credit Unions.—

(1) Examination.—The Board shall, during

each examination conducted under this section,

determine whether the insured credit union is

complying with the requirements of the national

flood insurance program.

(2) Report.—

(A) Requirement.—Not later than 1

year after the date of enactment of the Riegle

Community Development and Regulatory

Improvement Act of 1944 and biennially thereafter for the next 4 years, the Board shall submit a report to the Congress on compliance by

insured credit unions with the requirements of

the national flood insurance program.

(B) Contents.—The report shall include

a description of the methods used to determine

compliance, the number of insured credit unions

examined during the reporting year, a listing

and total number of insured credit unions found

not to be in compliance, actions taken to correct

incidents of noncompliance, and an analysis of

compliance, including a discussion of any

trends, patterns, and problems, and recommendations regarding reasonable actions to
OCTOBER 1998 31

improve the efficiency of the examinations processes.

(f) Access to Liquidity.—The Board shall—

(1) periodically assess the potential liquidity

needs of each insured credit union, and the

options that the credit union has available for

meeting those needs; and

(2) periodically assess the potential liquidity

needs of insured credit unions as a group, and

the options that insured credit unions have

available for meeting those needs.

(g) Sharing Information With Federal

Reserve Banks.—The Board shall, for the purpose of facilitating insured credit unions’ access

to liquidity, make available to the Federal

reserve banks (subject to appropriate assurances of confidentiality) information relevant to

making advances to such credit unions, including the Board’s reports of examination.

§ 1785 § 205

Requirements governing insured credit

unions.—(a) Every insured credit union shall

display at each place of business maintained by

it a sign or signs indicating that its member

accounts are insured by the Board and shall

include in all of its advertisements a statement

to the effect that its member accounts are

insured by the Board. The Board may exempt

from this requirement advertisements which do

not relate to member accounts or

advertisements in which it is impractical to

include such a statement. The Board shall prescribe by regulation the forms of such signs, the

manner of display, the substance of any such

statement, and the manner of use.

(b)(1) Except as provided in paragraph (2), no

insured credit union shall, without the prior

approval of the Board;

(A) merge or consolidate with any noninsured credit union or institution;

(B) assume liability to pay any member

accounts in, or similar liabilities of, any noninsured credit union or institution;

(C) transfer assets to any noninsured

credit union or institution in consideration of

the assumption of liabilities for any portion of

the member accounts in such insured credit

union; or

(D) convert into a noninsured credit union

or institution.

(2) Conversion of insured credit unions

to mutual savings banks.—

(A) In general.—Notwithstanding paragraph (1), an insured credit union may convert

to a mutual savings bank or savings association

(if the savings association is in mutual form), as

those terms are defined in section 3 of the Federal Deposit Insurance Act, without the prior

approval of the Board, subject to the requirements and procedures set forth in the laws and

regulations governing mutual savings banks

and savings associations.

(B) Conversion proposal.—A proposal

for a conversion described in subparagraph (A)

shall first be approved, and a date set for a vote

thereon by the members (either at a meeting to

be held on that date or by written ballot to be

filed on or before that date), by a majority of the

directors of the insured credit union. Approval

of the proposal for conversion shall be by the

affirmative vote of a majority of the members of

the insured credit union who vote on the proposal.

(C) Notice of proposal to members.—

An insured credit union that proposes to convert

to a mutual savings bank or savings association

under subparagraph (A) shall submit notice to

each of its members who is eligible to vote on

the matter of its intent to convert—

(i) 90 days before the date of the member vote on the conversion;

(ii) 60 days before the date of the member vote on the conversion; and

(iii) 30 days before the date of the member vote on the conversion.

(D) Notice of proposal to Board.—The

Board may require an insured credit union that

proposes to convert to a mutual savings bank or

savings association under subparagraph (A) to

submit a notice to the Board of its intent to convert during the 90-day period preceding the

date of the completion of the conversion.

(E) Inapplicability of Act upon

conversion.—Upon completion of a conversion

described in subparagraph (A), the credit union

shall no longer be subject to any of the provisions of this Act.

(F) Limit on compensation of officials.—

(i) In general.—No director or senior

management official of an insured credit union

may receive any economic benefit in connection
32 OCTOBER 1998

with a conversion of the credit union as

described in subparagraph (A), other than—

(I) director fees; and

(II) compensation and other benefits

paid to directors or senior management officials

of the converted institution in the ordinary

course of business.

(ii) Senior management official.—

For purposes of this subparagraph, the term

‘senior management official’ means a chief

executive officer, an assistant chief executive

officer, a chief financial officer, and any other

senior executive officer (as defined by the appropriate Federal banking agency pursuant to section 32 (f ) of the Federal Deposit Insurance

Act).

(G) Consistent rules.—

(i) In general.—Not later than 6

months after the date of enactment of the

Credit Union Membership Access Act, the

Administration shall promulgate final rules

applicable to charter conversions described in

this paragraph that are consistent with rules

promulgated by other financial regulators,

including the Office of Thrift Supervision and

the Office of the Comptroller of the Currency.

The rules required by this clause shall provide

that charter conversion by an insured credit

union shall be subject to regulation that is no

more or less restrictive than that applicable to

charter conversions by other financial institutions.

(ii) Oversight of member vote.—The

member vote concerning charter conversion

under this paragraph shall be administered by

the Administration, and shall be verified by the

Federal or State regulatory agency that would

have jurisdiction over the institution after the

conversion. If either the Administration or that

regulatory agency disapproves of the methods

by which the member vote was taken or procedures applicable to the member vote, the member vote shall be taken again, as directed by the

Administration or the agency.

(3) Except with the prior written approval

of the Board, no insured credit union shall

merge or consolidate with any other insured

credit union or, either directly or indirectly,

acquire the assets of, or assume liability to pay

any member accounts in, any other insured

credit union.

(c) In granting or withholding approval or

consent under subsection (b) of this section, the

Board shall consider—

(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.

(d) Prohibition.—

(1) In General.—Except with the prior

written consent of the Board—

(A) any person who has been convicted of

any criminal offense involving dishonesty or a

breach of trust or has agreed to enter into a pretrial diversion or similar program in connection

with a prosecution for such offense, may not—

(i) become, or continue as, an institution-affiliated party with respect to any insured

credit union; or

(ii) otherwise participate, directly or

indirectly, in the conduct of the affairs of any

insured credit union; and

(B) any insured credit union may not permit any person referred to in subparagraph (A)

to engage in any conduct or continue any relationship prohibited under such subparagraph.

(2) Minimum 10-year prohibition period

for certain offenses.—

(A) In general.—If the offense referred

to in paragraph (1)(A) in connection with any

person referred to in such paragraph is—

(i) an offense under—

(I) section 215, 656, 657, 1005, 1006,

1007, 1008, 1014, 1032, 1344, 1517, 1956, or

1957 of title 18, United States Code; or

(II) section 1341 or 1343 of such title

which affects any financial institution (as

defined in section 20 of such title): or
OCTOBER 1998 33

(ii) the offense of conspiring to commit

any such offense,

the Board may not consent to any exception to

the application paragraph (1) to such person

during the 10-year period beginning on the date

the conviction or the agreement of the person

becomes final.

(B) Exception by order of sentencing

court.—

(i) In general.—On motion of the

Board, the court in which the conviction or the

agreement of a person referred to in subparagraph (A) has been entered may grant an exception to the application of paragraph (1) to such

person if granting the exception is in the

interest of justice.

(ii) Period for filing.—A motion may

be filed under clause (i) at any time during the

10-year period described in subparagraph (A)

with regard to the person on whose behalf such

motion is made.

(3) Penalty.—Whoever knowingly violates

paragraph (1) or (2) shall be fined not more

than $1,000,000 for each day such prohibition is

violated or imprisoned for not more than 5

years, or both.

(e)(1) The Board shall promulgate rules

establishing minimum standards with which

each insured credit union must comply with

respect to the installation, maintenance, and

operation of security devices and procedures,

reasonable in cost, to discourage robberies, burglaries, and larcenies and to assist in the identification and apprehension of persons who commit such acts.

(2) The rules shall establish the time limits

within which insured credit unions shall comply

with the standards and shall require the

submission of periodic reports with respect to

the installation, maintenance, and operation of

security devices and procedures.

(3) An insured credit union which violates a

rule promulgated pursuant to this subsection

shall be subject to a civil penalty which shall

not exceed $100 for each day of the violation.

(f)(1) Every insured credit union is authorized

to maintain, and make loans with respect to,

share draft accounts in accordance with rules

and regulations prescribed by the Board. Except

as provided in paragraph (2), an insured credit

union may pay dividends on share draft

accounts and may permit the owners of such

share draft accounts to make withdrawals by

negotiable or transferable instruments or other

orders for the purpose of making transfers to

third parties.

(2) Paragraph (1) shall apply only with

respect to share draft accounts in which the

entire beneficial interest is held by one or more

individuals or members or by an organization

which is operated primarily for religious,

philanthropic, charitable, educational, or other

similar purposes and which is not operated for

profit, and with respect to deposits of public

funds by an officer, employee, or agent of the

United States, any State, county, municipality,

or political subdivision thereof, the District of

Columbia, the Commonwealth of Puerto Rico,

American Samoa, Guam, any territory or

possession of the United States, or any political

subdivision thereof.

(g)(1) If the applicable rate prescribed in this

subsection exceeds the rate an insured credit

union would be permitted to charge in the

absence of this subsection, such credit union

may, notwithstanding any State constitution or

statute which is hereby preempted for the purposes of this subsection, take, receive, reserve,

and charge on any loan, interest at a rate of not

more than 1 per centum in excess of the discount rate on ninety-day commercial paper in

effect at the Federal Reserve bank in the Federal Reserve district where such insured credit

union is located or at the rate allowed by the

laws of the State, territory, or district where

such credit union is located, whichever may be

greater.

(2) If the rate prescribed in paragraph (1)

exceeds the rate such credit union would be permitted to charge in the absence of this subsection, and such State fixed rate is thereby preempted by the rate described in paragraph (1),

the taking, receiving, reserving, or charging a

greater rate than is allowed by paragraph (1),

when knowingly done, shall be deemed a forfeiture of the entire interest which the loan carries

with it, or which has been agreed to be paid

thereon. If such greater rate of interest has

been paid, the person who paid it may recover,

in a civil action commenced in a court of appropriate jurisdiction not later than two years after

the date of such payment, an amount equal to

twice the amount of interest paid from the

credit union taking or receiving such interest.

(h) Notwithstanding any other provision of

law, the Board may authorize a merger or

consolidation of an insured credit union which is

insolvent or is in danger of insolvency with any
34 OCTOBER 1998

other insured credit union or may authorize an

insured credit union to purchase any of the

assets of, or assume any of the liabilities of, any

other insured credit union which is insolvent or

in danger of insolvency if the Board is satisfied

that—

(1) an emergency requiring expeditious

action exists with respect to such other insured

credit union;

(2) other alternatives are not reasonably

available; and

(3) the public interest would best be served

by approval of such merger, consolidation, purchase, or assumption.

(i)(1) Notwithstanding any other provision of

this Act or of State law, the Board may authorize an institution whose deposits or accounts are

insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation to purchase any of the assets

of or assume any of the liabilities of an insured

credit union which is insolvent or in danger of

insolvency, except that prior to exercising this

authority the Board must attempt to effect the

merger or consolidation of an insured credit

union which is insolvent or in danger of insolvency with another insured credit union, as provided in subsection (h).

(2) For purposes of the authority contained

in paragraph (1), insured accounts of the credit

union may upon consummation of the purchase

and assumption be converted to insured

deposits or other comparable accounts in the

acquiring institution, and the Board and the

National Credit Union Share Insurance Fund

shall be absolved of any liability to the credit

union’s members with respect to those accounts.

§ 1786 § 206

Termination of insured credit union status; cease-and-desist orders; removal or

suspension from office; procedure.—(a)(1)

Any insured credit union other than a Federal

credit union may, upon not less than ninety

days’ written notice to the Board and upon the

affirmative vote of a majority of its members

within one year prior to the giving of such

notice, terminate its status as an insured credit

union.

(2) Any insured credit union, other than a

Federal credit union, which has obtained a new

certificate of insurance from a corporation

authorized and duly licensed to insure member

accounts may upon not less than ninety days’

written notice to the Board convert from status

as an insured credit union under this Act: Provided, That at the time of giving notice to the

Board the provisions of paragraph (b)(1) of this

section are not being invoked against the credit

union.

(b)(1) Whenever, in the opinion of the Board,

any insured credit union is engaging or has

engaged in unsafe or unsound practices in

conducting the business of such credit union, or

is in an unsafe or unsound condition to continue

operations as an insured credit union, or is violating or has violated an applicable law, rule,

regulation, order, or any condition imposed in

writing by the Board in connection with the

granting of any application or other request by

the credit union, or is violating or has violated

any written agreement entered into with the

Board, the Board shall serve upon the credit

union a statement with respect to such practices

or conditions or violations for the purpose of

securing the correction thereof. In the case of an

insured State-chartered credit union, the Board

shall send a copy of such statement to the

commission, board, or authority, if any, having

supervision of such credit union. Unless such

correction shall be made within one hundred

and twenty days after service of such statement,

or within such shorter period of not less than

twenty days after such service as the Board

shall require in any case where it determines

that the insurance risk with respect to such

credit union could be unduly jeopardized by further delay in the correction of such practices or

conditions or violations, or as the commission,

board, or authority having supervision of such

credit union, if any, shall require in the case of

an insured State-chartered credit union, the

Board, if it shall determine to proceed further,

shall give to the credit union not less than

thirty days written notice of its intention to

terminate the status of the credit union as an

insured credit union. Such notice shall contain

a statement of the facts constituting the alleged

unsafe and unsound practices or conditions or

violations and shall fix a time and place for a

hearing thereon. Such hearing shall be fixed for

a date not earlier than thirty days nor later

than sixty days after service of such notice

unless an earlier or a later date is set by the

Board at the request of the credit union. Unless

the credit union shall appear at the hearing by

a duly authorized representative, it shall be

deemed to have consented to the termination of

its status as an insured credit union. In the
OCTOBER 1998 35

event of such consent, or if upon the record

made at any such hearing the Board shall find

that any unsafe or unsound practice or condition or violation specified in the notice has been

established and has not been corrected within

the time above-prescribed in which to make

such correction, the Board may issue and serve

upon the credit union an order terminating its

status as an insured credit union on a date subsequent to the date of such finding and subsequent to the expiration of the time specified in

the notice.

(2) Any credit union whose insured status

has been terminated by order of the Board

under this subsection shall have the right of

judicial review of such order only to the same

extent as provided for the review of orders

under subsection (j) of this section.

(c) In the event of the termination of a credit

union’s status as an insured credit union as provided under subsection (a)(1) or (b) of this section, the credit union shall give prompt and

reasonable notice to all of its members whose

accounts are insured that it has ceased to be an

insured credit union. It may include in such

notice a statement of the fact that member

accounts insured on the effective date of such

termination, to the extent not withdrawn,

remain insured for one year from the date of

such termination, but it shall not further represent itself in any manner as an insured credit

union. In the event of failure to give the notice

as herein provided to members whose accounts

are insured, the Board is authorized to give

reasonable notice.

(d)(1) After the termination of the insured status of any credit union as provided under subsection (a)(1) or (b) of this section, insurance of

its member accounts to the extent that they

were insured on the effective date of such termination, less any amounts thereafter withdrawn

which reduce the accounts below the amount

covered by insurance on the effective date of

such termination, shall continue for a period of

one year, but no shares issued by the credit

union or deposits made after the date of such

termination shall be insured by the Board. The

credit union shall continue to maintain its

deposits with and pay premiums to the Board

during such period as in the case of an insured

credit union and the Board shall have the right

to examine such credit union from time to time

during the period during which such insurance

continues. Such credit union shall, in all other

respects, be subject to the duties and obligations

of an insured credit union for the period of one

year from the date of such termination. In the

event that such credit union shall be closed for

liquidation within such period of one year, the

Board shall have the same powers and rights

with respect to such credit union as in the case

of an insured credit union. Notwithstanding the

above, when an insured credit union’s insured

status is terminated and the credit union subsequently obtains comparable insurance coverage

from another source, insurance of its accounts

by the fund may cease immediately upon the

effective date of such comparable coverage by

mutual consent of the credit union and the

Board.

(2) No credit union shall convert from status as an insured credit union under this Act as

provided under subsection (a)(2) of this section

until the proposition for such conversion has

been approved by a majority of all the directors

of the credit union, and by affirmative vote of a

majority of the members of the credit union who

vote on the proposition in a vote in which at

least 20 per centum of the total membership of

the credit union participates. Following

approval by the directors, written notice of the

proposition and of the date set for the membership vote shall be delivered in person to each

member, or mailed to each member at the

address for such member appearing on the

records of the credit union, not more than thirty

nor less than seven days prior to such date. The

membership shall be given the opportunity to

vote by mail ballot. If the proposition is

approved by the membership, prompt and

reasonable notice of insurance conversion shall

be given to all members.

(3) In the event of a conversion of a credit

union from status as an insured credit union

under this Act as provided under subsection

(a)(2) of this section, premium charges payable

under section 202(c) of this Act shall be reduced

by an amount proportionate to the number of

calendar months for which the converting credit

union will no longer be insured under this Act.

As long as a converting credit union remains

insured under this Act, it shall remain subject

to all of the provisions of title II of this Act.

(e)(1) If, in the opinion of the Board, any

insured credit union, credit union which has

insured accounts, or any institution-affiliated

party is engaging or has engaged, or the Board

has reasonable cause to believe that the credit

union or any institution-affiliated party is about

to engage, in an unsafe or unsound practice in

conducting the business of such credit union, or

is violating or has violated, or the Board has
36 OCTOBER 1998

reasonable cause to believe that the credit union

or any institution-affiliated party is about to

violate, a law, rule, or regulation, or any condition imposed in writing by the Board in connection with the granting of any application or

other request by the credit union or any written

agreement entered into with the Board, the

Board may issue and serve upon the credit

union or such party notice of charges in respect

thereof. The notice shall contain a statement of

the facts constituting the alleged violation or

violations or the unsafe or unsound practice or

practices, and shall fix a time and place at

which a hearing will be held to determine

whether an order to cease and desist therefrom

should issue against the credit union or the

institution-affiliated party. Such hearing shall

be fixed for a date not earlier than thirty days

nor later than sixty days after service of such

notice unless an earlier or a later date is set by

the Board at the request of any party so served.

Unless the party or parties so served shall

appear at the hearing by a duly authorized representative, they shall be deemed to have consented to the issuance of the cease-and-desist

order. In the event of such consent, or if upon

the record made at any such hearing, the Board

shall find that any violation or unsafe or

unsound practice specified in the notice of

charges has been established, the Board may

issue and serve upon the credit union or the

institution-affiliated party an order to cease and

desist from any such violation or practice. Such

order may, by provisions which may be mandatory or otherwise, require the credit union or its

institution-affiliated parties to cease and desist

from the same, and, further, to take affirmative

action to correct the conditions resulting from

any such violation or practice.

(2) A cease-and-desist order shall become

effective at the expiration of thirty days after

the service of such order upon the credit union

or other person concerned (except in the case of

a cease-and-desist order issued upon consent,

which shall become effective at the time specified therein), and shall remain effective and

enforceable as provided therein, except to such

extent as it is stayed, modified, terminated, or

set aside by action of the Board or a reviewing

court.

(3) Affirmative action to correct conditions resulting from violations or practices.—The authority to issue an order under

this subsection and subsection (f) which requires

an insured credit union or any institution-affiliated party to take affirmative action to correct

any conditions resulting from any violation or

practice with respect to which such order is

issued includes the authority to require such

insured credit union or such party to—

(A) make restitution or provide

reimbursement, indemnification, or guarantee

against loss if—

(i) such credit union or such party was

unjustly enriched in connection with such violation or practice; or

(ii) the violation or practice involved a

reckless disregard for the law or any applicable

regulations or prior order of the Board;

(B) restrict the growth of the institution;

(C) rescind agreements or contracts;

(D) dispose of any loan or asset involved;

and

(E) employ qualified officers or employees

(who may be subject to approval by the Board

at the direction of such Board); and

(F) take such other action as the Board

determines to be appropriate.

(4) Authority to limit activities.—The

authority to issue an order under this subsection or subsection (f) includes the authority

to place limitations on the activities or functions

of an insured credit union or any institutionaffiliated party.

