_” . . . 

The Attorney General of Texas 

December 31, 1982 

MARK WHITE 

Attorney General 

Supreme Court Building 

P. 0. BOX 12546 

Austin. TX. 78711. 2548 

5121475-2501 

Telex 9101674-1367 

Telecopier 5121475.0266 

1607 Main St., Suite 1400 

Dallas. TX. 75201-4709 

2141742-6944 

4024 Alberta Ave.. Suite 160 

El Paso, TX. 79905.2793 

9151533-3484 

,220 Dallas Ave., Suite 202 

Houston, TX. 77002-6986 

7131650-0666 

006 Broadway, Suite 312 

Lubbock, TX. 79401-3479 

8061747-5236 

4309 N. Tenth, Suite B 

McAllen, TX. 78501.1665 

5121662-4547 

200 Main Plaza. Suite 400 

San Antonio, TX. 76205.2797 

512/225.4191 

An Equal Opportunity, 

Affirmative Action Employer 

Mr. John P. Parsons 

commissioner 

Texas Credit Union Department 

914 East Anderson Lane 

Austin, Texas 78752 

Opinion No.m-579 

lk: Whether credit union 

chartered under Texas Credit 

Uni0l-l Act may offer debt 

securities for sale 

Dear Mr. Parsons: 

You have requested our opinion on certain issues relating to the 

authority of Texas credit unions to issue debt securities and the 

regulation of those securities. 

Your first question is whether credit unions chartered under the 

Texas Credit Union Act, article 2461-1.01 et seq., V.T.C.S., have the 

authority to sell debt securities to their members and to the general 

public. The securities involved in this inquiry sre debt instruments 

such as bonds and debentures not share accounts or other savings, 

deposits placed in credit unions by their members. 

The bonds and similar securities in question are instruments of 

debt by which the issuer borrows money from the purchasers. SC%? 

generally, Black’s Law Dictionary 224, 408 (4th ed. rev. 1968). 

Essentially, by selling a bond, the issuer borrows money and creates a 

debt, evidenced by the bond, which the issuer is obligated to repay at 

fixed times at a stated rate of interest, to the bond purchaser or a 

subsequent bona fide holder. Bonds can either be secured by certain 

property of the issuer or unsecured. An unsecured bond is generally 

labeled a debenture. 

Under the Credit Union Act, credit unions are given the power to 

“borrow money from any source. ” V.T.C.S. art. 2461-4.01(10). 

Although the borrowing authority of credit unions is subject to 

certain restrictions discussed later in this opinion, that authority 

is not limited in method or form. Specifically, for purposes of our 

inquiry, the act contains no indication that incurring debt through 

the sale of bonds is not included under the general borrowing power 

granted by section 4.01(10). Therefore, the sale of debt securities 

by credit unions organized under the Credit Unions Act is an authorized 

form of borrowing under the act. 

p. 2142 
Mr. John P. Parsons - Page 2 (NW-579) 

Although section 4.02 grants the credit unions certain powers to 

accomplish their purposes, it does not expand or otherwise modify the 

express provisions of the act. Because a credit union's specific 

authorization to borrow money under section 4.01(10) includes the 

power to issue bonds, section 4.02 does not expand that power and is 

not applicable in the present case. 

The present inquiry includes the question of whether the credit 

unions can sell the securities they issue to the general public as 

well as to credit union members. Section 4.01(10) makes clear that 

credit unions' borrowing authority allows them to "borrow money from 

any source." (Emphasis added). This language does not restrict a 

credit union's borrowing to its membership. If the legislature 

intended to limit the credit union's borrowing sources, it could have 

expressed such a limitation. The legislature, for instance, did 

express such a limitation with respect to the credit unions' lending 

authority. A credit union is only allowed to "lend its funds to its 

members." (Emphasis added). V.T.C.S. art. 2461-4.01(S). The broad 

language of section 4.02(10) authorizes borrowing from the general 

public as well as from credit union members. Therefore, under the 

Credit Union Act, credit unions are authorized to borrow money through 

the issuance of debt securities. Those securities may be sold to the 

general public as well as to credit union members. 

