Texas Administrative Code › Title 7 - BANKING AND SECURITIES › Part 6 - CREDIT UNION DEPARTMENT › Chapter 91 - CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS › Subchapter B - ORGANIZATION PROCEDURES › Section 91.206 - Underserved Area Credit Unions - Secondary Capital Accounts

Current through Reg. 49, No. 28; July 12, 2024
A credit union that has been approved for a designation as
					 a Underserved Area Credit Union pursuant to §
										RSA
					 122.014, Finance Code may issue secondary
					 capital accounts to members or nonmembers of the credit union on the following
					 conditions:
(1) Prior to offering
				  secondary capital accounts, the credit union shall file an application for
				  approval with the commissioner. The application shall be supported by a written
				  plan for use of the funds in the secondary capital accounts and subsequent
				  liquidity needs to meet repayment requirements upon maturity of the accounts,
				  along with such other information and data as the commissioner may
				  require.
(2) The secondary capital
				  account must be established as an uninsured secondary capital account or other
				  form of non-share account, and shall not be insured by the National Credit
				  Union Share Insurance Fund or any governmental or private entity.
(3) The secondary capital account must mature
				  no earlier than five years.
(4) The
				  secondary capital account shall not be redeemable prior to maturity.
(5) The secondary capital account holder's
				  claim against the credit union must be subordinated to all other claims,
				  including those of shareholders, creditors and the credit union's insuring
				  organization.
(6) Funds deposited
				  into the secondary capital account, including interest accrued and paid into
				  the capital account, must be available to cover the credit union's realized
				  operating losses that exceed its net available reserves and undivided earnings
				  (i.e., reserves and undivided earnings exclusive of allowance accounts for loan
				  losses), and to the extent funds are so used, the credit union shall not
				  restore or replenish the account. The credit union may, in lieu of paying
				  interest into the secondary capital account, pay interest accrued on the
				  secondary capital account directly to the secondary capital account holder or
				  into a separate account from which the secondary capital account holder may
				  make withdrawals. Losses realized shall be distributed pro-rata among all
				  secondary capital accounts held by the credit union at the time the losses are
				  realized.
(7) The secondary capital
				  account may not be pledged or provided by the account holder as security on a
				  loan or other obligation with the credit union or any other party.
(8) In the event of merger or other voluntary
				  dissolution of the credit union, other than merger into another Underserved
				  Area designated credit union, the secondary capital accounts will, to the
				  extent they are not needed to cover losses at the time of merger or
				  dissolution, be closed and paid out to the account holder.
(9) A secondary capital account contract
				  agreement must be executed by an authorized representative of the account
				  holder and the credit union. The agreement must set forth all of the terms and
				  conditions of this section and contain a disclosure and acknowledgement by the
				  account holder that the secondary capital account is not redeemable, will not
				  be insured, may be used to cover operating losses of the credit union and not
				  be replaced or replenished, and is subordinate to all other claims on the
				  assets of the credit union, including claims of member shareholders, creditors
				  and the credit union's insuring organization. All such contract agreements must
				  be retained by the credit union for the term of the agreement.
(10) In the event the credit union is
				  classified as "critically under capitalized", "marginally capitalized",
				  "minimally capitalized", "moderately capitalized" or "uncapitalized", or the
				  credit union has failed to undertake any mandatory supervisory action, the
				  commissioner or any entity insuring the accounts of the credit union, may
				  prohibit payment of principal, dividends or interest on the credit union's
				  secondary capital accounts in accordance with powers and procedures granted
				  under state or federal laws, as applicable. Any such unpaid dividends or
				  interest shall continue to accrue under the terms of the account to the extent
				  permitted by law.
(11) Credit
				  unions with secondary capital accounts shall record the funds on its balance
				  sheet in an equity account entitled "uninsured secondary capital accounts". The
				  capital value of the accounts shall be kept in accordance with generally
				  accepted accounting principles.