(f)(1) Whenever the Board shall determine

that the violation or threatened violation or the

unsafe or unsound practice or practices, specified in the notice of charges served upon the

credit union or any institution-affiliated party

pursuant to paragraph (1) of subsection (e) of

this section, or the continuation thereof, is likely

to cause insolvency or significant dissipation of

assets or earnings of the credit union, or is

likely to weaken the condition of the credit

union or otherwise prejudice the interests of its

insured members prior to the completion of the

proceedings conducted pursuant to paragraph

(1) of subsection (e) of this section, the Board

may issue a temporary order requiring the

credit union or such party to cease and desist

from any such violation or practice and to take

affirmative action to prevent such insolvency,

dissipation, condition, or prejudice pending

completion of such proceedings. Such order may

include any requirement authorized under subsection (e)(3)(B). Such order shall become effective upon service upon the credit union or such

party participating in the conduct of the affairs

of such credit union and, unless set aside, lim-
OCTOBER 1998 37

ited, or suspended by a court in proceedings

authorized by paragraph (2) of this subsection,

shall remain effective and enforceable pending

the completion of the administrative proceedings pursuant to such notice and until such time

as the Board shall dismiss the charges specified

in such notice, or if a cease-and-desist order is

issued against the credit union or such party

until the effective date of such order.

(2) Within ten days after the credit union

concerned or any institution-affiliated party has

been served with a temporary cease-and-desist

order, the credit union or such party may apply

to the United States district court for the

judicial district in which the home office of the

credit union is located, or the United States District Court for the District of Columbia, for an

injunction setting aside, limiting, or suspending

the enforcement, operation, or effectiveness of

such order pending the completion of the

administrative proceedings pursuant to the

notice of charges served upon the credit union

or such party under paragraph (1) of subsection

(e) of this section, and such court shall have

jurisdiction to issue such injunction.

(3) Incomplete or inaccurate records.—

(A) Temporary order.—If a notice of

charges served under subsection (e)(1) specifies,

on the basis of particular facts and circumstances, that an insured credit union’s

books and records are so incomplete or inaccurate that the Board is unable, through the

normal supervisory process, to determine the

financial condition of that insured credit union

or the details or purpose of any transaction or

transactions that may have a material effect on

the financial condition of that insured credit

union, the Board may issue a temporary order

requiring—

(i) the cessation of any activity or practice which gave rise, whether in whole or in

part, to the incomplete or inaccurate state of the

books or records; or

(ii) affirmative action to restore such

books or records to a complete and accurate

state, until the completion of the proceedings

under subsection (e)(1).

(B) Effective period.—Any temporary

order issued under subparagraph (A)—

(i) shall become effective upon service;

and

(ii) unless set aside, limited, or suspended by a court in proceedings under paragraph (2), shall remain in effect and enforceable

until the earlier of—

(I) the completion of the proceeding

initiated under subsection (e)(1) in connection

with the notice of charges; or

(II) the date the Board determines,

by examination or otherwise, that the insured

credit union’s books and records are accurate

and reflect the financial condition of the credit

union.

(4) In the case of violation or threatened

violation of, or failure to obey, a temporary

cease-and-desist order, the Board may apply to

the United States district court, or the United

States court of any territory, within the jurisdiction of which the principal office of the credit

union is located for an injunction to enforce

such order, and, if the court shall determine

that there has been such violation or threatened

violation or failure to obey, it shall be the duty

of the court to issue such injunction.

(g) Removal and Prohibition Authority.—

(1) Authority to issue order.—Whenever

the Board determines that—

(A) any institution-affiliated party has,

directly or indirectly—

(i) violated—

(I) any law or regulation;

(II) any cease-and-desist order which

has become final;

(III) any condition imposed in writing

by the Board in connection with the grant of

any application or other request by such credit

union; or

(IV) any written agreement between

such credit union and the Board;

(ii) engaged or participated in any

unsafe or unsound practice in connection with

any insured credit union or business institution;

or

(iii) committed or engaged in any act,

omission, or practice which constitutes a breach

of such party’s fiduciary duty;

(B) by reason of the violation, practice, or

breach described in any clause of subparagraph

(A)—

(i) such insured credit union or business institution has suffered or will probably

suffer financial loss or other damage;
38 OCTOBER 1998

(ii) the interests of the insured credit

union’s members have been or could be prejudiced; or

(iii) such party has received financial

gain or other benefit by reason of such violation,

practice or breach; and

(C) such violation, practice, or breach—

(i) involves personal dishonesty on the

part of such party; or

(ii) demonstrates such party’s unfitness

to serve as a director or officer of, or to otherwise participate in the conduct of the affairs of,

an insured credit union,

the Board may serve upon such party a written

notice of the Board’s intention to remove such

party from office or to prohibit any further

participation, by such party, in any manner in

the conduct of the affairs of any insured credit

union.

(2) Specific violations.—

(A) In general.—Whenever the Board

determines that—

(i) an institution-affiliated party has

committed a violation of any provision of subchapter II of chapter 53 of Title 31, United

States Code, unless such violation was inadvertent or unintentional;

(ii) an officer or director of an insured

credit union has knowledge that an institutionaffiliated party of the insured credit union has

violated any such provision or any provision of

law referred to in subsection (i)(1)(A)(ii); or

(iii) an officer or director of an insured

credit union has committed any violation of the

Depository Institution Management Interlocks

Act, the Board may serve upon such party, officer, or director a written notice of the Board’s

intention to remove such officer or director from

office.

(B) Factors to be considered.—In

determining whether an officer or director

should be removed as a result of the application

of subparagraph (A)(ii), the Board shall consider

whether the officer or director took appropriate

action to stop, or to prevent the recurrence of, a

violation described in such subparagraph.

(3) Suspension order.—

(A) Suspension or prohibition authorized.—If the Board serves written notice under

paragraph (1) or (2) to any institution-affiliated

party of the Board’s intention to issue an order

under such paragraph, the Board may suspend

such party from office or prohibit such party

from further participation in any manner in the

conduct of the affairs of the institution, if the

Board—

(i) determines that such action is necessary for the protection of the credit union or

the interests of the credit union’s members; and

(ii) serves such person with written

notice of the suspension order.

(B) Effective period.—Any suspension

order issued under subparagraph (A)—

(i) shall become effective upon service;

and

(ii) unless a court issues a stay of such

order under paragraph (6), shall remain in

effect and enforceable until—

(I) the date the Board dismisses the

charges contained in the notice served under

paragraph (1) or (2) with respect to such party;

or

(II) the effective date of an order

issued by the Board to such person under paragraph (1) or (2).

(C) Copy of order.—If the Board issues

a suspension order under subparagraph (A) to

any institution-affiliated party, the Board shall

serve a copy of such order on any insured credit

union with which such party is associated at the

time such order is issued.

(4) A notice of intention to remove a director, committee member, officer, or other person

from office or to prohibit his participation in the

conduct of the affairs of an insured credit union,

shall contain a statement of the facts constituting grounds therefor, and shall fix a time and

place at which a hearing will be held thereon.

Such hearing shall be fixed for a date not earlier than thirty days nor later than sixty days

after the date of service of such notice, unless

an earlier or a later date is set by the Board at

the request of (A) such director, committee

member, or officer or other person, and for good

cause shown, or (B) the Attorney General of the

United States. Unless such director, committee

member, officer, or other person shall appear at

the hearing in person or by a duly authorized

representative, he shall be deemed to have consented to the issuance of an order of such

removal or prohibition. In the event of such consent, or if upon the record made at any such

hearing the Board shall find that any of the

grounds specified in such notice have been
OCTOBER 1998 39

established, the Board may issue such orders of

suspension or removal from office, or prohibition

from participation in the conduct of the affairs

of the credit union, as it may deem appropriate.

Any such order shall become effective at the

expiration of thirty days after service upon such

credit union and the director, committee member, officer, or other person concerned (except in

the case of an order issued upon consent, which

shall become effective at the time specified

therein). Such order shall remain effective and

enforceable except to such extent as it is stayed,

modified, terminated, or set aside by action of

the Board or a reviewing court.

(5) Prohibition of certain specific

activities.—Any person subject to an order

issued under this subsection shall not—

(A) participate in any manner in the conduct of the affairs of any institution or agency

specified in paragraph (7)(A);

(B) solicit, procure, transfer, attempt to

transfer, vote, or attempt to vote any proxy, consent, or authorization with respect to any voting

rights in any institution described in subparagraph (A);

(C) violate any voting agreement previously approved by the appropriate Federal

banking agency; or

(D) vote for a director, or serve or act as

an institution-affiliated party.

(6) Within ten days after any director, officer, committee member, or other person has

been suspended from office and/or prohibited

from participation in the conduct of the affairs

of an insured credit union under paragraph (3)

of this subsection, such director, officer, committee member, or other person may apply to the

United States district court for the judicial district in which the principal office of the credit

union is located, or the United States District

Court for the District of Columbia, for a stay of

such suspension and/or prohibition pending the

completion of the administrative proceedings

pursuant to the notice served upon such director, officer, committee member, or other person

under paragraph (1) or (2) of this subsection,

and such court shall have jurisdiction to stay

such suspension and/or prohibition.

(7) Industrywide prohibition.—

(A) In general.—Except as provided in

subparagraph (B), any person who, pursuant to

an order issued under this subsection or subsection (i), has been removed or suspended from

office in an insured credit union or prohibited

from participating in the conduct of the affairs

of an insured credit union may not, while such

order is in effect, continue or commence to hold

any office in, or participate in any manner in

the conduct of the affairs of—

(i) any insured depository institution;

(ii) any institution treated as an

insured bank under paragraph (3) or (4) of section 8(b) of the Federal Deposit Insurance Act,

or as a savings association under section 8(b)(8)

of such Act;

(iii) any insured credit union;

(iv) any institution chartered under the

Farm Credit Act of 1971;

(v) any appropriate Federal depository

institution regulatory agency;

(vi) the Federal Housing Finance Board

and any Federal home loan bank; and

(vii) the Resolution Trust Corporation.

(B) Exception if agency provides written consent.—If, on or after the date an order

is issued under this subsection which removes

or suspends from office any institution-affiliated

party or prohibits such party from participating

in the conduct of the affairs of an insured credit

union, such party receives the written consent

of—

(i) the Board; and

(ii) the appropriate Federal financial

institutions regulatory agency of the institution

described in any clause of subparagraph (A)

with respect to which such party proposes to

become an institution-affiliated party,

subparagraph (A) shall, to the extent of such

consent, cease to apply to such party with

respect to the institution described in each written consent. If any person receives such a written consent from the Board, the Board shall

publicly disclose such consent. If the agency

referred to in clause (ii) grants such a written

consent, such agency shall report such action to

the Board and publicly disclose such consent.

(C) Violation of paragraph treated as

violation of order.—Any violation of subparagraph (A) by any person who is subject to an

order described in such subparagraph shall be

treated as a violation of the order.

(D) Appropriate federal financial

institutions regulatory agency defined.—

For purposes of this paragraph and subsection

(1), the term ‘‘appropriate Federal financial

institutions regulatory agency’’ means—
40 OCTOBER 1998

(i) the appropriate Federal banking

agency, as provided in section 3(q) of the Federal Deposit Insurance Act;

(ii) the Farm Credit Administration, in

the case of an institution chartered under the

Farm Credit Act of 1971;

(iii) the National Credit Union

Administration Board, in the case of an insured

credit union (as defined in section 101(7) of the

Federal Credit Union Act);

(iv) the Secretary of the Treasury, in

the case of the Federal Housing Finance Board

and any Federal home loan bank; and

(v) the Oversight Board, in the case of

the Resolution Trust Corporation.

(E) Consultation between agencies.—

The agencies referred to in clauses (i) and (ii) of

subparagraph (B) shall consult with each other

before providing any written consent described

in subparagraph (B).

(F) Applicability.—This paragraph shall

only apply to a person who is an individual,

unless the Board specifically finds that it should

apply to a corporation, firm, or other business

enterprise.

(h)(1) The Board may, ex parte without notice,

appoint itself or another (including, in the case

of a State-chartered insured credit union, the

State official having jurisdiction over the credit

union) as conservator and immediately take

possession and control of the business and

assets of any insured credit union in any case in

which—

(A) the Board determines that such action

is necessary to conserve the assets of any

insured credit union or to protect the Fund or

the interests of the members of such insured

credit union;

(B) an insured credit union, by a resolution of its board of directors, consents to such an

action by the Board;

(C) the Attorney General notifies the

Board in writing that an insured credit union

has been found guilty of a criminal offense

under section 1956 or 1957 of Title 18, United

States Code, or section 5322 of Title 31, United

States Code.

(D) there is a willful violation of a ceaseand-desist order which has become final;

(E) there is concealment of books, papers,

records, or assets of the credit union or refusal

to submit books, papers, records, or affairs of

the credit union for inspection to any examiner

or to any lawful agent of the Board;

(F) the credit union is significantly undercapitalized, as defined in section 216, and has

no reasonable prospect of becoming adequately

capitalized, as defined in section 216; or

(G) the credit union is critically undercapitalized, as defined in section 216; and

(2)(A) Except as provided in subparagraph (C) in the case of a State-chartered

insured credit union, the authority conferred by

paragraph (1) shall not be exercised without the

written approval of the State official having

jurisdiction over the State-chartered credit

union that the grounds specified for such exercise exist.

(B) If such approval has not been received

by the Board within 30 days of receipt of notice

by the State that the Board has determined

such grounds exist, and the Board has

responded in writing to the State’s written reasons, if any, for withholding approval, then the

Board may proceed without State approval only

by a unanimous vote of the Board.

(C) In the case of a State-chartered

insured credit union, the authority conferred by

subparagraphs (F) and (G) of paragraph (1) may

not be exercised unless the Board has complied

with section 216(l).

(3) Not later than ten days after the date on

which the Board takes possession and control of

the business and assets of an insured credit

union pursuant to paragraph (1), such insured

credit union may apply to the United States district court for the judicial district in which the

principal office of such insured credit union is

located or the United States District Court for

the District of Columbia, for an order requiring

the Board to show cause why it should not be

enjoined from continuing such possession and

control. Except as provided in this paragraph,

no court may take any action, except at the

request of the Board by regulation or order, to

restrain or affect the exercise of powers or functions of the Board as conservator.

(4) Except as provided in paragraph (3), in

the case of a Federal credit union, the Board

may maintain possession and control of the

business and assets of such credit union and

may operate such credit union until such time—

(A) as the Board shall permit such credit

union to continue business subject to such terms

and conditions as may be imposed by the Board;

or
OCTOBER 1998 41

(B) as such credit union is liquidated in

accordance with the provisions of section 207.

(5) Except as provided in paragraph (3), in

the case of an insured State-chartered credit

union, the Board may maintain possession and

control of the business and assets of such credit

union and may operate such credit union until

such time—

(A) as the Board shall permit such credit

union to continue business, subject to such

terms and conditions as may be imposed by the

Board;

(B) as the Board shall permit the transfer

of possession and control of such credit union to

any commission, board, or authority which has

supervisory authority over such credit union

and which is authorized by State law to operate

such credit union; or

(C) as such credit union is liquidated in

accordance with the provisions of section 207.

(6) The Board may appoint such agents as

it considers necessary in order to assist the

Board in carrying out its duties as a conservator

under this subsection.

(7) All expenses incurred by the Board in

exercising its authority under this subsection

with respect to any credit union shall be paid

out of the assets of such credit union.

(8) The conservator shall have all the powers of the members, the directors, the officers,

and the committees of the credit union and

shall be authorized to operate the credit union

in its own name or to conserve its assets in the

manner and to the extent authorized by the

Board.

(9) The authority granted by this subsection

is in addition to all other authority granted to

the Board under this Act.

(i)(1) Suspension or prohibition authorized.—

(A) In general.—Whenever any institution-affiliated party is charged in any information, indictment, or complaint, with the commission of or participation in—

(i) a crime involving dishonesty or

breach of trust which is punishable by imprisonment for a term exceeding one year under State

or Federal law, or

(ii) a criminal violation of section 1956,

1957, or 1960 of Title 18, United States Code, or

section 5322 or 5324 of Title 31, United States

Code,

the Board may, if continued service or participation by such party may pose a threat to the

interests of the credit union’s members or may

threaten to impair public confidence in the

credit union, by written notice served upon such

party, suspend such party from office or prohibit

such party from further participation in any

manner in the conduct of the affairs of the

credit union.

(B) Provisions applicable to notice.—

(i) Copy.—A copy of any notice under

subparagraph (A) shall also be served upon the

credit union.

(ii) Effective period.—A suspension or

prohibition under subparagraph (A) shall

remain in effect until the information, indictment, or complaint referred to in such subparagraph is finally disposed of or until terminated

by the Board.

(C) Removal or prohibition.—

(i) In general.—If a judgment of

conviction or an agreement to enter a pre-trial

diversion or other similar program is entered

against an institution-affiliated party in connection with a crime described in subparagraph

(A)(i), at such time as such judgment is not subject to further appellate review, the Board may,

if continued service or participation by such

party may pose a threat to the interests of the

credit union’s members or may threaten to

impair public confidence in the credit union,

issue and serve upon such party an order

removing such party from office or prohibiting

such party from further participation in any

manner in the conduct of the affairs of the

credit union without the prior written consent of

the Board.

(ii) Required for certain offenses.—

In the case of a judgment of conviction or agreement against an institution-affiliated party in

connection with a violation described in

subparagraph (A)(ii), the Board shall issue and

serve upon such party an order removing such

party from office or prohibiting such party from

further participation in any manner in the conduct of the affairs of the credit union without

the prior written consent of the Board.

(D) Provisions applicable to order.—

(i) Copy.—A copy of any order under

subparagraph (C) shall also be served upon such

credit union, whereupon such party (if a director or an officer) shall cease to be a director or

officer of such credit union.
42 OCTOBER 1998

(ii) Effect of acquittal.—A finding of

not guilty or other disposition of the charge

shall not preclude the Board from instituting

proceedings after such finding or disposition to

remove such party from office or to prohibit further participation in credit union affairs, pursuant to paragraph (1), (2), or (3) of subsection (g)

of this section.

(iii) Effective period.—Any notice of

suspension or order of removal issued under

this paragraph shall remain effective and

outstanding until the completion of any hearing

or appeal authorized under paragraph (3) unless

terminated by the Board.

(2) If at any time, because of the suspension

of one or more directors pursuant to this section, there shall be on the board of directors of

a Federal credit union less than a quorum of

directors not so suspended, all powers and functions vested in or exercisable by such board

shall vest in and be exercisable by the director

or directors on the board not so suspended, until

such time as there shall be a quorum of the

board of directors. In the event all of the directors of a Federal credit union are suspended

pursuant to this section, the Board shall

appoint persons to serve temporarily as directors in their place and stead pending the termination of such suspensions, or until such time

as those who have been suspended cease to be

directors of the credit union and their respective

successors have been elected by the members at

an annual or special meeting and have taken

office. Directors appointed temporarily by the

Board shall, within thirty days following their

appointment, call a special meeting for the election of new directors, unless during the thirtyday period (A) the regular annual meeting is

scheduled, or (B) the suspensions giving rise to

the appointment of temporary directors are

terminated.

(3) Within thirty days from service of any

notice of suspension or order of removal issued

pursuant to paragraph (1) of this subsection, the

institution-affiliated party concerned may

request in writing an opportunity to appear

before the Board to show that the continued

service to or participation in the conduct of the

affairs of the credit union by such party does

not, or is not likely to, pose a threat to the

interests of the credit union’s members or

threaten to impair public confidence in the

credit union. Upon receipt of any such request,

the Board shall fix a time (not more than thirty

days after receipt of such request, unless

extended at the request of such party and place

at which such party may appear, personally or

through counsel, before the Board or its designee to submit written materials (or, at the

discretion of the Board, oral testimony) and oral

argument. Within sixty days of such hearing,

the Board shall notify such party whether the

suspension or prohibition from participation in

any manner in the conduct of the affairs of the

credit union will be continued, terminated or

otherwise modified, or whether the order removing such party from office or prohibiting such

party from further participation in any manner

in the conduct of the affairs of the credit union

will be rescinded or otherwise modified. Such

notification shall contain a statement of the

basis for the Board’s decision, if adverse to such

party. The Board is authorized to prescribe such

rules as may be necessary to effectuate the purposes of this subsection.

(j)(1) Any hearing provided for in this section

(other than the hearing provided for in subsection (i)(3) of this section) shall be held in the

Federal judicial district or in the territory in

which the principal office of the credit union is

located, unless the party afforded the hearing

consents to another place, and shall be conducted in accordance with the provisions of

chapter 5 of title 5 of the United States Code.