Your second question asks to what extent debt securities issued 

by credit unions are exempted from the Texas Securities Act by section 

11.17 of the Credit Union Act. Section 11.17 provides: 

Credit unions, whether authorized to do business 

under this Act or the Federal Credit Union Act, 

their officers, employees, and agents in the sale, 

issuance, or offering of any security issued by 

any state or federal credit union are exempt from 

the provisions of the laws of this state, other 

than as required by this Act, which provide for 

the supervision, registration, or regulation in 

connection with the sale, issuance, or offering of 

securities as the term is defined in Section 4, 

Securities Act, as amended (Article 581-4, 

Vernon's Texas Civil Statutes). The sale, 

issuance, or offering of any such security is 

legal without any action or approval on the part 

of any official, other than the credit union 

commissioner, authorized to license, regulate, or 

supervise the sale, issuance, or offering of 

securities. 

V.T.C.S. art. 2461-11.17. 

p. 2143 
. . 

Mr. John P. Parsons - Page 3 (m-579) 

Initially, it should be noted that bonds and similar debt 

securities are "securities" under the Securities Act. Section 4(A) of 

that act defines "securities" to include any "bond, debenture,... or 

other evidence of indebtedness." V.T.C.S. art. 581-4(A). This 

definition of securities is expressly referenced for application in 

section 11.17 of the Credit Union Act. 

Although not mentioned by name, the Securities Act is the primary 

statute to which the section 11.17 exemption applies. That act is 

part of "the laws of this state... which provide for the supervision, 

registration, or regulation in connection with the sale, issuance, or 

offering of securities." V.T.C.S. art. 2461-11.17. The question, 

therefore, becomes: "to what extent are debt securities issued by 

credit unions exempt from provisions of the Securities Act by section 

11.17." 

In construing the extent of the exemption, it is important to 

note that section 11.17 does not grant a blanket exemption from the 

Securities Act. If the legislature intended such complete exemption, 

it could have briefly and directly stated that intention. Instead of 

exempting those securities from compliance with all provisions of the 

Texas Securities Act, section 11.17 only gives credit unions a form of 

transaction exemption in the issuing of securities. That section 

states that credit unions and their agents are exempt "in the sale, 

issuance, or offering of any security issued by any state or federal 

credit union." The extent of this exemption is clarified by the 

second sentence of section 11.17 which provides that the "sale, 

issuance, or offering of any security is legal without any action or 

approval on the part of" the state securities commissioner. Under the 

Securities Act, the securities commissioner is the "official... 

authorized to license, regulate, or supervise the sale, issuance, or 

offering of securities." V.T.C.S. art. 2461-11.17. 

The effect of section 11.17, therefore, is to allow credit unions 

to offer and sell securities without seeking or obtaining any form of 

authorization under the Securities Act. Specifically, credit unions 

are allowed to offer and sell securities without compliance with the 

security registration requirements of section 7 of the Securities Act. 

V.T.C.S. art. 581-7. Further, the persons offering and selling 

securities on behalf of credit unions are exempt from the licensing 

requirements of section 12 of the Securities Act. V.T.C.S. art. 

581-12. By the terms of section 11.17, however, the licensing 

exemption applies only to "credit unions..., their officers, 

employees, and agents." V.T.C.S. art. 2461-11.17. The exemption does 

not extend to independent dealers of the securities. 

The transaction exemption provided by section 11.17 does not 

exempt credit unions from compliance with the substantive requirements 

of the Texas Securities Act. Most important, the offer and sale of 

p. 2144 
. . 

Mr. John P. Parsons - Page 4 (Mw-579) 

securities by credit unions remain subject to the anti-fraud 

protections of the Securities Act. See, e. ., Securities Act, 

V.T.C.S. art. 581 553, 23, 28, 29, 32, 33. 