After such hearing, and within ninety days after

the Board has notified the parties that the case

has been submitted to it for final decision, it

shall render its decision (which shall include

findings of fact upon which its decision is predicated) and shall issue and serve upon each

party to the proceeding an order or orders

consistent with the provisions of this section.

Judicial review of any such order shall be exclusively as provided in this subsection (j). Unless

a petition for review is timely filed in a court of

appeals of the United States, as provided in

paragraph (2) of this subsection, and thereafter

until the record in the proceeding has been filed

as so provided, the Board may at any time,

upon such notice and in such manner as it may

deem proper, modify, terminate, or set aside any

such order. Upon such filing of the record, the

Board may modify, terminate, or set aside any

such order with permission of the court.

(2) Any party to any proceeding under paragraph (1) may obtain a review of any order

served pursuant to paragraph (1) of this subsection (other than an order issued with the

consent of the credit union or the institutionaffiliated party concerned or an order issued

under subsection (i)(1) of this section) by filing

in the court of appeals of the United States for
OCTOBER 1998 43

the circuit in which the principal office of the

credit union is located, or in the United States

Court of Appeals for the District of Columbia

Circuit, within thirty days after the date of

service of such order, a written petition praying

that the order of the Board be modified, terminated, or set aside. A copy of such petition shall

be forthwith transmitted by the clerk of the

court to the Board, and thereupon the Board

shall file in the court the record in the proceeding, as provided in section 2112 of title 28,

United States Code. Upon the filing of such

petition, such court shall have jurisdiction

which upon the filing of the record shall, except

as provided in the last sentence of said paragraph (1), be exclusive, to affirm, modify, terminate, or set aside, in whole or in part, the order

of the Board. Review of such proceedings shall

be had as provided in chapter 7 of title 5,

United States Code. The judgment and decree of

the court shall be final, except that the same

shall be subject to review by the Supreme Court

upon certiorari, as provided in section 1254 of

title 28, United States Code.

(3) The commencement of proceedings for

judicial review under paragraph (2) of this subsection shall not, unless specifically ordered by

the court, operate as a stay of any order issued

by the Board.

(k)(1) The Board may in its discretion apply to

the United States district court, or the United

States court of any territory within the jurisdiction of which the principal office of the credit

union is located, for the enforcement of any

effective and outstanding notice or order issued

under this section or section 216, and such

courts shall have jurisdiction and power to order

and require compliance therewith. However,

except as otherwise provided in this section or

section 216, no court shall have jurisdiction to

affect by injunction or otherwise the issuance or

enforcement of any notice or order under this

section or section 216 or to review, modify, suspend, terminate, or set aside any such notice or

order.

(2) Civil money penalty.—

(A) First tier.—Any insured credit union

which, and any institution-affiliated party

who—

(i) violates any law or regulation;

(ii) violates any final order or temporary order issued pursuant to subsection (e),

(f), (g), (i), or (q) or any final order under section

216;

(iii) violates any condition imposed in

writing by the Board in connection with the

grant of any application or other request by

such credit union; or

(iv) violates any written agreement

between such credit union and such agency,

shall forfeit and pay a civil penalty of not more

than $5,000 for each day during which such violation continues.

(B) Second tier.—Notwithstanding subparagraph (A), any insured credit union which,

and any institution-affiliated party who—

(i)(I) commits any violation described in

any clause of subparagraph (A);

(II) recklessly engages in an unsafe

or unsound practice in conducting the affairs of

such credit union; or

(III) breaches any fiduciary duty;

(ii) which violation, practice, or

breach—

(I) is part of a pattern of misconduct;

(II) causes or is likely to cause more

than a minimal loss to such credit union; or

(III) results in pecuniary gain or

other benefit to such party,

shall forfeit and pay a civil penalty of not more

than $25,000 for each day during which such

violation, practice, or breach continues.

(C) Third tier.—Notwithstanding subparagraphs (A) and (B), any insured credit

union which, and any institution-affiliated party

who—

(i) knowingly—

(I) commits any violation described in

any clause of subparagraph (A);

(II) engages in any unsafe or unsound

practice in conducting the affairs of such credit

union; or

(III) breaches any fiduciary duty; and

(ii) knowingly or recklessly causes a

substantial loss to such credit union or a

substantial pecuniary gain or other benefit to

such party by reason of such violation, practice,

or breach,

shall forfeit and pay a civil penalty in an

amount not to exceed the applicable maximum

amount determined under subparagraph (D) for

each day during which such violation, practice,

or breach continues.
44 OCTOBER 1998

(D) Maximum amounts of penalties

for any violation described in subparagraph (C).—The maximum daily amount of any

civil penalty which may be assessed pursuant to

subparagraph (C) for any violation, practice, or

breach described in such subparagraph is—

(i) in the case of any person other than

an insured credit union, an amount to not

exceed $1,000,000; and

(ii) in the case of any insured credit

union, an amount not to exceed the lesser of—

(I) $1,000,000; or

(II) 1 percent of the total assets of

such credit union.

(E) Assessment.—

(i) Written notice.—Any penalty

imposed under subparagraph (A), (B), or (C)

may be assessed and collected by the Board by

written notice.

(ii) Finality of assessment.—If, with

respect to any assessment under clause (i), a

hearing is not requested pursuant to subparagraph (H) within the period of time allowed

under such subparagraph, the assessment shall

constitute a final and unappealable order.

(F) Authority to modify or remit penalty.—The Board may compromise, modify, or

remit any penalty which such agency may

assess or had already assessed under subparagraph (A), (B), or (C).

(G) Mitigating factors.—In determining

the amount of any penalty imposed under

subparagraph (A), (B), or (C), the Board shall

take into account the appropriateness of the

penalty with respect to—

(i) the size of financial resources and

good faith of the insured credit union or the person charged;

(ii) the gravity of the violation;

(iii) the history of previous violations;

and

(iv) such other matters as justice may

require.

(H) Hearing.—The insured credit union

or other person against whom any penalty is

assessed under this paragraph shall be afforded

an agency hearing if such institution or person

submits a request for such hearing within 20

days after the issuance of the notice of assessment.

(I) Collection.—

(i) Referral.—If any insured credit

union or other person fails to pay an assessment

after any penalty assessed under this paragraph

has become final, the Board shall recover the

amount assessed by action in the appropriate

United States district court.

(ii) Appropriateness of penalty not

reviewable.—In any civil action under clause

(i), the validity and appropriateness of the penalty shall not be subject to review.

(J) Disbursement.—All penalties collected under authority of this paragraph shall

be deposited into the Treasury.

(K) Violate defined.—For purposes of

this section, the term ‘‘violate’’ includes any

action (alone or with another or others) for or

toward causing, bringing about, participating in,

counseling, or aiding or abetting a violation.

(L) Regulations.—The Board shall prescribe regulations establishing such procedures

as may be necessary to carry out this paragraph.

(3) Notice under this section after separation from service.—The resignation, termination of employment or participation, or separation of an institution-affiliated party (including a separation caused by the closing of an

insured credit union) shall not affect the jurisdiction and authority of the Board to issue any

notice and proceed under this section against

any such party, if such notice is served before

the end of the 6-year period beginning on the

date such party ceased to be such a party with

respect to such credit union (whether such date

occurs before, on, or after the date of the enactment of this paragraph).

(l) Criminal Penalty for Violation of Certain Orders.—Whoever—

(1) under this Act, is suspended or removed

from, or prohibited from participating in the

affairs of any credit union described in section

206(g)(5); and

(2) knowingly participates, directly or

indirectly,

in any manner (including by engaging in an

activity specifically prohibited in such an order

or in subsection (g)(5)) in the conduct of the

affairs of such a credit union;

shall be fined not more than $1,000,000, imprisoned for not more than 5 years, or both.

(m) As used in this section (1) the terms

‘‘cease-and-desist order which has become final’’
OCTOBER 1998 45

and ‘‘order which has become final’’ means a

cease-and-desist order, or an order issued by the

Board with the consent of the credit union or

the director, officer, committee member, or other

person concerned, or with respect to which no

petition for review of the action of the Board

has been filed and perfected in a court of

appeals as specified in paragraph (2) of subsection (j) of this section, or with respect to

which the action of the court in which said petition is so filed is not subject to further review

by the Supreme Court of the United States in

proceedings provided for in said paragraph, or

an order issued under subsection (i) of this section, and (2) the term ‘‘violation’’ includes without limitation any action (alone or with another

or others) for or toward causing, bringing about,

participating in, counseling, or aiding or abetting a violation.

(n) Any service required or authorized to be

made by the Board under this section may be

made by registered mail or in such other manner reasonably calculated to give actual notice

as the Board may by regulation or otherwise

provide. Copies of any notice or order served by

the Board upon any State-chartered credit

union or any director, officer, or committee

member thereof or other person participating in

the conduct of its affairs, pursuant to the provisions of this section, shall also be sent to the

commission, board, or authority, if any, having

supervision of such credit union.

(o) In connection with any proceeding under

subsection (e), (f)(1), or (g) of this section involving an insured State-chartered credit union or

any institution-affiliated party,

the Board shall provide the commission, board,

or authority, if any, having supervision of such

credit union, with notice of its intent to institute

such a proceeding and the grounds thereof.

Unless within such time as the Board deems

appropriate in the light of the circumstances of

the case (which time must be specified in the

notice prescribed in the preceding sentence)

satisfactory corrective action is effectuated by

action of such commission, board, or authority,

the Board may proceed as provided in this section. No credit union or other party who is the

subject of any notice or order issued by the

Board under this section shall have standing to

raise the requirements of this subsection as

ground for attacking the validity of any such

notice or order.

(p) In the course of or in connection with any

proceeding under this section or in connection

with any claim for insured deposits or by examination or investigation under section 204(b),

the Board, in conducting the proceeding, examination, or investigation or considering the

claim for insured deposits, or any designated

representative thereof, including any person

designated to conduct any hearing under this

section, shall have the power to administer

oaths and affirmations, to take or cause to be

taken depositions, and to issue, revoke, quash,

or modify subpoenas and subpoenas duces

tecum, and the Board is empowered to make

rules and regulations with respect to any such

proceedings, claims, examinations, or investigations. The attendance of witnesses and the

production of documents provided for in this

subsection may be required from any place in

any State or in any territory or other place subject to the jurisdiction of the United States at

any designated place where such proceeding is

being conducted. Any party to proceedings

under this section may apply to the United

States District Court for the District of Columbia, or the United States district court for the

judicial district or the United States court in

any territory in which such proceeding is being

conducted, or where the witness resides or carries on business, for enforcement of any subpoena or subpoena duces tecum issued pursuant

to this subsection, and such courts shall have

jurisdiction and power to order and require

compliance therewith. Witnesses subpoenaed

under this section shall be paid the same fees

and mileage that are paid witnesses in the district courts of the United States. Any court having jurisdiction of any proceeding instituted

under this section by an insured credit union or

a director, officer, or committee member thereof

may allow to any such party such reasonable

expenses and attorneys’ fees as it deems just

and proper and such expenses and fees shall be

paid by the credit union or from its assets.

(q) Compliance with Monetary Transaction Recordkeeping and Report Requirements.—

(1) Compliance procedures required.—

The Board shall prescribe regulations requiring

insured credit unions to establish and maintain

procedures reasonably designed to assure and

monitor the compliance of such credit unions

with the requirements of subchapter II of chapter 53 of title 31, United States Code.
46 OCTOBER 1998

(2) Examinations of credit unions to

include review of compliance procedures.—

(A) In general.—Each examination of an

insured credit union by the Board shall include

a review of the procedures required to be established and maintained under paragraph (1).

(B) Exam report requirement.—The

report of examination shall describe any problem with the procedures maintained by the

credit union.

(3) Order to comply with requirements.—If Board determines that an insured

credit union—

(A) has failed to establish and maintain

the procedures described in paragraph (1); or

(B) has failed to correct any problem with

the procedures maintained by such credit union

which was previously reported to the credit

union by the Board,

the Board shall issue an order in the manner

prescribed in subsection (e) or (f) requiring such

credit union to cease and desist from its violation of this subsection or regulations prescribed

under this subsection.

(r) Institution-affiliated Party Defined.—

For purposes of this Act, the term ‘‘institutionaffiliated party’’ means—

(1) Any committee member, director, officer,

or employee of, or agent for, an insured credit

union;

(2) any consultant, joint venture partner,

and any other person as determined by the

Board (by regulation or on a case-by-case basis)

who participates in the conduct of the affairs of

an insured credit union; and

(3) any independent contractor (including

any attorney, appraiser, or accountant) who

knowingly or recklessly participates in—

(A) any violation of any law or regulation;

(B) any breach of fiduciary duty; or

(C) any unsafe or unsound practice,

which caused or is likely to cause more than a

minimal financial loss to, or a significant

adverse effect on, the insured credit union.

(s) Public Disclosure of Agency Action.—

(1) In general.—The Board shall publish

and make available to the public on a monthly

basis—

(A) Any written agreement or other written statement for which a violation may be

enforced by the Board, unless the Board, in its

discretion, determines that publication would be

contrary to the public interest;

(B) any final order issued with respect to

any administrative enforcement proceeding

initiated by the Board under this section or any

other law; and

(C) any modification to or termination of

any order or agreement made public pursuant

to this paragraph.

(2) Hearings.—All hearings on the record

with respect to any notice of charges issued by

the Board shall be open to the public, unless the

agency, in its discretion, determines that holding an open hearing would be contrary to the

public interest.

(3) Reports to Congress.—A written

report shall be made part of a determination not

to hold a public hearing pursuant to paragraph

(2) or not to publish a document pursuant to

paragraph (1)(A). At the end of each calendar

quarter, all such reports shall be transmitted to

the Congress.

(4) Transcript of hearing.—A transcript

that includes all testimony and other documentary evidence shall be prepared for all hearings

commenced pursuant to subsection (k). A transcript of public hearings shall be made available

to the public pursuant to section 552 of title 5,

United States Code.

(5) Delay of publication under exceptional circumstances.—If the Board makes a

determination in writing that the publication of

a final order pursuant to paragraph (1)(B)

would seriously threaten the safety and soundness of an insured depository institution, the

agency may delay the publication of the document for a reasonable time.

(6) Documents filed under seal in public enforcement hearings.—The Board may

file any document or part of a document under

seal in any administrative enforcement hearing

commenced by the agency if disclosure of the

document would be contrary to the public

interest. A written report shall be made part of

any determination to withhold any part of a

document from the transcript of the hearing

required by paragraph (2).

(7) Retention of documents.—The Board

shall keep and maintain a record, for a period

of at least 6 years, of all documents described in

paragraph (1) and all informal enforcement
OCTOBER 1998 47

* This text is as it appeared in the Congressional Record.

We believe the words ‘‘the regulations’’ should be inserted

here.

** This text is as it appeared in the Congressional Record.

We believe this ‘‘or’’ is an extraneous word and should be deleted.

agreements and other supervisory actions and

supporting documents issued with respect to or

in connection with any administrative enforcement proceeding initiated by such agency under

this section or any other laws.

(8) Disclosures to Congress.—No provision of this subsection may be construed to

authorize the withholding, or to prohibit the

disclosure, of any information to the Congress or

any committee or subcommittee of the Congress.

(t) Regulation of Certain Forms of Benefits to Institution-Affiliated Parties.—

(1) Golden parachutes and indemnification payments.—The Board may prohibit or

limit, by regulation or order, any golden parachute payment or indemnification payment.

(2) Factors to be taken into account.—

The Board shall prescribe, by regulation, the

factors to be considered by the Board in taking

any action pursuant to paragraph (1) which may

include such factors as the following:

(A) Whether there is a reasonable basis to

believe that the institution-affiliated party has

committed any fraudulent act or omission,

breach of trust or fiduciary duty, or insider

abuse with regard to the credit union that has

had a material affect [sic] on the financial condition of the credit union.

(B) Whether there is a reasonable basis to

believe that the institution-affiliated party is

substantially responsible for the insolvency of

the credit union, the appointment of a conservator or liquidating agent for the credit union, or

the credit union’s troubled condition (as defined

in * prescribed by the Board pursuant to paragraph (4)(A)(ii)(III)).

(C) Whether there is a reasonable basis to

believe that the institution-affiliated party has

materially violated any applicable Federal or

State banking law or regulation that has had a

material affect [sic] on the financial condition of

the credit union.

(D) Whether there is a reasonable basis

to believe that the institution-affiliated party

has violated or conspired to violate—

(i) section 215, 656, 657, 1005, 1006,

1007, 1014, 1032, or 1344 of title 18, United

States Code; or

(ii) section 1341 or 1343 of such title

affecting a financial institution.

(E) Whether the institution-affiliated

party was in a position of managerial or fiduciary responsibility.

(F) The length of time the party was

affiliated with the credit union and the degree

to which—

(i) the payment reasonably reflects compensation earned over the period of employment; and

(ii) the compensation involved represents a reasonable payment for services rendered.

(3) Certain payments prohibited.—No

credit union may prepay the salary or any

liability or legal expense of any institution-affiliated party if such payment is made—

(A) in contemplation of the insolvency of

such credit union or after the commission of an

act of insolvency; and

(B) with a view to, or has the result of—

(i) preventing the proper application of

the assets of the credit union; or

(ii) preferring one creditor over another.

(4) Golden parachute payment

defined.—For purposes of this subsection—

(A) In general.—The term ‘‘golden parachute payment’’ means any payment (or any

agreement to make any payment) in the nature

of compensation by any credit union for the

benefit of any institution-affiliated party pursuant to an obligation of such credit union that—

(i) is contingent on the termination of

such party’s affiliation with the credit union;

and

(ii) is received on or after the date on

which—

(I) the credit union is insolvent;

(II) any conservator or liquidating

agent is appointed for such credit union; or **

(III) the Board determines that the

credit union is in a troubled condition (as

defined in regulations which the Board shall

prescribe);

(IV) the credit union has been

assigned a composite rating by the Board of 4 or

5 under the Uniform Financial Institutions Rat-
48 OCTOBER 1998

ing System (as applicable with respect to credit

unions); or

(V) the credit union is subject to a

proceeding initiated by the Board to terminate

or suspend deposit insurance for such credit

union.

(B) Certain payments in contemplation of an event.—Any payment which would

be a golden parachute payment but for the fact

that such payment was made before the date

referred to in subparagraph (A)(ii) shall be

treated as a golden parachute payment if the

payment was made in contemplation of the

occurrence of an event described in any subclause of such subparagraph.

(C) Certain payments not included.—

The term ‘‘golden parachute payment’’ shall not

include—

(i) any payment made pursuant to a

retirement plan which is qualified (or is

intended to be qualified) under section 401 of

the Internal Revenue Code of 1986 or other nondiscriminatory retirement or severance benefit

plan;

(ii) any payment made pursuant to a

bona fide deferred compensation plan or

arrangement which the Board determines, by

regulation or order, to be permissible; or

(iii) any payment made by reason of the

death or disability of an institution-affiliated

party.

(5) Other definitions.—For purposes of

this subsection—

(A) Indemnification payment.—Subject

to paragraph (6), the term ‘‘indemnification payment’’ means any payment (or any agreement to

make any payment) by any credit union for the

benefit of any person who is or was an institution-affiliated party, to pay or reimburse such

person for any liability or legal expense with

regard to any administrative proceeding or civil

action instituted by the Board which results in

a final order under which such person—

(i) is assessed a civil money penalty;

(ii) is removed or prohibited from

participating in conduct of the affairs of the

credit union; or

(iii) is required to take any affirmative

action described in section 206(e)(3) with respect

to such credit union.

(B) Liability or legal expense.—The

term ‘‘liability or legal expense’’ means—

(i) any legal or other professional

expense incurred in connection with any claim,

proceeding, or action;

(ii) the amount of, and any cost

incurred in connection with, any settlement of

any claim, proceeding, or action; and

(iii) the amount of, and any cost

incurred in connection with, any judgment or

penalty imposed with respect to any claim,

proceeding, or action.

(C) Payment.—The term ‘‘payment’’

includes—

(i) any direct or indirect transfer of any

funds or any asset; and

(ii) any segregation of any funds or

assets for the purpose of making, or pursuant to

an agreement to make, any payment after the

date on which such funds or assets are segregated, without regard to whether the obligation to make such payment is contingent on—

(I) the determination, after such date,

of the liability for the payment of such amount;

or

(II) the liquidation, after such date, of

the amount of such payment.

(6) Certain commercial insurance coverage not treated as covered benefit payment.—No provision of this subsection shall be

construed as prohibiting any credit union from

purchasing any commercial insurance policy or

fidelity bond, except that, subject to any

requirement described in paragraph (5)(A)(iii),

such insurance policy or bond shall not cover

any legal or liability expense of the credit union

which is described in paragraph (5)(A).

(u) Foreign Investigations.—

(1) Requesting assistance from foreign

banking authorities.—In conducting any

investigation, examination, or enforcement

action under this Act, the Board may—

(A) request the assistance of any foreign

banking authority; and

(B) maintain an office outside the United

States.

(2) Providing assistance to foreign

banking authorities.—

(A) In general.—The Board may, at the

request of any foreign banking authority, assist

such authority if such authority states that the

requesting authority is conducting an investigation to determine whether any person has vio-
OCTOBER 1998 49

lated, is violating, or is about to violate any law

or regulation relating to banking matters or currency transactions administered or enforced by

the requesting authority.

(B) Investigation by Federal banking

agency.—The Board may, in the Board’s discretion, investigate and collect information and evidence pertinent to a request for assistance

under subparagraph (A). Any such investigation

shall comply with the laws of the United States

and the policies and procedures of the Board.

(C) Factors to consider.—In deciding

whether to provide assistance under this paragraph, the Board shall consider—

(i) whether the requesting authority

has agreed to provide reciprocal assistance with

respect to banking matters within the jurisdiction of the Board or any appropriate Federal

banking agency; and

(ii) whether compliance with the

request would prejudice the public interest of

the United States.

(D) Treatment of foreign banking

authority.—For purposes of any Federal law or

Board regulation relating to the collection or

transfer of information by the Board or any

appropriate Federal banking agency, the foreign

banking authority shall be treated as another

appropriate Federal banking agency.

(3) Rule of construction.—Paragraphs (1)

and (2) shall not be construed to limit the

authority of the Board or any other Federal

agency to provide or receive assistance or

information to or from any foreign authority

with respect to any matter.

(v) Termination of Insurance for Money

Laundering or Cash Transaction Reporting

Offenses.—

(1) In general.—

(A) Conviction of Title 18 offenses.—

(i) Duty to notify.—If an insured

State credit union has been convicted of any

criminal offense under section 1956 or 1957 of

Title 18, United States Code, the Attorney General shall provide to the Board a written

notification of the conviction and shall include a

certified copy of the order of conviction from the

court rendering the decision.

(ii) Notice of termination.—After

written notification from the Attorney General

to the Board of such a conviction, the Board

shall issue to such insured credit union a notice

of its intention to terminate the insured status

of the insured credit union and schedule a hearing on the matter, which shall be conducted as

a termination hearing pursuant to subsection

(b) of this section, except that no period for

correction shall apply to a notice issued under

this subparagraph.

(B) Conviction of Title 31 offenses.—If

a credit union is convicted to any criminal

offense under section 5322 or 5324 of Title 31,

United States Code, after prior written notification from the Attorney General, the Board may

initiate proceedings to terminate the insured

status of such credit union in the manner

described in subparagraph (A).

(C) Notice to state supervisor.—The

Board shall simultaneously transmit a copy of

any notice under this paragraph to the appropriate State financial institutions supervisor.

(2) Factors to be considered.—In determining whether to terminate insurance under

paragraph (1), the Board shall take into account

the following factors:

(A) The extent to which directors,

committee members, or senior executive officers

(as defined by the Board in regulations which

the Board shall prescribe) of the credit union

knew of, or were involved in, the commission of

the money laundering offense of which the

credit union was found guilty.

(B) The extent to which the offense

occurred despite the existence of policies and

procedures within the credit union which were

designed to prevent the occurrence of any such

offense.

(C) The extent to which the credit union

has fully cooperated with law enforcement

authorities with respect to the investigation of

the money laundering offense of which the

credit union was found guilty.

(D) The extent to which the credit union

has implemented additional internal controls

(since the commission of the offense of which

the credit union was found guilty) to prevent

the occurrence of any other money laundering

offense.

(E) The extent to which the interest of

the local community in having adequate deposit

and credit services available would be threatened by the termination of insurance.

(3) Notice to state credit union supervisor and public.—When the order to termi-
50 OCTOBER 1998

nate insured status initiated pursuant to this

subsection is final, the Board shall—

(A) notify the commission, board, or

authority (if any) having supervision of the

credit union described in paragraph (1) at least

10 days prior to the effective date of the order

of the termination of the insured status of such

credit union; and

(B) publish notice of the termination of

the insured status of the credit union.

(4) Temporary insurance of previously

insured deposits.—Upon termination of the

insured status of any State credit union pursuant to paragraph (1), the deposits of such credit

union shall be treated in accordance with section 206(d)(2).

(5) Successor liability.—This subsection

shall not apply to a successor to the interests of,

or a person who acquires, an insured credit

union that violated a provision of law described

in paragraph (1), if the successor succeeds to the

interests of the violator, or the acquisition is

made, in good faith and not for purposes of

evading this subsection or regulations prescribed under this subsection.

§ 1786a § 206A

Regulation and examination of credit

union organizations and service providers.—

(a) Regulation and examination of credit

union organizations.—

(1) General examination and regulatory

authority.—A credit union organization shall

be subject to examination and regulation by the

Board to the same extent as that insured credit

union.

(2) Examination by other banking agencies.—The Board may authorize to make an

examination of a credit union organization in

accordance with paragraph (1)—

(A) any Federal regulator agency that

supervises any activity of a credit union

organization; or

(B) any Federal banking agency that

supervises any other person who maintains an

ownership interest in a credit union organization.

(b) Applicability of section 206.—A credit

union organization shall be subject to the provisions of section 206 as if the credit union

organization were an insured credit union.

(c) Service performed by contract or

otherwise.—Notwithstanding subsection (a), if

an insured credit union or a credit union

organization that is regularly examined or subject to examination by the Board, causes to be

performed for itself, by contract or otherwise,

any service authorized under this Act, or in the

case of a State credit union, any applicable

State law, whether on or off its premises—

(1) such performance shall be subject to

regulation and examination by the Board to the

same extent as if such services were being performed by the insured credit union or credit

union organization itself on its own premises;

and

(2) the insured credit union or credit union

organization shall notify the Board of the existence of the service relationship not later than

30 days after the earlier of—

(A) the date on which the contract is

entered into; or

(B) the date on which the performance of

the service is initiated.

(d) Administration by the Board.—The

Board may issue such regulations and orders as

may be necessary to enable the Board to administer and carry out this section and to prevent

evasion of this section.

(e) Definitions.—For purposes of this section—

(1) the term ‘credit union organization’

means any entity that—

(A) is not a credit union;

(B) is an entity in which an insured credit

union may lawfully hold an ownership interest

or investment; and

(C) is owned in whole or in part by an

insured credit union; and

(2) the term ‘Federal banking agency’ has

the same meaning as in section 3 of the Federal

Deposit Insurance Act.

(f) Expiration of authority.—This section

and all powers and authority of the Board under

this section shall cease to be effective as of

December 31, 2001.

§ 1787 § 207

Payment of insurance.—(a)(1)(A) Upon its

finding that a Federal credit union insured

under this title is bankrupt or insolvent, the

Board shall close such credit union for liquida-
OCTOBER 1998 51

tion and appoint itself liquidating agent therefor.

(B) Not later than 10 days after the date

on which the Board closes a credit union for liquidation pursuant to paragraph (1), or accepts

appointment as liquidating agent pursuant to

subsection (b), such insured credit union may

apply to the United States district court for the

judicial district in which the principal office of

such insured credit union is located or the

United States District Court for the District of

Columbia, for an order requiring the Board to

show cause why it should not be prohibited from

continuing such liquidation. Except as otherwise

provided in this subparagraph, no court may

take any action for or toward the removal of any

liquidating agent or, except at the instance of

the Board, restrain or affect the exercise of powers or functions of a liquidating agent.

(2) Notwithstanding any other provision of

law, the Board as liquidating agent of a closed

Federal credit union insured under this title

shall not be required to furnish bond and shall

have the right to appoint an agent or agents to

assist it in its duties as such liquidating agent.

All fees, compensation, and expenses of liquidation and administration thereof shall be fixed by

the Board and may be paid by it out of funds

coming into its possessions as such liquidating

agent.

(3) Liquidation to facilitate prompt

corrective action.—The Board may close any

credit union for liquidation, and appoint itself or

another (including, in the case of a State-chartered insured credit union, the State official

having jurisdiction over the credit union) as liquidating agent of that credit union, if—

(A) the Board determines that—

(i) the credit union is significantly

undercapitalized, as defined in section 216, and

has no reasonable prospect of becoming adequately capitalized, as defined in section 216; or

(ii) the credit union is critically undercapitalized, as defined in section 216; and

(B) in the case of a State-chartered

insured credit union, the Board has complied

with section 216(l).

(b) Powers and Duties of Board as Conservator or Liquidating Agent.—

(1) Rulemaking authority of Board.—

The Board may prescribe such regulations as

the Board determines to be appropriate regarding the conduct of the Board as conservator or

liquidating agent.

(2) General Powers.—

(A) Successor to credit union.—The

Board shall, as conservator or liquidating agent,

and by operation of law, succeed to—

(i) all rights, titles, powers, and privileges of the credit union, and of any member,

accountholder, officer, or director of such credit

union with respect to the credit union and the

assets of the credit union; and

(ii) title to the books, records, and

assets of any previous conservator or other legal

custodian of such credit union.

(B) Operate the credit union.—The

Board may, as conservator or liquidating

agent—

(i) take over the assets of and operate

the credit union with all the powers of the members or shareholders, the directors, and the officers of the credit union and shall be authorized

to conduct all business of the credit union;

(ii) collect all obligations and money

due the credit union;

(iii) perform all functions of the credit

union in the name of the credit union which is

consistent with the appointment as conservator

or liquidating agent; and

(iv) preserve and conserve the assets

and property of such credit union.

(C) Functions of credit union’s officers, directors, and shareholders.—The

Board may, by regulation or order, provide for

the exercise of any function by any member or

stockholder, director, or officer of any credit

union for which the Board has been appointed

conservator or liquidating agent.

(D) Powers as conservator.—The Board

may, as conservator, take such action as may

be—

(i) necessary to put the credit union in

a sound and solvent condition; and

(ii) appropriate to carry on the business

of the credit union and preserve and conserve

the assets and property of the credit union.

(E) Additional powers as liquidating

agent.—The Board may, as liquidating agent,

place the credit union in liquidation and proceed

to realize upon the assets of the credit union,

having due regard to the conditions of credit in

the locality.
52 OCTOBER 1998

(F) Payment of valid obligations.—The

Board, as conservator or liquidating agent, shall

pay all valid obligations of the credit union in

accordance with the prescriptions and limitations of this Act.

(G) Attachment of assets and injunctive relief.—Subject to subparagraph (H), any

court of competent jurisdiction may, at the

request of the Board (in the Board’s capacity as

conservator or liquidating agent for any insured

credit union or in the Board’s corporate capacity

in the exercise of any authority under section

207), issue an order in accordance with Rule 65

of the Federal Rules of Civil Procedure, including an order placing the assets of any person

designated by the Board under the control of

the court and appointing a trustee to hold such

assets.

(H) Standards.—

(i) Showing.—Rule 65 of the Federal

Rules of Civil Procedure shall apply with

respect to any proceeding under subparagraph

(G) without regard to the requirement of such

rule that the applicant show that the injury,

loss, or damage is irreparable and immediate.

(ii) State proceeding.—If, in the case

of any proceeding in a State court, the court

determines that rules of civil procedure available under the laws of such State provide

substantially similar protections to such party’s

right to due process as Rule 65 (as modified

with respect to such proceeding by clause (i)),

the relief sought by the Board pursuant to

subparagraph (G) may be requested under the

laws of such State.

(I) Subpoena authority.—

(i) In general.—The Board may, as

conservator or liquidating agent and for purposes of carrying out any power, authority, or

duty with respect to an insured credit union

(including determining any claim against the

credit union and determining and realizing

upon any asset of any person in the course of

collecting money due the credit union), exercise

any power established under section 206(p), and

the provisions of such section shall apply with

respect to the exercise of any such power under

this subparagraph in the same manner as such

provisions apply under such section.

(ii) Authority of board.—A subpoena

or subpoena duces tecum may be issued under

clause (i) only by, or with the written approval

of, the Board or their designees.

(iii) Rule of construction.—This subsection shall not be construed as limiting any

rights that the Board, in any capacity, might

otherwise have under section 206(p).

(J) Incidental powers.—The Board may,

as conservator or liquidating agent—

(i) exercise all powers and authorities

specifically granted to conservators or liquidating agents, respectively, under this Act and

such incidental powers as shall be necessary to

carry out such powers; and

(ii) take any action authorized by this

Act, which the Board determines is in the best

interests of the credit union, its accountholders,

or the Board.

(3) Authority of liquidating agent to

determine claims.—

(A) In general.—The Board may, as liquidating agent, determine claims in accordance

with the requirements of this subsection and

regulations prescribed under paragraph (4).

(B) Notice requirements.—The liquidating agent, in any case involving the liquidation or winding up of the affairs of a closed

credit union, shall—

(i) promptly publish a notice to the

credit union’s creditors to present their claims,

together with proof, to the liquidating agent by

a date specified in the notice which shall be not

less than 90 days after the publication of such

notice; and

(ii) republish such notice approximately

1 month and 2 months, respectively, after the

publication under clause (i).

(C) Mailing required.—The liquidating

agent shall mail a notice similar to the notice

published under subparagraph (B)(i) at the time

of such publication to any creditor shown on the

credit union’s books—

(i) at the creditor’s last address appearing in such books; or

(ii) upon discovery of the name and

address of a claimant not appearing on the

credit union’s books within 30 days after the

discovery of such name and address.

(4) Rulemaking authority relating to

determination of claims.—The Board may

prescribe regulations regarding the allowance or

disallowance of claims by the liquidating agent

and providing for administrative determination

of claims and review of such determination.
OCTOBER 1998 53

(5) Procedures for determination of

claims.—

(A) Determination period.—

(i) In general.—Before the end of the

180-day period beginning on the date any claim

against a credit union is filed with the Board as

liquidating agent, the Board shall determine

whether to allow or disallow the claim and shall

notify the claimant of any determination with

respect to such claim.

(ii) Extension of time.—The period

described in clause (i) may be extended by a

written agreement between the claimant and

the Board.

(iii) Mailing of notice sufficient.—

The requirements of clause (i) shall be deemed

to be satisfied if the notice of any determination

with respect to any claim is mailed to the last

address of the claimant which appears—

(I) on the credit union’s books;

(II) in the claim filed by the claimant;

or

(III) in documents submitted in proof

of the claim.

(iv) Contents of notice of disallowance.—If any claim filed under clause (i) is disallowed, the notice to the claimant shall contain—

(I) a statement of each reason for the

disallowance; and

(II) the procedures available for

obtaining agency review of the determination to

disallow the claim or judicial determination of

the claim.

(B) Allowance of proven claims.—The

liquidating agent shall allow any claim received

on or before the date specified in the notice published under paragraph (3)(B)(i) by the liquidating agent from any claimant which is approved

to the satisfaction of the liquidating agent.

(C) Disallowance of claims filed after

end of filing period.—

(i) In general.—Except as provided in

clause (ii), claims filed after the date specified

in the notice published under paragraph

(3)(B)(i) shall be disallowed and such disallowance shall be final.

(ii) Certain exceptions.—Clause (i)

shall not apply with respect to any claim filed

by any claimant after the date specified in the

notice published under paragraph (3)(B)(i) and

such claim may be considered by the liquidating

agent if—

(I) the claimant did not receive notice

of the appointment of the liquidating agent in

time to file such claim before such date; and

(II) such claim is filed in time to permit payment of such claim.

(D) Authority to disallow claims.—The

liquidating agent may disallow any portion of

any claim by a creditor or claim of security,

preference, or priority which is not proved to the

satisfaction of the liquidating agent.

(E) No judicial review of determination pursuant to subparagraph (D).—No

court may review the Board’s determination

pursuant to subparagraph (D) to disallow a

claim.

(F) Legal effect of filing.—

(i) Statute of limitation tolled.—For

purposes of any applicable statute of limitations, the filing of a claim with the liquidating

agent shall constitute a commencement of an

action.

(ii) No prejudice to other actions.—

Subject to paragraph (12), the filing of a claim

with the liquidating agent shall not prejudice

any right of the claimant to continue any action

which was filed before the appointment of the

liquidating agent.

(6) Provision for agency review or

judicial determination of claims.—

(A) In general.—Before the end of the

60-day period beginning on the earlier of—

(i) the end of the period described in

paragraph (5)(A)(i) with respect to any claim

against a credit union for which the Board is

liquidating agent; or

(ii) the date of any notice of disallowance of such claim pursuant to paragraph

(5)(A)(i),

the claimant may request administrative review

of the claim in accordance with subparagraph

(A) or (B) of paragraph (7) or file suit on such

claim (or continue an action commenced before

the appointment of the liquidating agent) in the

district or territorial court of the United States

for the district within which the credit union’s

principal place of business is located or the

United States District Court for the District of

Columbia (and such court shall have jurisdiction

to hear such claim).
54 OCTOBER 1998

(B) Statute of limitations.—If any

claimant fails to—

(i) request administrative review of any

claim in accordance with subparagraph (A) or

(B) of paragraph (7); or

(ii) file suit on such claim (or continue

an action commenced before the appointment of

the liquidating agent),

before the end of the 60-day period described in

subparagraph (A), the claim shall be deemed to

be disallowed (other than any portion of such

claim which was allowed by the liquidating

agent) as of the end of such period, such disallowance shall be final, and the claimant shall

have no further rights or remedies with respect

to such claim.

(7) Review of claims.—

(A) Administrative hearing.—If any

claimant requests review under this subparagraph in lieu of filing or continuing any action

under paragraph (6) and the Board agrees to

such request, the Board shall consider the claim

after opportunity for hearing on the record. The

final determination of the Board with respect to

such claim shall be subject to judicial review

under chapter 7 of title 5, United States Code.

(B) Other review procedures.—

(i) In general.—The Board shall also

establish such alternative dispute resolution

processes as may be appropriate for the resolution of claims filed under paragraph (5)(A)(i).

(ii) Criteria.—In establishing alternative dispute resolution processes, the Board

shall strive for procedures which are expeditious, fair, independent, and low cost.

(iii) Voluntary binding or nonbinding procedures.—The Board may establish both binding and nonbinding processes,

which may be conducted by any government or

private party, but all parties, including the

claimant and the Board, must agree to the use

of the process in a particular case.

(iv) Consideration of incentives.—

The Board shall seek to develop incentives for

claimants to participate in the alternative dispute resolution process.

(8) Expedited determination of

claims.—

(A) Establishment required.—The

Board shall establish a procedure for expedited

relief outside of the routine claims process

established under paragraph (5) for claimants

who—

(i) allege the existence of legally valid

and enforceable or perfected security interests

in assets of any credit union for which the

Board has been appointed liquidating agent;

and

(ii) allege that irreparable injury will

occur if the routine claims procedure is followed.

(B) Determination period.—Before the

end of the 90-day period beginning on the date

any claim is filed in accordance with the procedures established pursuant to subparagraph (A),

the Board shall—

(i) determine—

(I) whether to allow or disallow such

claim; or

(II) whether such claim should be

determined pursuant to the procedures established pursuant to paragraph (5); or

(ii) notify the claimant of the determination, and if the claim is disallowed, a statement of each reason for the disallowance and

the procedure for obtaining agency review or

judicial determination.

(C) Period for filing or renewing

suit.—Any claimant who files a request for

expedited relief shall be permitted to file a suit,

or to continue a suit filed before the appointment of the liquidating agent, seeking a determination of the claimant’s rights with respect to

such security interest after the earlier of—

(i) the end of the 90-day period beginning on the date of the filing of a request for

expedited relief; or

(ii) the date the Board denies the claim.

(D) Statute of limitations.—If an action

described in subparagraph (C) is not filed, or

the motion to renew a previously filed suit is

not made, before the end of the 30-day period

beginning on the date on which such action or

motion may be filed in accordance with subparagraph (B), the claim shall be deemed to be disallowed as of the end of such period (other than

any portion of such claim which was allowed by

the liquidating agent), such disallowance shall

be final, and the claimant shall have no further

rights or remedies with respect to such claim.