The section 11.17 exemption from the Securities Act registration 

and licensing requirements is similar to the transaction exemptions 

provided by section 5 of the Securities Act. V.T.C.S. ar,t. 581-5. As 

found in the legislative history, the purpose of the current enactment 

of section 11.17 was to provide credit unions with the same 

transaction exemption granted to banks and savings and loan 

institutions. Statement of Representative Gerald Hill before the 

House cotnrn. on Financial Institutions, Hearings on H.B. No. 1399, 

April 7, 1981, on tape filed with House Hearing Reporter. 

The Securities Act exemption for banks and savings and loan 

institutions is found in section 5(L) which exempts from application 

of the act the offer and sale of securities as follows: 

The sale by the issuer itself, or by a 

registered dealer, of any security issued or 

guaranteed by any bank organized and subject to 

regulation under the laws of the United States or 

under the laws of any State or territory of the 

United States, or any insular possession thereof, 

or by any savings and loan association organized 

and subject to regulation under the laws of this 

state, or the sale by the issuer itself of any 

security issued by any federal savings and loan 

association. 

V.T.C.S. art. 581-5(L). Although they are exempt from the 

registration and licensing requirements of the Securities Act by 

section 5(L), securities issued by banks and savings and loans are 

still subject to the act's anti-fraud provisions. See Securities Act, - 

V.T.C.S. art. 581, 532. The exemption of section 11.17 of the Texas 

Credit Union Act should be applied in the same manner as the exemption 

provided by section 5(L) of the Securities Act. 

As a final question, you ask to what extent the Texas credit 

union commissioner is authorized to approve or disapprove the issuance 

of debt securities by credit unions. Section 11.17 gives the 

commissioner the authority to approve and otherwise regulate the offer 

and sale of securities by credit unions. The second sentence of that 

section clarifies this authority by stating that "[tlhe sale, 

issuance, or offering of any [security issued by a credit union] is 

legal without any action or approval on the part of any official, 

other than the credit union commissioner,.... II V.T.C.S. art. 

2461-11.17. 

p. 2145 
Mr. John P. Parsons - Page 5 mw-579) 

While enabling the commissioner to approve or disapprove credit 

union bond issues, section 11.17 in itself does not require 

affirmative action by the commissioner in this regard. Instead, the 

proviso in the first sentence of that section allows approval and 

other regulation of credit union securities "as required by [the 

Credit Union] Act." Consequently, the regulation is conducted by the 

commissioner according to other provisions of the act and the rules 

promulgated under the act which are applicable to credit union 

securities. 

The only statutory requirement of commissioner approval for 

credit union securities is found in article 2461-4.01(10) section 

4.01(10). V.T.C.S. That section requires prior approval by the 

commissioner of all credit union debt which exceeds twenty-five 

percent of its shares, deposits, and surplus. That is, when the 

issuance of debt securities, combined with all other credit union 

debt, will exceed the twenty-five percent limit, the credit union is 

required to obtain prior commissioner approval before the securities 

could be offered or sold. 

The issuance of securities by credit unions would also be 

subjected to further scrutiny under such administrative rules which 

the commissioner enforces. V.T.C.S. art. 2461-11.10(b). At present 

there are no applicable rules which have been adopted by the Texas 

Credit Union Commission under its rule making authority. V.T.C.S. 

art. 2461-11.07. 

SUMMARY 

Credit unions organized under the Texas Credit 

Union Act are authorized to issue debt securities. 

These securities may be sold to the general public 

as well as to credit union members. While exempt 

from the registration and licensing requirements 

of the Texas Securities Act, credit union 

sec"rities are not exempt from the anti-fraud 

provisions of that act. The credit union 

commissioner has the authority to regulate credit 

union securities. 

Very truly yours, 

Attorney General of Texas 

JOHN W. FAINTER, JR. 

First Assistant Attorney General 

p. 2146 
Mr. John P. Parsons - Page 6 (Mw-579) 

RICHARD E. GRAY III 

Executive Assistant Attorney General 

Prepared by Jeffery L. Hart 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Susan L. Garrison, Chairman 

Jon Bible 

Rick Gilpin 

Jeffery L. Hart 

Jim Moellinger 

p. 2147