(E) Legal effect of filing.—

(i) Statute of limitation tolled.—For

purposes of any applicable statute of limita-
OCTOBER 1998 55

tions, the filing of a claim with the liquidating

agent shall constitute a commencement of an

action.

(ii) No prejudice to other actions.—

Subject to paragraph (12), the filing of a claim

with the liquidating agent shall not prejudice

any right of the claimant to continue any action

which was filed before the appointment of the

liquidating agent.

(9) Agreement as basis of claim.—

(A) Requirements.—Except as provided

in subparagraph (B), any agreement which does

not meet the requirements set forth in section

208(a)(3) shall not form the basis of, or substantially comprise, a claim against the liquidating

agent or the Board.

(B) Exception to contemporaneous

execution requirement.—Notwithstanding

section 208(a)(3), any agreement between a Federal home loan bank or Federal Reserve bank

and any insured credit union which was

executed before the extension of credit by such

bank to such credit union shall be treated as

having been executed contemporaneously with

such extension of credit for purposes of subparagraph (A).

(10) Payment of Claims.—

(A) In general.—The liquidating agent

may, in the liquidating agent’s discretion and to

the extent funds are available, pay creditor

claims which are allowed by the liquidating

agent, approved by the Board pursuant to a

final determination pursuant to paragraph (7)

or (8), or determined by the final judgment of

any court of competent jurisdiction in such manner and amounts as are authorized under this

Act.

(B) Payment of dividends on claims.—

The liquidating agent may, in the liquidating

agent’s sole discretion, pay dividends on proved

claims at any time, and no liability shall attach

to the Board (in such Board’s corporate capacity

or as liquidating agent), by reason of any such

payment, for failure to pay dividends to a claimant whose claim is not proved at the time of any

such payment.

(11) Distribution of assets.—

(A) Subrogated claims; claims of uninsured accountholders and other creditors.—The liquidating agent shall—

(i) retain for the account of the Board

such portion of the amounts realized from any

liquidation as the Board may be entitled to

receive in connection with the subrogation of

the claims of accountholders; and

(ii) pay to accountholders and other

creditors the net amounts available for distribution to them.

(B) Distribution to shareholders of

amounts remaining after payment of all

other claims and expenses.—In any case in

which funds remain after all accountholders,

creditors, other claimants, and administrative

expenses are paid, the liquidating agent shall

distribute such funds to the credit union’s

shareholders or members together with the

accounting report required under paragraph

(14)(C).

(12) Suspension of legal actions.—

(A) In general.—After the appointment

of a conservator or liquidating agent for an

insured credit union, the conservator or liquidating agent may request a stay for a period

not to exceed—

(i) 45 days, in the case of any conservator; and

(ii) 90 days, in the case of any liquidating agent,

in any judicial action or proceeding to which

such credit union is or becomes a party.

(B) Grant of stay by all courts

required.—Upon receipt of a request by any

conservator or liquidating agent pursuant to

subparagraph (A) for a stay of any judicial

action or proceeding in any court with jurisdiction of such action or proceeding, the court shall

grant such stay as to all parties.

(13) Additional rights and duties.—

(A) Prior final adjudication.—The

Board shall abide by any final unappealable

judgment of any court of competent jurisdiction

which was rendered before the appointment of

the Board as conservator or liquidating agent.

(B) Rights and remedies of conservator or liquidating agent.—In the event of any

appealable judgment, the Board as conservator

or liquidating agent shall—

(i) have all the rights and remedies

available to the credit union (before the appointment of such conservator or liquidating agent)

and the Board in its corporate capacity, including removal to Federal court and all appellate

rights; and
56 OCTOBER 1998

(ii) not be required to post any bond in

order to pursue such remedies.

(C) No attachment or execution.—No

attachment or execution may issue by any court

upon assets in the possession of the liquidating

agent.

(D) Limitation on judicial review.—

Except as otherwise provided in this subsection,

no court shall have jurisdiction over—

(i) any claim or action for payment

from, or any action seeking a determination of

rights with respect to, the assets of any credit

union for which the Board has been appointed

liquidating agent, including assets which the

Board may acquire from itself as such liquidating agent; or

(ii) any claim relating to any act or

omission of such credit union or the Board as

liquidating agent.

(14) Statute of limitations for actions

brought by conservator liquidating

agent.—

(A) In general.—Notwithstanding any

provision of any contract, the applicable statute

of limitations with regard to any action brought

by the Board as conservator or liquidating agent

shall be—

(i) in the case of any contract claim, the

longer of—

(I) the 6-year period beginning on the

date the claim accrues; or

(II) the period applicable under State

law; and

(ii) in the case of any tort claim, the

longer of—

(I) the 3-year period beginning on the

date the claim accrues; or

(II) the period applicable under State

law.

(B) Determination of the date on

which a claim accrues.—For purposes of

subparagraph (A), the date on which the statute

of limitation begins to run on any claim

described in such subparagraph shall be the

later of—

(i) the date of the appointment of the

Board as conservator or liquidating agent; or

(ii) the date on which the cause of

action accrues.

(15) Accounting and recordkeeping

requirements.—

(A) In general.—The Board as conservator or liquidating agent shall, consistent with

the accounting and reporting practices and

procedures established by the Board, maintain a

full accounting of each conservatorship and liquidation or other disposition of credit unions in

default.

(B) Annual accounting or report.—

With respect to each conservatorship or liquidation to which the Board was appointed, the

Board shall make an annual accounting or

report, as appropriate, available to the

Comptroller General of the United States or, in

the case of a State chartered credit union, the

authority which appointed the Board as conservator or liquidating agent.

(C) Availability of reports.—Any report

prepared pursuant to subparagraph (B) shall be

made available by the Board upon request to

any shareholder of the credit union for which

the Board was appointed conservator or liquidating agent or any other member of the public.

(D) Recordkeeping requirement.—

After the end of the 6-year period beginning on

the date the Board is appointed as liquidating

agent of an insured credit union, the Board may

destroy any records of such credit union which

the Board, in the Board’s discretion, determines

to be unnecessary unless directed not to do so

by a court of competent jurisidiction or governmental agency, or prohibited by law.

(16) Fraudulent Transfers.—

(A) In general.—The Board, as conservator or liquidating agent for any insured credit

union may avoid a transfer of any interest of an

institution-affiliated party, or any person who

the Board determines is a debtor of the institution, in property, or any obligation incurred by

such party or person, that was made within 5

years of the date on which the Board becomes

conservator or liquidating agent if such party or

person voluntarily or involuntarily made such

transfer or incurred such liability with the

intent to hinder, delay, or defraud the insured

credit union or the Board.

(B) Right of recovery.—To the extent a

transfer is avoided under subparagraph (A), the

Board may recover, for the benefit of the

insured credit union, the property transferred,

or, if a court so orders, the value of such property (at the time of such transfer) from—
OCTOBER 1998 57

(i) the initial transferee of such transfer

or the institution-affiliated party or person for

whose benefit such transfer was made; or

(ii) any immediate or mediate transferee of any such initial transferee.

(C) Rights of transferee or obligee.—

The Board may not recover under subparagraph

(B) from—

(i) any transferee that takes for value,

including satisfaction or securing of a present or

antecedent debt, in good faith; or

(ii) any immediate or mediate good

faith transferee of such transferee.

(D) Rights under this paragraph.—

The rights of the Board under this paragraph

shall be superior to any rights of a trustee or

any other party (other than any party which is

a Federal agency) under title 11, United States

Code.

(c) Provisions Relating to Contracts

Entered into Before Appointment of Conservator or Liquidating Agent.—

(1) Authority to repudiate contracts.—

In addition to any other rights a conservator or

liquidating agent may have, the conservator or

liquidating agent for any insured credit union

may disaffirm or repudiate any contract or

lease—

(A) to which such credit union is a party;

(B) the performance of which the conservator or liquidating agent, in the conservator’s or liquidating agent’s discretion, determines to be burdensome; and

(C) the disaffirmance or repudiation of

which the conservator or liquidating agent

determines, in the conservator’s or liquidating

agent’s discretion, will promote the orderly

administration of the credit union’s affairs.

(2) Timing of repudiation.—The conservator or liquidating agent appointed for any

insured credit union shall determine whether or

not to exercise the rights of repudiation under

this subsection within a reasonable period following such appointment.

(3) Claims for damages for repudiation.—

(A) In general.—Except as otherwise

provided in subparagraph (C) and paragraphs

(4), (5), and (6), the liability of the conservator

or liquidating agent for the disaffirmance or

repudiation of any contract pursuant to paragraph (1) shall be—

(i) limited to actual direct compensatory

damages; and

(ii) determined as of—

(I) the date of the appointment of the

conservator or liquidating agent; or

(II) in the case of any contract or

agreement referred to in paragraph (8), the date

of the disaffirmance or repudiation of such contract or agreement.

(B) No liability for other damages.—

For purposes of subparagraph (A), the term

‘‘actual direct compensatory damages’’ does not

include—

(i) punitive or exemplary damages;

(ii) damages for lost profits or opportunity; or

(iii) damages for pain and suffering.

(C) Measure of damages for repudiation of financial contracts.—In the case of

any qualified financial contract or agreement to

which paragraph (8) applies, compensatory

damages shall be—

(i) deemed to include normal and

reasonable costs of cover or other reasonable

measures of damages utilized in the industries

for such contract and agreement claims; and

(ii) paid in accordance with this subsection and subsection (f) except as otherwise

specified provided in this section.

(4) Leases under which the credit

union is the lessee.—

(A) In general.—If the conservator or liquidating agent disaffirms or repudiates a lease

under which the credit union was the lessee, the

conservator or liquidating agent shall not be liable for any damages (other than damages determined pursuant to subparagraph (B)) for the

disaffirmance or repudiation of such lease.

(B) Payments of rent.—Notwithstanding subparagraph (A), the lessor under a lease

to which such subparagraph applies shall—

(i) be entitled to the contractual rent

accruing before the later of the date—

(I) the notice of disaffirmance or

repudiation is mailed; or

(II) the disaffirmance or repudiation

becomes effective,
58 OCTOBER 1998

unless the lessor is in default or breach of the

terms of the lease;

(ii) have no claim for damages under

any acceleration clause or other penalty provision in the lease; and

(iii) have a claim for any unpaid rent,

subject to all appropriate offsets and defenses,

due as of the date of the appointment which

shall be paid in accordance with this subsection

and subsection (b).

(5) Leases under which the credit

union is the lessor.—

(A) In general.—If the conservator or liquidating agent repudiates an unexpired written

lease of real property of the credit union under

which the credit union is the lessor and the lessee is not, as of the date of such repudiation, in

default, the lessee under such lease may

either—

(i) treat the lease as terminated by

such repudiation; or

(ii) remain in possession of the leasehold interest for the balance of the term of the

lease unless the lessee defaults under the terms

of the lease after the date of such repudiation.

(B) Provisions applicable to lessee

remaining in possession.—If any lessee

under a lease described in subparagraph (A)

remains in possession of a leasehold interest

pursuant to clause (ii) of such subparagraph—

(i) the lessee—

(I) shall continue to pay the contractual rent pursuant to the terms of the lease

after the date of the repudiation of such lease;

(II) may offset against any rent payment which accrues after the date of the repudiation of the lease, any damages which accrue

after such date due to the nonperformance of

any obligation of the credit union under the

lease after such date; and

(ii) the conservator or liquidating agent

shall not be liable to the lessee for any damages

arising after such date as a result of the repudiation other than the amount of any offset

allowed under clause (i)(II).

(6) Contracts for the sale of real property.—

(A) In general.—If the conservator or liquidating agent repudiates any contract (which

meets the requirements of each paragraph of

section 208(a)(3)) for the sale of real property

and the purchaser of such real property under

such contract is in possession and is not, as of

the date of such repudiation, in default, such

purchaser may either—

(i) treat the contract as terminated by

such repudiation; or

(ii) remain in possession of such real

property.

(B) Provisions applicable to purchaser remaining in possession.—If any purchaser of real property under any contract

described in subparagraph (A) remains in

possession of such property pursuant to clause

(ii) of such subparagraph—

(i) the purchaser—

(I) shall continue to make all payments due under the contract after the date of

the repudiation of the contract; and

(II) may offset against any such payments, any damages which accrue after such

date due to the nonperformance (after such

date) of any obligation of the credit union under

the contract; and

(ii) the conservator or liquidating agent

shall—

(I) not be liable to the purchaser for

any damages arising after such date as a result

of the repudiation other than the amount of any

offset allowed under clause (i)(II);

(II) deliver title to the purchaser in

accordance with the provisions of the contract;

and

(III) have no obligation under the

contract other than the performance required

under subclause (II).

(C) Assignment and sale allowed.—

(i) In general.—No provision of this

paragraph shall be construed as limiting the

right of the conservator or liquidating agent to

assign the contract described in subparagraph

(A) and sell the property subject to the contract

and the provisions of this paragraph.

(ii) No liability after assignment

and sale.—If an assignment and sale described

in clause (i) is consummated, the conservator or

liquidating agent shall have no further liability

under the contract described in subparagraph

(A) or with respect to the real property which

was the subject of such contract.
OCTOBER 1998 59

(7) Provisions applicable to service contracts.—

(A) Services performed before

appointment.—In the case of any contract for

services between any person and any insured

credit union for which the Board has been

appointed conservator or liquidating agent, any

claim of such person for services performed

before the appointment of the conservator or the

liquidating agent shall be—

(i) a claim to be paid in accordance with

subsection (b); and

(ii) deemed to have arisen as of the

date the conservator or liquidating agent was

appointed.

(B) Services performed after appointment and prior to repudiation.—If, in the

case of any contract for services described in

subparagraph (A), the conservator or liquidating

agent accepts performance by the other person

before the conservator or liquidating agent

makes any determination to exercise the right

of repudiation of such contract under this section—

(i) the other party shall be paid under

the terms of the contract for the services performed; and

(ii) the amount of such payment shall

be treated as an administrative expense of the

conservatorship or liquidation.

(C) Acceptance of performance no bar

to subsequent repudiation.—The acceptance

by any conservator or liquidating agent of services referred to in subparagraph (B) in connection with a contract described in such subparagraph shall not affect the right of the conservator or liquidating agent to repudiate such contract under this section at any time after such

performance.

(8) Certain qualified financial contracts.—

(A) Rights of parties to contracts.—

Subject to paragraph (12) of this subsection and

notwithstanding any other provision of this Act

(other than subsection (b)(9) of this section and

section 208(a)(3)), any other Federal law, or the

law of any State, no person shall be stayed or

prohibited from exercising—

(i) any right to cause the termination or

liquidation of any qualified financial contract

with an insured credit union which arises upon

the appointment of the Board as liquidating

agent for such credit union at any time after

such appointment.

(ii) any right under any security

arrangement relating to any contract or agreement described in clause (i); or

(iii) any right to offset or net out any

termination value, payment amount, or other

transfer obligation arising under or in connection with 1 or more contracts and agreements

described in clause (i), including any master

agreement for such contracts or agreements.

(B) Applicability of other provisions.—Subsection (b)(12) shall apply in the

case of any judicial action or proceeding brought

against any liquidating agent referred to in

subparagraph (A), or the credit union for which

such liquidating agent was appointed, by any

party to a contract or agreement described in

subparagraph (A)(i) with such credit union.

(C) Certain transfers not avoidable.—

(i) In general.—Notwithstanding paragraph (11), the Board, whether acting as such or

as conservator or liquidating agent of an

insured credit union, may not avoid any transfer of money or other property in connection

with any qualified financial contract with an

insured credit union.

(ii) Exception for certain transfers.—Clause (i) shall not apply to any transfer

of money or other property in connection with

any qualified financial contract with an insured

credit union if the Board determines that the

transferee had actual intent to hinder, delay, or

defraud such credit union, the creditors of such

credit union, or any conservator or liquidating

agent appointed for such credit union.

(D) Certain contracts and agreements

defined.—

For purposes of this subsection—

(i) Qualified financial contract.—

The term ‘‘qualified financial contract’’ means

any securities contract, forward contract,

repurchase agreement, and any similar agreement that the Board determines by regulation

to be a qualified financial contract for purposes

of this paragraph.

(ii) Securities contract.—The term

‘‘securities contract’’—

(I) has the meaning given to such

term in section 741(7) of title 11, United States

Code, except that the term ‘‘security’’ (as used in

such section) shall be deemed to include any
60 OCTOBER 1998

mortgage loan, any mortgage-related security

(as defined in section 3(a)(41) of the Securities

Exchange Act of 1934) and any interest in any

mortgage loan or mortgage-related security; and

(II) does not include any participation

in a commercial mortgage loan unless the Board

determines by regulation, resolution, or order to

include any such participation within the meaning of such term.

(iii) Forward contract.—The term

‘‘forward contract’’ has the meaning given to

such term in section 101(24) of title 11, United

States Code.

(iv) Repurchase agreement.—The

term ‘‘repurchase agreement’’—

(I) has the meaning given to such

term in section 101(41) of title 11, the United

States Code, except that the items (as described

in such section) which may be subject to any

such agreement shall be deemed to include

mortgage-related securities (as such term is

defined in section 3(a)(41) of the Securities

Exchange Act of 1934), any mortgage loan, and

any interest in any mortgage loan; and

(II) does not include any participation

in a commercial mortgage loan unless the Board

determines by regulation, resolution, or order to

include any such participation within the meaning of such term.

(v) Transfer.—The term ‘‘transfer’’ has

the meaning given to such term in section

101(50) of title 11, United States Code.

(E) Certain protections in event of

appointment of conservator.—Notwithstanding any other provision of this Act (other

than paragraph (12) of this subsection, subsection (b)(9) of this section, and section

208(a)(3) of this Act), any other Federal law, or

the law of any State, no person shall be stayed

or prohibited from exercising—

(i) any right such person has to cause

the termination, liquidation, or acceleration of

any qualified financial contract with a credit

union in a conservatorship based upon a default

under such financial contract which is enforceable under applicable noninsolvency law;

(ii) any right under any security

arrangement relating to such qualified financial

contracts; or

(iii) any right to offset or net out any

termination values, payment amounts, or other

transfer obligations arising under or in connection with such qualified financial contracts.

(9) Transfer of qualified financial contracts.—In making any transfer of assets or

liabilities of a credit union in default which

includes any qualified financial contract, the

conservator or liquidating agent for such credit

union shall either—

(A) transfer to 1 credit union (other than

a credit union in default)—

(i) all qualified financial contracts

between—

(I) any person or any affiliate of such

person; and

(II) the credit union in default;

(ii) all claims of such person or any

affiliate of such person against such credit

union under any such contract (other than any

claim which, under the terms of any such contract, is subordinated to the claims of general

unsecured creditors of such credit union);

(iii) all claims of such credit union

against such person or any affiliate of such person under any such contract; and

(iv) all property securing any claim

described in clause (ii) or (iii) under any such

contract; or

(B) transfer none of the financial contracts, claims, or property referred to in

subparagraph (A) (with respect to such person

and any affiliate of such person).

(10) Notification of transfer.—

(A) In general.—If—

(i) the conservator or liquidating agent

for an insured credit union in default makes

any transfer of the assets and liabilities of such

credit union; and

(ii) the transfer includes any qualified

financial contract,

the conservator or liquidating agent shall use

such conservator’s or liquidating agent’s best

efforts to notify any person who is a party to

any such contract of such transfer by 12:00,

noon (local time), on the business day following

such transfer.

(B) Business day defined.—For purposes of this paragraph, the term ‘‘business day’’

means any day other than any Saturday, Sunday, or any day on which either the New York

Stock Exchange or the Federal Reserve Bank of

New York is closed.
OCTOBER 1998 61

* This phrase was initially added by FIRREA to the prior

section on proof of claims (Section 206(K)(1)). It was inadvertently deleted when proof of claims was moved to this

Section.

(11) Certain security interests not

avoidable.—No provision of this subsection

shall be construed as permitting the avoidance

of any legally enforceable or perfected security

interest in any of the assets of any credit union

except where such an interest is taken in contemplation of the credit union’s insolvency or

with the intent to hinder, delay, or defraud the

credit union or the creditors of such credit

union.

(12) Authority to enforce contracts.—

(A) In general.—The conservator or liquidating agent may enforce any contract, other

than a director’s or officer’s liability insurance

contract or a credit union bond, entered into by

the credit union notwithstanding any provision

of the contract providing for termination,

default, acceleration, or exercise of rights upon,

or solely by reason of, insolvency or the appointment of a conservator or liquidating agent.

(B) Certain rights not affected.—No

provision of this paragraph may be construed as

impairing or affecting any right of the conservator or liquidating agent to enforce or recover

under a directors or officers liability insurance

contract or credit union bond under other

applicable law.

(13) Exception for Federal Reserve and

Federal home loan banks.—No provision of

this subsection shall apply with respect to—

(A) any extension of credit from any Federal home loan bank or Federal Reserve bank to

any insured depository institution; or

(B) any security interest in the assets of

the institution securing any such extension of

credit.

(d) Payment of insured deposits.—

(1) In general.—In case of the liquidation

of any insured credit union, payment of the

insured deposits in such credit union shall be

made by the Board as soon as possible, subject

to the provisions of subsection (e) of this section,

either by cash or by making available to each

accountholder a transferred deposit in a new

credit union in the same community or in

another insured credit union in an amount

equal to the insured deposit of such

accountholder.

(2) Proof of claims.—The Board, in its

discretion, may require proof of claims to be

filed [may investigate said claims under Section

206(p)] * and may approve or reject such claims

for insured deposits.

(3) Resolution of disputes.—

(A) Resolutions in accordance to

Board regulations.—In the case of any disputed claim relating to any insured deposit or

any determination of insurance coverage with

respect to any deposit, the Board may resolve

such disputed claim in accordance with regulations prescribed by the Board establishing

procedures for resolving such claims.

(B) Adjudication of claims.—If the

Board has not prescribed regulations establishing procedures for resolving disputed claims, the

Board may require the final determination of a

court of competent jurisdiction before paying

any such claim.

(4) Review of Board’s determination.—

Final determination made by the Board shall be

reviewable in accordance with chapter 7 of title

5, United States Code, by the United States

Court of Appeals for the District of Columbia or

the court of appeals for the Federal judicial circuit where the principal place of business of the

credit union is located.

(5) Statute of Limitations.—Any request

for review of a final determination by the Board

shall be filed with the appropriate circuit court

of appeals not later than 60 days after such

determination is ordered.

(e) Subrogation of Board.—

(1) In general.—Notwithstanding any

other provision of Federal law, the law of any

State, or the constitution of any State, the

Board, upon the payment to any accountholder

as provided in subsection (d) in connection with

any insured credit union described in such subsection or the assumption of any deposit in such

credit union by another insured credit union

pursuant to this section, shall be subrogated to

all rights of the accountholder against such

credit union to the extent of such payment or

assumption.

(2) Dividends on subrogated amounts.—

The subrogation of the Board under paragraph

(1) with respect to any insured credit union

shall include the right on the part of the Board

to receive the same dividends from the proceeds

of the assets of such credit union as would have

been payable to the accountholder on a claim for
62 OCTOBER 1998

the insured deposit, but such accountholder

shall retain such claim for any uninsured or

unassumed portion of the deposit.

(f) Valuation of Claims in Default.—

(1) In general.—Notwithstanding any

other provision of Federal law or the law of any

State, this subsection shall govern the rights of

the creditors (other than insured

accountholders) of such credit union.

(2) Maximum liability.—The maximum

liability of the Board, acting as liquidating

agent or in any other capacity, to any person

having a claim against the liquidating agent or

the insured credit union for which such liquidating agent is appointed shall equal the amount

such claimant would have received if the Board

had liquidated the assets and liabilities of such

credit union without exercising the Board’s

authority under subsection (n) of this section.

(3) Additional payments authorized.—

(A) In general.—The Board may, in its

discretion and in the interests of minimizing its

losses, use its own resources to make additional

payments or credit additional amounts to or

with respect to or for the account of any claimant or category of claimants. The Board shall

not be obligated, as a result of having made any

such payment or credited any such amount to or

with respect to or for the account of any claimant or category of claimants, to make payments

to any other claimant or category of claimants.

(B) Manner of payment.—The Board

may make the payments or credit the amounts

specified in subparagraph (A) directly to the

claimants or may make such payments or credit

such amounts to an open insured credit union to

induce the open insured credit union to accept

liability for such claims.

(g) Limitation on Court Action.—Except as

provided in this section, no court may take any

action, except at the request of the Board of

Directors by regulation or order, to restrain or

affect the exercise of powers or functions of the

Board as a conservator or a liquidating agent.

(h) Liability of Directors and Officers.—A

director or officer of an insured credit union

may be held personally liable for monetary damages in any civil action by, on behalf of, or at

the request or direction of the Board, which

action is prosecuted wholly or partially for the

benefit of the Board—

(1) acting as conservator or liquidating

agent of such insured credit union,

(2) acting based upon a suit, claim, or cause

of action purchased from, assigned by, or otherwise conveyed by such liquidating agent or conservator, or

(3) acting based upon a suit, claim, or cause

of action purchased from, assigned by, or otherwise conveyed in whole or in part by an insured

credit union or its affiliate in connection with

assistance provided under section 208,

for gross negligence, including any similar conduct or conduct that demonstrates greater disregard of a duty of care (than gross negligence)

including intentional tortious conduct, as such

terms are defined and determined under

applicable State law. Nothing in this paragraph

shall impair or affect any right, if any, of the

Board under other applicable law.

(i) Damages.—In any proceeding related to

any claim against an insured credit union’s

director, officer, employee, agent, attorney,

accountant, appraiser, or any other party

employed by or providing services to an insured

credit union, recoverable damages determined to

result from the improvident or otherwise

improper use or investment of any insured

credit union’s assets shall include principal

losses and appropriate interest.

(j) Whenever any insured State-chartered

credit union shall have been closed by action of

its board of directors or by the commission,

board, or authority having supervision of such

credit union, as the case may be, or by a court

of competent jurisdiction, on account of bankruptcy or insolvency, the Board shall accept

appointment as liquidating agent therefor, if

such appointment is tendered by the commission, board, or authority having supervision of

such credit union, or by a court of competent

jurisdiction, and is authorized or permitted by

State law. With respect to any such State-chartered credit union, the Board as such liquidating agent shall possess all the rights, powers,

and privileges granted by State law to a liquidating agent of a State-chartered credit union.

For the purposes of this subsection, the term

‘‘liquidating agent’’ includes a liquidating agent,

receiver, conservator, commission, person, or

other agency charged by law with the duty of

winding up the affairs of a credit union.

(k)(1) Subject to the provisions of paragraph

(2), the purposes of this subsection, the term

‘‘insured account’’ means the total amount of the

account in the member’s name (after deducting

offsets) less any part thereof which is in excess

of $100,000. Such amount shall be determined
OCTOBER 1998 63

according to such regulations as the Board may

prescribe, and, in determining the amount due

to any member, there shall be added together

all accounts in the credit union maintained by

him for his own benefit either in his own name

or in the names of others. The Board may

define, with such classifications and exceptions

as it may prescribe, the extent of the insurance

coverage provided for member accounts, including member accounts in the name of a minor, in

trust, or in joint tenancy.

(2)(A) Notwithstanding any limitation in

this Act or in any other provision of law relating

to the amount of insurance available for the

account of any one depositor or member, in the

case of a depositor or member who is—

(i) an officer, employee, or agent of the

United States having official custody of public

funds and lawfully investing the same in a

credit union insured in accordance with this

title;

(ii) an officer, employee, or agent of any

State of the United States, or of any county,

municipality, or political subdivision thereof

having official custody of public funds and lawfully investing the same in a credit union

insured in accordance with this title in such

State;

(iii) an officer, employee, or agent of the

District of Columbia having official custody of

public funds and lawfully investing the same in

a credit union insured in accordance with this

title in the District of Columbia;

(iv) an officer, employee, or agent of the

Commonwealth of Puerto Rico, of the Panama

Canal Zone, or of any territory or possession of

the United States, or of any county, municipality, or political subdivision thereof having official custody of public funds and lawfully investing the same in a credit union insured in

accordance with this title in the Commonwealth

of Puerto Rico, the Panama Canal Zone, or any

such territory or possession, respectively; or

(v) an officer, employee, or agent of any

Indian tribe (as defined in Section 3(c) of the

Indian Financing Act of 1974) or agency thereof

having official custody of tribal funds and lawfully investing the same in a credit union

insured in accordance with this title;

his account shall be insured in an amount not

to exceed $100,000 per account.

(B) The Board may limit the aggregate

amount of funds that may be invested or deposited in any credit union insured in accordance

with this title by any depositor or member

referred to in subparagraph (A) on the basis of

the size of any such credit union in terms of its

assets.

(3) Notwithstanding any limitation in this

title or in any other provision of law relating to

the amount of insurance available for the

account of any one depositor or member, funds

invested in a credit union insured in accordance

with this title pursuant to a pension or profitsharing plan described in section 401(d) of the

Internal Revenue Code of 1954, as amended,

and funds invested in such an insured credit

union in the form of individual retirement

accounts as described in section 408(a) of the

Internal Revenue Code of 1954, as amended,

shall be insured in the amount of $100,000 per

account. As to any plan qualifying under section

401(d) or section 408(a) of the Internal Revenue

Code of 1954, the term ‘‘per account’’ means the

present vested and ascertainable interest of

each beneficiary under the plan, excluding any

remainder interest created by, or as a result of,

the plan.

(l) Payment of an insured account to any person by the Board shall discharge the Board to

the same extent that payment to such person by

the closed insured credit union would have discharged it from liability for the insured account.

(m) Except as otherwise prescribed by the

Board, the Board shall not be required to recognize as the owner of any portion of an account

appearing on the records of the closed credit

union under a name other than that of the

claimant any person whose name or interest as

such owner is not disclosed on the records of

such closed credit union as part owner of such

account, if such recognition would increase the

aggregate amount of the insured accounts in

such closed credit union.

(n) The Board may withhold payment of such

portion of the insured account of any member of

a closed credit union as may be required to provide for the payment of any direct or indirect

liability of such member to the closed credit

union or its liquidating agent, which is not offset against a claim due from such credit union,

pending the determination and payment of such

liability by such member or any other person

liable therefor.

(o) If, after the Board shall have given at

least four months’ notice to the member by

mailing a copy thereof to his last-known address

appearing on the records of the closed credit

union, any member of the closed credit union
64 OCTOBER 1998

shall fail to claim his insured account from the

Board within 18 months after the appointment

of the liquidating agent for the closed credit

union, all rights of the member against the

Board with respect to the insured account shall

be barred, and all rights of the member against

the closed credit union, or the estate to which

the Board may have become subrogated, shall

thereupon revert to the member.

(p)(1) Liquidating agents of insured credit

unions closed for liquidation on account of bankruptcy or insolvency may offer the assets of such

credit unions for sale to the Board or as security

for loans from the Board, upon receiving permission from the commission, board, or authority

having supervision of such credit union, in the

case of an insured State-chartered credit union,

in accordance with express provisions of State

law. The proceeds of every such sale or loan

shall be utilized for the same purposes and in

the same manner as other funds realized from

the liquidation of the assets of such credit

unions. The Board, in its discretion, may make

loans on the security of or may purchase and

liquidate or sell any part of the assets of an

insured credit union closed for liquidation on

account of bankruptcy or insolvency, but in any

case in which the Board is acting as liquidating

agent of a closed insured credit union, no such

loan or purchase shall be made without the

approval of a court of competent jurisdiction.

(2) No agreement which tends to diminish

or defeat the right, title, or interest of the Board

in any asset acquired by it under this subsection, either as security for a loan or by purchase, shall be valid against the Board unless

such agreement—

(A) shall be in writing;

(B) shall have been executed by the credit

union and the person or persons claiming an

adverse interest thereunder, including the obligor, contemporaneously with the acquisition of

the asset by the credit union;

(C) shall have been approved by the

board of directors of the credit union, which

approval shall be reflected in the minutes of

such board; and

(D) shall have been, continuously, from

the time of its execution, an official record of the

credit union.

(q) Prohibition on Certain Acquisitions of

Assets.—

(1) Convicted debtors.—Except as provided in paragraph (2), any individual who—

(A) has been convicted of an offense under

section 215, 657, 1006, 1014, 1032, 1341, 1343,

or 1344 of title 18, United States Code, or of

conspiring to commit any such offense, affecting

any insured credit union for which the Board is

appointed conservator or liquidating agent; and

(B) is in default on any loan or other

extension of credit from such insured credit

union which, if not paid, will cause substantial

loss to the credit union, the National Credit

Union Share Insurance Fund, or the Board,

may not purchase any asset of such credit union

from the conservator or liquidating agent.

(2) Settlement of claims.—Paragraph (1)

shall not apply to the sale or transfer by the

Board of any asset of any insured credit union

to any individual if the sale or transfer of the

asset resolves or settles, or is part of the resolution or settlement, of—

(A) 1 or more claims that have been, or

could have been, asserted by the Board against

the individual; or

(B) obligations owed by the individual to

the insured credit union or the Board.

(r) Foreign Investigations.—The Board, as

conservator or liquidating agent of any insured

credit union and for purposes of carrying out

any power, authority, or duty with respect to an

insured credit union—

(1) may request the assistance of any foreign banking authority and provide assistance

to any foreign banking authority in accordance

with section 206(u); and

(2) may maintain an office to coordinate foreign investigations or investigations on behalf of

foreign banking authorities.

§ 1788 § 208

Special assistance to avoid liquidation.—

(a)(1) In order to reopen a closed insured credit

union or in order to prevent the closing of an

insured credit union which the Board has determined is in danger of closing or in order to

assist in the voluntary liquidation of a solvent

credit union, the Board, in its discretion, is

authorized to make loans to, or purchase the

assets of, or establish accounts in such insured

credit union upon such terms and conditions as

it may prescribe. Except with respect to the voluntary liquidation of a solvent credit union,

such loans shall be made and such accounts

shall be established only when, in the opinion of
OCTOBER 1998 65

the Board, such action is necessary to protect

the fund or the interests of the members of the

credit union.

(2) Whenever in the judgment of the Board

such action will reduce the risk or avert a

threatened loss to the fund and will facilitate a

merger or consolidation of an insured credit

union with another insured credit union, or will

facilitate the sale of the assets of an open or

closed insured credit union to and assumption of

its liability by another person, the Board may,

upon such terms and conditions as it may determine, make loans secured whole or in part by

assets of an open or closed insured credit union,

which loans may be in subordination to the

rights of members and creditors of such credit

union, or the Board may purchase any of such

assets or may guarantee any person against loss

by reason of his assuming the liabilities and

purchasing the assets of an open or closed

insured credit union. For purposes of this paragraph, the term ‘‘person’’ means any credit

union, individual, partnership, corporation,

trust, estate, cooperative, association, government or governmental subdivision or agency, or

other entity.

(3) No agreement which tends to diminish

or defeat the right, title, or interest of the

Board, in any asset acquired by it under this

subsection, either as security for a loan or by

purchase, shall be valid against the Board

unless such agreement—

(A) shall be in writing;

(B) shall have been executed by the credit

union and the person or persons claiming an

adverse interest thereunder, including the obligor, contemporaneously with the acquisition of

the asset by the credit union;

(C) shall have been approved by the

board of directors of the credit union, which

approval shall be reflected in the minutes of

such board; and

(D) shall have been continuously, from

the time of its execution, an official record of the

credit union.

(b) For the protection of the Fund, the Board,

without regard to the Federal Property and

Administrative Services Act of 1949, may—

(1) deal with, complete, reconstruct, rent,

renovate, modernize, insure, make contracts for

the management of, sell for cash or credit, or

lease, in its discretion, any real property

acquired or held by it under this section; and

(2) assign or sell at public or private sale, or

otherwise dispose of, any evidence of debt, contract, claim, personal property, or security

assigned to or held by it under this section. Section 3709 of the Revised Statutes of the United

States shall not apply to any purchase or contract for services or supplies made or entered

into by the Board under this section if the

amount thereof does not exceed $1,000, or to

any contract for hazard insurance on any real

property acquired or held by it under this section.

(c) Money received by the Board in carrying

out this section shall be paid into the Fund.

§ 1789 § 209

Administrative provisions.—(a) In carrying

out the purpose of this title, the Board may—

(1) make contracts;

(2) sue and be sued, complain and defend,

in any court of law or equity, State or Federal.

All suits of a civil nature at common law or in

equity to which the Board shall be a party shall

be deemed to arise under the laws of the United

States, and the United States district courts

shall have original jurisdiction thereof, without

regard to the amount in controversy. The Board

may, without bond or security, remove any such

action, suit, or proceeding from a State court to

the United States district court for the district

or division embracing the place where the same

is pending by following any procedure for

removal now or hereafter in effect, except that

any such suit to which the Board is a party in

its capacity as liquidating agent of a State-chartered credit union and which involves only the

rights or obligations of members, creditors, and

such State credit union under State law shall

not be deemed to arise under the laws of the

United States. No attachment or execution shall

be issued against the Board or its property

before final judgment in any suit, action, or

proceeding in any State, county, municipal, or

United States court. The Board shall designate

an agent upon whom service of process may be

made in any State, territory, or jurisdiction in

which any insured credit union is located;

(3) pursue to final disposition by way of

compromise or otherwise claims both for and

against the United States (other than tort

claims, claims involving administrative

expenses, and claims in excess of $5,000 arising

out of contracts for construction, repairs, and

the purchase of supplies and materials) which
66 OCTOBER 1998

are not in litigation and have not been referred

to the Department of Justice;

(4) to appoint such officers and employees

as are not otherwise provided for in this Act, to

define their duties, fix their compensation,

require bonds of them and fix the penalty

thereof, and to dismiss at pleasure such officers

or employees. Nothing in this chapter or any

other Act shall be construed to prevent the

appointment and compensation as an officer or

employee of the Administration of any officer or

employee of the United States in any board,

commission, independent establishment, or

executive department thereof;

(5) employ experts and consultants or

organizations thereof, as authorized by section

15 of the Administrative Expenses Act of 1946

(5 U.S.C. 55a);

(6) prescribe the manner in which its general business may be conducted and the privileges granted to it by law may be exercised and

enjoyed;

(7) exercise all powers specifically granted

by the provisions of this title and such incidental powers as shall be necessary to carry out the

powers so granted;

(8) make examinations of and require

information and reports from insured credit

unions, as provided in this title;

(9) act as liquidating agent;

(10) delegate to any officer or employee of

the Administration such of its functions as it

deems appropriate; and

(11) prescribe such rules and regulations as

it may deem necessary or appropriate to carry

out the provisions of this title.

(b) With respect to the financial operations

arising by reason of this title, the Board shall—

(1) prepare annually and submit a businesstype budget as provided for wholly owned

Government corporations by the Government

Corporation Control Act; and

(2) maintain an integral set of accounts,

which shall be audited by the General Accounting Office in accordance with principles and

procedures applicable to commercial corporate

transactions, as provided by section 105 of the

Government Corporation Control Act.

§ 1789a § 210

Credit unions as depositaries of public

money; fiscal agents; duties.—Any credit

union the accounts of which are insured under

this title shall be a depositary of public money

and may be employed as fiscal agent of the

United States. The Secretary of the Treasury is

authorized to deposit public money in any such

insured credit union, and shall prescribe such

regulations as may be necessary to enable such

credit unions to become depositaries of public

money and fiscal agents of the United States.

Each credit union shall perform all such reasonable duties as depositaries of public money and

fiscal agent of the United States as may be

required of it including services in connection

with the collection of taxes and other obligations

owed the United States.

§ 1790 § 211

Nondiscriminatory provision.—It is not

the purpose of this title to discriminate in any

manner against State-chartered credit unions

and in favor of Federal credit unions, but it is

the purpose of this title to provide all credit

unions with the same opportunity to obtain and

enjoy the benefits of this title.

§ 1790a § 212

Board disapproval of directors, committee

members, and senior executive officers of

insured credit unions.

(a) Prior Notice Required.—An insured

credit union shall notify the Board of the proposed addition of any individual to the board of

directors or committee or the employment of

any individual as a senior executive officer of

such credit union at least 30 days before such

addition or employment becomes effective, if the

insured credit union—

(1) has been chartered less than 2 years;

or

(2) is in troubled condition, as determined

on the basis of such credit union’s most recent

report of condition or report of examination.

(b) Disapproval By The Board.—An

insured credit union may not add any individual

to the board of directors or employ any individual as a senior executive officer if the Board

issues a notice of disapproval of such addition or

employment before the end of the 30-day period

beginning on the date the agency receives notice

of the proposed action pursuant to subsection

(a).
OCTOBER 1998 67

(c) Exception in extraordinary circumstances.—

(1) In general.—The Board may prescribe by regulation conditions under which the

prior notice requirement of subsection (a) may

be waived in the event of extraordinary circumstances.

(2) No effect on disapproval authority

of Board.—Such waivers shall not affect the

authority of the Board to issue notices of disapproval of such additions or employment of

such individuals within 30 days after each such

waiver.

(d) Additional information.—Any notice

submitted to the Board by any insured credit

union pursuant to subsection (a) shall include—

(1) the information described in section

7(j)(6)(A) of the Federal Deposit Insurance Act

about the individual; and

(2) such other information as the Board

may prescribe by regulation.

(e) Standard for disapproval.—The

Board shall issue a notice of disapproval with

respect to a notice submitted pursuant to subsection (a) if the competence, experience, character, or integrity of the individual with respect

to whom such notice is submitted indicates that

it would not be in the best interests of the

depositors of the insured credit union or in the

best interests of the public to permit the

individual to be employed by, or associated

with, such insured credit union.

(f) Definition regulations.—The Board

shall prescribe by regulation a definition for the

terms ‘‘troubled condition’’ and ‘‘senior executive

officer’’ for purposes of subsection (a).

§ 1790b § 213

Credit union employee protection remedy.

(a) In General.—

(1) Employees of credit unions.—No

insured credit union may discharge or otherwise

discriminate against any employee with respect

to compensation, terms, conditions, or privileges

of employment because the employee (or any

person acting pursuant to the request of the

employee) provided information to the Board or

the Attorney General regarding any possible

violation of any law or regulation by the credit

union or any director, officer, or employee of the

credit union.

(2) Employees of the Administration.—The Administration may not discharge or

otherwise discriminate against any employee

(including any employee of the National Credit

Union Central Liquidity Facility) with respect

to compensation, terms, conditions, or privileges

of employment because the employee (or any

person acting pursuant to the request of the

employee) provided information to the Administration or the Attorney General regarding any

possible violation of any law or regulation by—

(A) any credit union or the Administration;

(B) any director, officer, committee member, or employee of any credit union; or

(C) any officer or employee of the

Administration.

(b) Enforcement.—Any employee or former

employee who believes he has been discharged

or discriminated against in violation of subsection (a) may file a civil action in the appropriate United States district court before the

close of the 2-year period beginning on the date

of such discharge or discrimination. The

complainant shall also file a copy of the complaint initiating such action with the Board.

(c) Remedies.—If the district court determines that a violation of subsection (a) has

occurred, it may order the credit union or the

Administration which committed the violation—

(1) to reinstate the employee to his former

position,

(2) to pay compensatory damages, or

(3) take other appropriate actions to remedy any past discrimination.

(d) Limitations.—The protections of this

section shall not apply to any employee who—

(1) deliberately causes or participates in

the alleged violation of law or regulation, or

(2) knowingly or recklessly provides

substantially false information to such an

agency or the Attorney General.

§ 1790c § 214

Reward for information leading to recoveries or civil penalties.

The Board may pay rewards in connection

with an offense affecting an insured credit

union, under the same circumstances and subject to the same limitations that a Federal

banking agency may pay rewards under section
68 OCTOBER 1998

* There is no section 215 of the FCU Act. Section 216 becomes effective on August 7, 2000 except for section 216(d)

which becomes effective on January 1, 2001.

33 of the Federal Deposit Insurance Act in

connection with an offense affecting a depository

institution insured by the Federal Deposit

Insurance Corporation.

§ 1790d § 216 *

Prompt corrective action.—

(a) Resolving Problems To Protect

Fund.—

(1) Purpose.—The purpose of this section

is to resolve the problems of insured credit

unions at the least possible long-term loss to the

Fund.

(2) Prompt corrective action

required.—The Board shall carry out the purpose of this section by taking prompt corrective

action to resolve the problems of insured credit

unions.

(b) Regulations Required.—

(1) Insured credit unions.—

(A) In general.—The Board shall, by

regulation, prescribe a system of prompt corrective action for insured credit unions that is—

(i) consistent with this section; and

(ii) comparable to section 38 of the Federal Deposit Insurance Act.

(B) Cooperative character of credit

unions.—The Board shall design the system

required under subparagraph (A) to take into

account that credit unions are not-for-profit

cooperatives that—

(i) do not issue capital stock;

(ii) must rely on retained earnings to

build net worth; and

(iii) have boards of directors that consist primarily of volunteers.

(2) New credit unions.—

(A) In general.—In addition to regulations under paragraph (1), the Board shall, by

regulation, prescribe a system of prompt corrective action that shall apply to new credit unions

in lieu of this section and the regulations prescribed under paragraph (1).

(B) Criteria for alternative system.—

The Board shall design the system prescribed

under subparagraph (A)—

(i) to carry out the purpose of this section;

(ii) to recognize that credit unions (as

cooperatives that do not issue capital stock) initially have no net worth, and give new credit

unions reasonable time to accumulate net

worth;

(iii) to create adequate incentives for

new credit unions to become adequately capitalized by the time that they either—

(I) have been in operation for more

than 10 years; or

(II) have more than $10,000,000 in

total assets;

(iv) to impose appropriate restrictions

and requirements on new credit unions that do

not make sufficient progress toward becoming

adequately capitalized; and

(v) to prevent evasion of the purpose of

this section.

(c) Net Worth Categories.—

(1) In general.—For purposes of this section the following definitions shall apply:

(A) Well capitalized.—An insured credit

union is ‘well capitalized’ if—

(i) it has a net worth ratio of not less

than 7 percent; and

(ii) it meets any applicable risk-based

net worth requirement under subsection (d).

(B) Adequately capitalized.—An

insured credit union is ‘adequately capitalized’

if—

(i) it has a net worth ratio of not less

than 6 percent; and

(ii) it meets any applicable risk-based

net worth requirement under subsection (d).

(C) Undercapitalized.—An insured

credit union is ‘undercapitalized’ if—

(i) it has a net worth ratio of less than

6 percent; or

(ii) it fails to meet any applicable riskbased net worth requirement under subsection

(d).

(D) Significantly undercapitalized.—

An insured credit union is ‘significantly undercapitalized’—

(i) if it has a net worth ratio of less

than 4 percent; or
OCTOBER 1998 69

(ii) if—

(I) it has a net worth ratio of less

than 5 percent; and

(II) it—

(aa) fails to submit an acceptable

net worth restoration plan within the time

allowed under subsection (f); or

(bb) materially fails to implement a

net worth restoration plan accepted by the

Board.

(E) Critically undercapitalized.—An

insured credit union is ‘critically undercapitalized’ if it has a net worth ratio of less than 2

percent (or such higher net worth ratio, not to

exceed 3 percent, as the Board may specify by

regulation).

(2) Adjusting net worth levels.—

(A) In general.—If, for purposes of section 38(c) of the Federal Deposit Insurance Act,

the Federal banking agencies increase or

decrease the required minimum level for the

leverage limit (as those terms are used in section 38), the Board may, by regulation, and subject to subparagraph (B) of this paragraph, correspondingly increase or decrease 1 or more of

the net worth ratios specified in subparagraphs

(A) through (D) of paragraph (1) of this subsection in an amount that is equal to not more

than the difference between the required minimum level most recently established by the Federal banking agencies and 4 percent of total

assets (with respect to institutions regulated by

those agencies).

(B) Determinations required.—The

Board may increase or decrease net worth ratios

under subparagraph (A) only if the Board—

(i) determines, in consultation with the

Federal banking agencies, that the reason for

the increase or decrease in the required minimum level for the leverage limit also justifies

the adjustment in net worth ratios; and

(ii) determines that the resulting net

worth ratios are sufficient to carry out the purpose of this section.

(C) Transition period required.—If the

Board increases any net worth ratio under this

paragraph, the Board shall give insured credit

unions a reasonable period of time to meet the

increased ratio.

(d) Risk-Based Net Worth Requirement

for Complex Credit Unions.—

(1) In general.—The regulations required

under subsection (b)(1) shall include a riskbased net worth requirement for insured credit

unions that are complex, as defined by the

Board based on the portfolios of assets and

liabilities of credit unions.

(2) Standard.—The Board shall design the

risk-based net worth requirement to take

account of any material risks against which the

net worth ratio required for an insured credit

union to be adequately capitalized may not provide adequate protection.

(e) Earnings-Retention Requirement

Applicable to Credit Unions That Are Not

Well Capitalized.—

(1) In general.—An insured credit union

that is not well capitalized shall annually set

aside as net worth an amount equal to not less

than 0.4 percent of its total assets.

(2) Board’s authority to decrease earnings-retention requirement.—

(A) In general.—The Board may, by

order, decrease the 0.4 percent requirement in

paragraph (1) with respect to a credit union to

the extent that the Board determines that the

decrease—

(i) is necessary to avoid a significant

redemption of shares; and

(ii) would further the purpose of this

section.

(B) Periodic review required.—The

Board shall periodically review any order issued

under subparagraph (A).

(f) Net Worth Restoration Plan

Required.—

(1) In general.—Each insured credit union

that is undercapitalized shall submit an acceptable net worth restoration plan to the Board

within the time allowed under this subsection.

(2) Assistance to small credit unions.—

The Board (or the staff of the Board) shall, upon

timely request by an insured credit union with

total assets of less than $10,000,000, and subject to such regulations or guidelines as the

Board may prescribe, assist that credit union in

preparing a net worth restoration plan.

(3) Deadlines for submission and

review of plans.—The Board shall, by regulation, establish deadlines for submission of net

worth restoration plans under this subsection

that—
70 OCTOBER 1998

(A) provide insured credit unions with

reasonable time to submit net worth restoration

plans; and

(B) require the Board to act on net worth

restoration plans expeditiously.

(4) Failure to submit acceptable plan

within time allowed.—

(A) Failure to submit any plan.—If an

insured credit union fails to submit a net worth

restoration plan within the time allowed under

paragraph (3), the Board shall—

(i) promptly notify the credit union of

that failure; and

(ii) give the credit union a reasonable

opportunity to submit a net worth restoration

plan.

(B) Submission of unacceptable

plan.—If an insured credit union submits a net

worth restoration plan within the time allowed

under paragraph (3), and the Board determines

that the plan is not acceptable, the Board

shall—

(i) promptly notify the credit union of

why the plan is not acceptable; and

(ii) give the credit union a reasonable

opportunity to submit a revised plan.

(5) Accepting plan.—The Board may

accept a net worth restoration plan only if the

Board determines that the plan is based on

realistic assumptions and is likely to succeed in

restoring the net worth of the credit union.

(g) Restrictions on Undercapitalized

Credit Unions.—

(1) Restriction on asset growth.—An

insured credit union that is undercapitalized

shall not generally permit its average total

assets to increase, unless—

(A) the Board has accepted the net worth

restoration plan of the credit union for that

action;

(B) any increase in total assets is consistent with the net worth restoration plan; and

(C) the net worth ratio of the credit union

increases at a rate that is consistent with the

net worth restoration plan.

(2) Restriction on member business

loans.—Notwithstanding section 107A(a), an

insured credit union that is undercapitalized

may not make any increase in the total amount

of member business loans (as defined in section

107A(c)) outstanding at that credit union at any

one time, until such time as the credit union

becomes adequately capitalized.

(h) More Stringent Treatment Based on

Other Supervisory Criteria.—With respect to

the exercise of authority by the Board under

regulations comparable to section 38(g) of the

Federal Deposit Insurance Act—

(1) the Board may not reclassify an insured

credit union into a lower net worth category, or

treat an insured credit union as if it were in a

lower net worth category, for reasons not

pertaining to the safety and soundness of that

credit union; and

(2) the Board may not delegate its authority

to reclassify an insured credit union into a

lower net worth category or to treat an insured

credit union as if it were in a lower net worth

category.

(i) Action Required Regarding Critically

Under-capitalized Credit Unions.—

(1) In general.—The Board shall, not later

than 90 days after the date on which an insured

credit union becomes critically undercapitalized—

(A) appoint a conservator or liquidating

agent for the credit union; or

(B) take such other action as the Board

determines would better achieve the purpose of

this section, after documenting why the action

would better achieve that purpose.

(2) Periodic redeterminations

required.—Any determination by the Board

under paragraph (1)(B) to take any action with

respect to an insured credit union in lieu of

appointing a conservator or liquidating agent

shall cease to be effective not later than the end

of the 180-day period beginning on the date on

which the determination is made, and a conservator or liquidating agent shall be appointed

for that credit union under paragraph (1)(A),

unless the Board makes a new determination

under paragraph (1)(B) before the end of the

effective period of the prior determination.

(3) Appointment of liquidating agent

required if other action fails to restore net

worth.—

(A) In general.—Notwithstanding paragraphs (1) and (2), the Board shall appoint a liquidating agent for an insured credit union if the

credit union is critically undercapitalized on

average during the calendar quarter beginning
OCTOBER 1998 71

18 months after the date on which the credit

union became critically undercapitalized.

(B) Exception.—Notwithstanding subparagraph (A), the Board may continue to take

such other action as the Board determines to be

appropriate in lieu of appointment of a liquidating agent if—

(i) the Board determines that—

(I) the insured credit union has been

in substantial compliance with an approved net

worth restoration plan that requires consistent

improvement in the net worth of the credit

union since the date of the approval of the plan;

and

(II) the insured credit union has positive net income or has an upward trend in earnings that the Board projects as sustainable; and

(ii) the Board certifies that the credit

union is viable and not expected to fail.

(4) Nondelegation.—

(A) In general.—Except as provided in

subparagraph (B), the Board may not delegate

the authority of the Board under this subsection.

(B) Exception.—The Board may delegate

the authority of the Board under this subsection

with respect to an insured credit union that has

less than $5,000,000 in total assets, if the Board

permits the credit union to appeal any adverse

action to the Board.

(j) Review Required When Fund Incurs

Material Loss.—For purposes of determining

whether the Fund has incurred a material loss

with respect to an insured credit union (such

that the inspector general of the Board must

make a report), a loss is material if it exceeds

the sum of—

(1) $10,000,000; and

(2) an amount equal to 10 percent of the

total assets of the credit union at the time at

which the Board initiated assistance under section 208 or was appointed liquidating agent.

(k) Appeals Process.—Material supervisory

determinations, including decisions to require

prompt corrective action, made pursuant to this

section by Administration officials other than

the Board may be appealed to the Board pursuant to the independent appellate process

required by section 309 of the Riegle Community Development and Regulatory Improvement

Act of 1994 (or, if the Board so specifies, pursuant to separate procedures prescribed by regulation).

(l) Consultation and Cooperation With

State Credit Union Supervisors.—

(1) In general.—In implementing this section, the Board shall consult and seek to work

cooperatively with State officials having jurisdiction over State-chartered insured credit

unions.

(2) Evaluating net worth restoration

plan.—In evaluating any net worth restoration

plan submitted by a State-chartered insured

credit union, the Board shall seek the views of

the State official having jurisdiction over the

credit union.

(3) Deciding whether to appoint conservator or liquidating agent.—With respect

to any decision by the Board on whether to

appoint a conservator or liquidating agent for a

State-chartered insured credit union—

(A) the Board shall—

(i) seek the views of the State official

having jurisdiction over the credit union; and

(ii) give that official an opportunity to

take the proposed action;

(B) the Board shall, upon timely request

of an official referred to in subparagraph (A),

promptly provide the official with—

(i) a written statement of the reasons

for the proposed action; and

(ii) reasonable time to respond to that

statement;

(C) if the official referred to in subparagraph (A) makes a timely written response that

disagrees with the proposed action and gives

reasons for that disagreement, the Board shall

not appoint a conservator or liquidating agent

for the credit union, unless the Board, after

considering the views of the official, has determined that—

(i) the Fund faces a significant risk of

loss with respect to the credit union if a conservator or liquidating agent is not appointed;

and

(ii) the appointment is necessary to

reduce—

(I) the risk that the Fund would

incur a loss with respect to the credit union; or

(II) any loss that the Fund is

expected to incur with respect to the credit

union; and
72 OCTOBER 1998

(D) the Board may not delegate any

determination under subparagraph (C).

(m) Corporate Credit Unions Exempted.—

This section does not apply to any insured credit

union that—

(1) operates primarily for the purpose of

serving credit unions; and

(2) permits individuals to be members of

the credit union only to the extent that

applicable law requires that such persons own

shares.

(n) Other Authority Not Affected.—This

section does not limit any authority of the

Board or a State to take action in addition to

(but not in derogation of) that is required under

this section.

(o) Definitions.—For purposes of this section

the following definitions shall apply:

(1) Federal banking agency.—The term

‘Federal banking agency’ has the same meaning

as in section 3 of the Federal Deposit Insurance

Act.

(2) Net worth.—The term ‘net worth’—

(A) with respect to any insured credit

union, means retained earnings balance of the

credit union, as determined under generally

accepted accounting principles; and

(B) with respect to a low-income credit

union, includes secondary capital accounts that

are—

(i) uninsured; and

(ii) subordinate to all other claims

against the credit union, including the claims of

creditors, shareholders, and the Fund.

(3) Net worth ratio.—The term ‘net worth

ratio’ means, with respect to a credit union, the

ratio of the net worth of the credit union to the

total assets of the credit union.

(4) New credit union.—The term ‘new

credit union’ means an insured credit union

that—

(A) has been in operation for less than 10

years; and

(B) has not more than $10,000,000 in

total assets.
OCTOBER 1998 73

Title III—Central Liquidity Facility

§ 1795 § 301

The Congress finds that the establishment of

a National Credit Union Central Liquidity

Facility is needed to improve general financial

stability by meeting the liquidity needs of credit

unions and thereby encourage savings, support

consumer and mortgage lending, and provide

basic financial resources to all segments of the

economy.

§ 1795a § 302

Definitions.—As used in this title, the

term—

(1) ‘‘liquidity needs’’ means the needs of

credit unions primarily serving natural persons

for—

(A) short-term adjustment credit available to assist in meeting temporary requirements for funds or to cushion more persistent

outflows of funds pending an orderly adjustment

of credit union assets and liabilities;

(B) seasonal credit available for longer

periods to assist in meeting seasonal needs for

funds arising from a combination of expected

patterns of movement in share and deposit

accounts and loans; and

(C) protracted adjustment credit available

in the event of unusual or emergency circumstances of a longer term nature resulting

from national, regional or local difficulties.

(2) ‘‘Central Liquidity Facility’’ or ‘‘Facility’’

means the National Credit Union Central

Liquidity Facility;

(3) ‘‘paid-in and unimpaired capital and surplus’’ means the balance of the paid-in share

accounts and deposits as of a given date, less

any loss that may have been incurred for which

there is no reserve or which has not been

charged against undivided earnings, plus the

credit balance (or less the debit balance) of the

undivided earnings account as of a given date,

after all losses have been provided for and net

earnings or net losses have been added thereto

or deducted therefrom. Reserves shall not be

considered as part of surplus, and

(4) ‘‘member’’ means a Regular or an Agent

member of the Facility.

§ 1795b § 303

National Credit Union Administration

Central Liquidity Facility; establishment;

management; jurisdiction.—There is hereby

created the National Credit Union Administration Central Liquidity Facility. The Central

Liquidity Facility, an instrumentality of the

United States, shall exist within the National

Credit Union Administration and be managed

by the Board. The United States district court

shall have original jurisdiction over any case to

which the Board on behalf of the Facility is a

party, without regard to the amount in controversy.

§ 1795c § 304

Membership.—(a) A credit union primarily

serving natural persons may be a Regular member of the Facility by subscribing to the capital

stock of the Facility in an amount not less than

one-half of 1 per centum of the credit union’s

paid-in and unimpaired capital and surplus.

(b) A credit union or group of credit unions,

primarily serving other credit unions, may be

an Agent member of the Facility by—

(1) obtaining the approval of the Board;

(2) subscribing to the capital stock of the

Facility in an amount not less than one-half of

1 per centum of the paid-in and unimpaired

capital and surplus of all those credit unions

which primarily serve natural persons, which

are members of such credit union or of any

credit union comprising such credit union group,

and which are not regular members;

(3) agreeing to comply with rules and regulations the Board shall prescribe with respect

to, but not limited to, management quality,

asset and liability safety and soundness,

internal operating and control practices and

procedures, and participation of natural persons

in the affairs of such credit union or credit

union group; and

(4) agreeing to submit to the supervision of

the Board which shall include, but not be limited to, reporting requirements and periodic

unrestricted examinations.

(c) Stock subscriptions provided for in subsections (a) and (b)(2) of this section shall be—
74 OCTOBER 1998

(1) based on an arithmetic average of paidin capital and surplus over the six months

preceding application and membership; and

(2) adjusted at the close of each calendar

year in accordance with an arithmetic average

of paid-in capital and surplus over a period

determined by the Board.

(d) An Agent member of the Facility shall perform for its member credit unions those functions required by the Board to carry out this

title.

(e)(1) A member of the Facility whose capital

stock subscription constitutes less than 5 per

centum of such stock outstanding, may withdraw from membership in the Facility six

months after notifying the Board of its intention

to do so.

(2) A member of the Facility whose capital

stock subscription constitutes 5 per centum or

more of such stock outstanding, may withdraw

from membership in the Facility twenty-four

months after notifying the Board of its intention

to do so.

(3) The Board may terminate membership

in the Facility if, after opportunity for a hearing, the Board determines a member has failed

to comply with any provision of this title or

regulation issued pursuant thereto.

§ 1795d § 305

Capital stock.—(a) As soon as practicable,

the Board shall open books for subscriptions to

the capital stock of the Facility. The minimum

subscription shall be $50.

(b) The capital stock of the Facility—

(1) shall be divided into shares having a par

value of $50 each;

(2) shall be paid for with cash or with securities of the United States or any Agency

thereof in accordance with requirements the

Board may impose;

(3) shall share in dividend distributions at

rates determined by the Board. However, rates

on the required capital stock shall be without

preference; and

(4) shall not be transferred or hypothecated

except as provided for herein.

(c) When circumstances require that all or a

portion of a member’s stock be redeemed by the

Facility, the Board shall pay an amount equal

to what the member originally paid for the stock

less any amount owed by the member to the

Facility.

(d) At least one-half of the payment for the

subscription amount required for membership

under section 304 of this title shall be transferred to the Facility. The remainder may be

held by the member on call of the Board and

shall be invested in assets designated by the

Board.

(e) A credit union or credit union group that

becomes a member of the Facility later than six

months after the date the Board opens books for

capital stock subscriptions may not borrow or

receive advances from the Facility without

approval by the Board for a period of six months

after becoming a member.

§ 1795e § 306

Extensions of credit.—(a)(1) A member may

apply for an extension of credit from the Facility

to meet its liquidity needs. The Board shall

approve or deny any such application within

five working days after receiving it. The Board

shall not approve an application for credit the

intent of which is to expand credit union portfolios.

(2) The Board may advance funds to a

member on terms and conditions prescribed by

the Board after giving due consideration to

creditworthiness.

(3) The Board shall not advance funds for

the benefit of a credit union whose share or

deposit accounts are insured by a State share or

deposit guaranty credit union, insurance corporation, or guaranty association, without consultation with the appropriate State share or

deposit guaranty credit union, insurance corporation, or guaranty association.

(b) The Secretary of the Treasury is authorized to lend to the Facility up to $500,000,000,

in the event the Board certifies to the Secretary

that the Facility does not have sufficient funds

to meet liquidity needs of credit unions. Any

such loan shall bear an interest rate not greater

than one-eighth of 1 per centum above the current average market yield on outstanding

obligations of the United States with remaining

time to maturity comparable to the maturity of

such loan. The authority of the Secretary to

lend under this subsection shall be limited to

such extent or in such amounts as are provided

in advance in appropriation Acts.
OCTOBER 1998 75

§ 1795f § 307

Powers of the Board.—(a) The Board on

behalf of the Facility shall have the ability to—

(1) prescribe the manner in which the general business of the Facility shall be conducted;

(2) prescribe rules and regulations to carry

out this title;

(3) determine the expenditures incurred by

the Administration to carry out this title, and

the expenditures incurred by the Facility to

carry out titles I and II of this Act, and

annually assess the Facility and the Administration accordingly;

(4) borrow from—

(A) any source, provided that the total face

value of these obligations shall not exceed

twelve times the subscribed capital stock and

surplus of the Facility; and

(B) the National Credit Union Share Insurance Fund up to $500,000 to defray initial

organizational and operating expenses of the

Facility at such rates and terms consistent with

prevailing market conditions;

(5) guarantee performance of the terms of

any financial obligation of a member but only

when such obligation bears a clear and

conspicuous notice on its face that only the

resources of the Facility underlie such guarantee;

(6) purchase any asset from a member with

the member’s endorsement;

(7) invest in obligations of the United States

or any agency thereof;

(8) make deposits in federally insured financial institutions and make investments in

shares or deposits of credit unions;

(9) sue and be sued, complain, and defend,

in any State or Federal court;

(10) adopt a seal;

(11) pursue to final disposition by way of

compromise or otherwise claims both for and

against the United States (other than tort

claims, claims involving administrative

expenses, and claims in excess of $5,000 arising

out of contracts for construction, repairs, and

the purchase of supplies and materials) which

are not in litigation and have not been referred

to the Department of Justice;

(12) appoint officers and employees to assist

in carrying out this title, who shall be appointed

subject to the provisions of title 5, United States

Code;

(13) conduct business, carry on operations,

have offices, and exercise the powers granted by

this title in any State or territory;

(14) lease, purchase, or otherwise acquire

and own, hold, improve, use, or otherwise deal

in and with property, real, personal, or mixed,

or any interest therein, wherever situated;

(15) enter into contracts with any public or

private organization, partnership, corporation,

or individual;

(16) advance funds on a fully secured basis

to a State credit union share or deposit insurance corporation, guaranty credit union, or

guaranty association. Such advance shall not

exceed twelve months in maturity, shall be

relent at an interest rate not exceeding that

imposed by the Facility, and shall not be renewable;

(17) exercise such incidental powers as shall

be necessary or requisite to enable it to carry

out effectively the purposes for which the Facility is incorporated; and

(18) advance funds to the National Credit

Union Share Insurance Fund under such terms

and conditions as may be established by the

Board.

(b)(1) The Board may authorize the Central

Liquidity Facility or its agent members, subject

to such rules and regulations, including definitions of terms used in this subsection, as the

Board shall from time to time prescribe, to be

drawees of, and to engage in, or be agents or

intermediaries for, or otherwise participate or

assist in, the collection and settlement of

(including presentment, clearing, and payment

of, and remitting for), checks, share drafts, or

any other negotiable or nonnegotiable items or

instruments of payment drawn on or issued by

members of the Central Liquidity Facility, any

of its Agent members, or any other credit union

eligible to become a member of the Central

Liquidity Facility, and to have such incidental

powers as the Board shall find necessary for the

exercise of any such authorization.

(2) The Central Liquidity Facility or its

Agent members shall make charges, to be determined and regulated by the Board consistent

with the principles set forth in section 11A(c) of

the Federal Reserve Act, or utilize the services

of, or act as agent for, or be a member of, a Federal Reserve bank, clearinghouse, or any other

public or private financial institution or other
76 OCTOBER 1998

agency, in the exercise of any powers or functions pursuant to this subsection.

(3) The Board is authorized, with respect to

participation in the collection and settlement of

any items by the Central Liquidity Facility or

by its Agent members, and with respect to the

collection and settlement (including payment by

the payor institution) of items payable by members of the Central Liquidity Facility or of any

of its Agent members, to prescribe rules and

regulations regarding the rights, powers,

responsibilities, duties, and liabilities, including

standards relating thereto, of such entities and

other parties to any such items or their collection and settlement. In prescribing such rules

and regulations, the Board may adopt or apply,

in whole or in part, general banking usage and

practices, and, in instances or respects in which

they would otherwise not be applicable, Federal

Reserve regulations and operating letters, the

Uniform Commercial Code, and clearinghouse

rules.

§ 1795g § 308

Depositories, custodians, and fiscal

agents.—The Federal Reserve Banks are

authorized to act as depositories, custodians

and/or fiscal agents for the Central Liquidity

Facility in the general performance of its powers

conferred by this title. Each Federal Reserve

Bank when designated by the Board as fiscal

agent for the Central Liquidity Facility, shall be

entitled to be reimbursed for all expenses

incurred as such fiscal agent.

§ 1795h § 309

Audit of financial transactions.—The

Comptroller General of the United States shall

audit the Central Liquidity Facility under such

rules and regulations as the Comptroller may

prescribe.

§ 1795i § 310

Annual report.—The annual report required

by section 102(e) shall include a full report of

the activities of the Facility.

§ 1795j § 311

Agent of the Federal Reserve System.—

The Facility is authorized to act upon the

request of the Board of Governors of the Federal

Reserve System as an agent of the Federal

Reserve System in matters pertaining to credit

unions under such terms and conditions as may

be established by the Board of Governors of the

Federal Reserve System.

§ 1795k § 312

State and local tax exemption.—(a) The

Central Liquidity Facility, and its franchise,

activities, capital reserves, surplus, and income,

shall be exempt from all State and local taxation now or hereafter imposed, other than

taxes on real property held by the Facility (to

the same extent, according to its value, as other

similar property held by other persons is taxed).

(b)(1) Except as provided in paragraph (2), the

notes, bonds, debentures, and other obligations

issued on behalf of the Central Liquidity Facility and the income therefrom shall be exempt

from all State and local taxation now or hereafter imposed.

(2) Any obligation described in paragraph

(1) shall not be exempt from State or local gift,

estate, inheritance, legacy, succession, or other

wealth transfer taxes.

(c) For purposes of this section—

(1) the term ‘‘State’’ includes the District of

Columbia; and

(2) taxes imposed by counties or municipalities, or any territory, dependency, or possession

of the United States shall be treated as local

taxes.
OCTOBER 1998 77

INDEX

Account, defined, § 1752(5)

Agents, designation of for voting purposes,

§ 1760.

Allotment of space in federal buildings, § 1770.

Annual Audit, supervisory committee, § 1761d.

Application for membership, action upon by

board of directors, § 1761b.

Appointment of NCUA Board, § 102(b).

Apportionment, § 1773.

Assets, power to sell all or part to another credit

union, § 1757(14).

Audit requirements, §§ 1761d, 1782(a)(6).

Board of directors, § 1761, 1761b, 1761a.

Approval of loans to other credit unions,

§ 1757(5)(C).

Criteria established by, loans to members,

§ 1757(5)(A).

Dividends, declaration of, § 1763.

Investments, authorization to make, § 1757(7).

Meetings, § 1761b.

Bonds,

Officers or employees, custody or handling of

funds, § 1761b.

Treasurer, § 1761a.

Books and records,

Audit, § 1761d.

Voluntary liquidation, possession under rules

and regulations of Board, § 1766.

Borrowing, § 1757(9); from Central Liquidity

Facility, § 1783(f).

Branch, defined, § 1752.

By-laws, § 1758.

Capacity to sue and be sued, § 1757(2).

Capitalization (well, adequately and undercapitalized), § 1790d.

Cease-and-desist orders, § 1786.

Central credit union, shares or deposits of,

investment of funds, § 1757(7)(G).

Central Liquidity Facility,

Agent member,

‘‘Member’’ as including § 1795a.

Qualifications, § 1795c.

Agent of Federal Reserve System, § 1795j.

Audit of financial transactions, § 1795h.

Board, powers on behalf of Facility, § 1795f.

Capital stock, subscription to, § 1795d.

Condition of membership, § 1795c.

Collection and settlement of checks, share

drafts, etc., authorization by Board,

§ 1795f(b).

Community Development Credit Union

Revolving Loan Fund, § 1766(k)

Definitions, § 1795a.

District courts, jurisdiction, cases to which

Board is party on behalf of Facility, § 1795b.

Dividend distributions, without preference,

rates determined by Board, § 1795d.

Establishment, § 1795b.

Extensions of credit, application, § 1795e.

Federal Reserve banks, depositories,

custodians and financial agents for Facility,

§ 1795g.

Interest rates on loans, agent members,

§ 1757.

Investment by credit unions in stock of,

§ 1757.

Liquidity needs, defined, § 1795a.

Member, defined, § 1795a.

Membership, § 1795c.

National Credit Union Administration, Board,

powers and duties, § 1795c(e).

National Credit Union Share Insurance Fund,

borrowing from by Board on behalf of Facility, § 1795f(a)(4).

Paid-in and unimpaired capital and surplus,

defined, § 1795a.

Powers, § 1795f.

Regular member,

‘‘Member’’ as including, § 1795a.

Qualifications, § 1795c.

Reports, annual report, § 1795i.

Secretary of Treasury, as authorized lender,

§ 1795e(b).

Tax exemption, § 1795k.

Charter,

Approval of organization certificate, § 1754.

Conversion from or to state credit union,

§ 1771.

Suspension or revocation,

By Board, § 1766.

Failure to file applications for insurance

after expiration of two year period,

§ 1781.

Civil money penalties, § 1786(k)(2).

Common bond, § 109.

Community development revolving loan fund,

§ 1772c-1.

Compensation,

Members of board or committees, § 1761.

Officers, § 1761a.
78 OCTOBER 1998

Reasonable health and accident insurance not

considered compensation, § 1761.

Conditional gifts, acceptance of, § 1772a.

Conservatorship, §§ 1786h, 1787.

Contracts, power to make, § 1757(1).

Conversion,

From federal to state credit union and vice

versa, § 1771.

From insured credit union to mutual savings

bank, § 1785(b)(2)

Credit committee, § 1761c.

Credit union service organizations, § 1757(7)(I).

Loans to, § 1757(5)(D).

Demand deposit accounts,

Credit unions authorized by Defense

Department with suboffices in military

installations in foreign countries or trust

territories, § 1757(8).

Depositories and fiscal agents of U.S., § 1767.

Deposits in national banks, etc., § 1757(8).

Disapproval of officials and senior employees,

§ 1790.

Dividends, § 1763.

Shares, share certificates and share draft

accounts, payment, etc., § 1763.

Election, board of directors, § 1761.

Eligible obligations, power to purchase, sell,

etc., § 1757(13).

Examination,

Books and records, § 1756.

Insured credit unions, § 1784.

Supervisory committee, § 1761d.

Executive committee, § 1761b.

Expulsion of members, § 1764.

Federal buildings, allotment of space, § 1770.

Fees, § 1755.

Fiscal agents and depositories, § 1767.

Fiscal year, § 1760.

Flood insurance compliance, § 1784e.

Foreign investigations, §§ 1786(u), 1787(r).

Fraudulent transfers, § 1787(b)(16).

Gifts,

Board’s acceptance, § 1772a.

Conditional gifts, acceptance, § 1772a.

Deposit of gifts, § 1772a.

Golden parachutes, § 1786(t).

Government-sponsored enterprise, prohibition,

§ 1781(e).

Gross income, determination, time for, § 1762.

Institution-affiliated party, defined, § 1786(r).

Insurance of member accounts,

Eligibility, § 1781.

Premium, § 1782.

NCUSIF, § 1783.

Other requirements, § 1785.

Termination, § 1786.

Payment on liquidation, § 1787.

Special assistance, § 1788.

Insurance year, defined, administration of

insurance fund, share insurance, § 1782.

Investments, § 1757(7), (15).

Involuntary liquidation, § 1766(b).

Joint tenancy, in shares, § 1759.

Late charges, § 1757(10).

Lines of credit,

Application for, consideration, approval, etc.,

§ 1761c.

Board of directors, powers, etc., concerning,

§ 1757(5)(A).

Liquidating agents, §§ 1766, 1787.

Liquidations, §§ 1766, 1787.

Loan officer, appointment, duty and powers,

§ 1761c.

Loans,

Amortization of loans, § 1757(5)(A)(9).

Applications for, § 1761c.

Authorized loans, § 1757(5)(A).

Determination of amount, § 1761b.

Maturity, § 1757(5).

Participation loans, § 1757(5)(E).

Power to make, § 1757(5).

Rates, § 1757.

Refunds, § 1761b.

Residential real estate, limitations,

§ 1757(5)(A).

Low-income members, nonmembers where

credit unions served, payments on shares and

share certificates received from officers, etc.,

of, § 1757(6).

Management, § 1761.

Meetings of members, § 1760.

Election of board and committee, § 1761.

Member accounts, defined, § 1752,

Member business loans, § 107A.

Membership, § 1759, 1761d.

Election of board and committee at annual

meeting, § 1761.

Expulsion and withdrawal, § 1764.

Mergers, emergency, § 1785(h).

Minors as members, § 1765.

Mobile homes, loans to finance purchase of, criteria for making, § 1757(5)(A).

Monetary transaction recordkeeping and reporting, § 1786(q)

Money orders, power to sell to members,

§ 1757(12).

National Credit Union Administration,

‘‘Administration,’’ as meaning, § 1752a.

Board, § 1752(a).

Central Liquidity Facility, powers, duties,

etc., § 1795c et seq.

Chairman,

Spokesman of Board, powers and responsibilities, § 1752a.
OCTOBER 1998 79

Composition, § 1752a.

Conservatorship, § 1786h.

Consultation, interest on loans, § 1757(5)(A).

Financial reports to, § 1756.

Financial transactions, audit, § 1752a.

Management powers, membership, appointment, etc., § 1752a.

Meetings, § 1752a.

Members, appointment, § 1752a.

Minutes of proceedings, § 1752a.

Place of conducting audit of financial transactions, § 1752a.

Powers, § 1766, § 1789.

Quorum, § 1752a.

Records, proceedings, § 1752a.

Reports, operations of, § 1752a.

NCUA Board as conservator or liquidating

agent, § 1787.

NCUA staff, § 1766(j).

Negotiable checks, power to sell to members,

§ 1757(12).

Net worth ratios, § 1790d.

Nonmember units of federal, state, or local

governments, etc., payment on shares and

share certificates from officers, of, § 1757(6).

Nonmembers, payment on shares, etc., receipt

from, credit union serving predominantly lowincome members, § 1757(6).

Officers, § 1761, § 1761a.

Suspension, § 1761d.

Once a member—retention of membership,

§ 1759(e)(2).

Operating fee, assessment, computation, § 1755.

Orders, § 1786.

Organization certificate, § 1753.

Approval, § 1754.

Conversion from state credit union, § 1771.

District of Columbia credit unions, converting

to federal status, § 1773.

Form prepared by board, § 1758.

Partial invalidity, effect, § 1769.

Participation loans with other credit unions,

§ 1757(5)(E).

Powers, § 1757.

Premiums, for share insurance, § 1782.

One percent deposit, § 1782(c).

Prohibition on acquisition of assets, § 1787(q).

Prohibition on participation, § 1785(d).

Prompt corrective action, § 1790d.

Property,

Power to purchase, hold and dispose of,

§ 1757(4).

Proxy voting, § 1760.

Public disclosure of agency action, § 1786(s).

Public money, credit unions as depositories for,

§ 1789a.

Puerto Rico,

Applicability of Federal Credit Union Act,

§ 1772.

‘‘Branch’’ as including branch place of business located in, § 1752.

Conversion from or to state credit union,

§ 1771.

Purchase and assumption, § 1785i.

Purchase of liquidating notes, § 1757(13).

Removal, prohibition or suspension from office,

§ 1786(g).

Reports, § 1756.

Annual audit by supervisory committee,

§ 1761d.

Books and records, forms by Board, § 1766.

Residential real estate loans, criteria for making, § 1757(5).

Revocation of charter, § 1766.

Rewards for information, § 1790c.

Seal, § 1757(3).

Secretary of Treasury, designation as fiscal

agent and depositor, § 1767.

Separability of provisions, right to alter, amend

or repeal chapter, § 1769.

Share certificate, § 1757(6).

Member account and account as meaning,

§ 1752.

Receiving payment on from officers, etc., of

governmental units, etc., § 1757(6).

Share draft account, § 1757(6).

Dividends paid on, § 1763.

‘‘Member account’’ as meaning, general provisions, § 1752.

Receipt of payments on, § 1757(6).

Shares, § 1757(6).

Right of survivorship, § 1759.

Supervisory committee, § § 1761, 1761d.

Appointment, § 1761.

Audit, § 1761d.

Suspension,

Charter, § 1766.

Officers or members of board of directors or

committees, § 1761d.

Taxation, exemptions from, § 1768.

Territories, applicability of Federal Credit

Union Act, § 1772.

Time, declaration of dividends, § 1763.

Transfer of functions, etc., of Bureau to

National Credit Union Administration,

§ 1752a note.

Treasurer of United States, deposit and investment of fees, § 1755.

Treasury Department, consultation with Board,

interest rates on loans, § 1757(5)(A).

Treasury of the United States, gifts deposited,

§ 1772a.

Trust fund, § 1774.

Trust territories,
80 OCTOBER 1998

Applicability of Federal Credit Union Act,

§ 1772.

‘‘Branch’’ as including suboffice on American

military installation in, § 1752.

Unsecured loans, limit, § 1761c.

Vacancies,

Board and credit committee, § 1761b.

Supervisory committee, § 1761.

Voluntary liquidation, § 1766.

Whistleblower protection, § 1790.

Withdrawal of members, § 1764.