HOUSE  BILL  ANALYSIS

                 ON

             HB 1560

Brief Description: Regulating credit unions.

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BACKGROUND: State credit unions are regulated by the Department of Financial Institutions.  Federal credit unions are regulated by the National Credit Union Administration.  Federal credit unions belong to a national share (deposit) insurance fund.  State credit unions in Washington may belong to the national share insurance fund or to the private Washington Credit Union Share Guarantee Association (WCUSGA).  WCUSGA is in the process of dissolving; by 1998, all state-chartered credit unions must be members of the national share insurance fund.

State statutes and rules regulate, among other things, the organization of credit unions, the governance of credit unions, the membership in credit unions, the powers of credit unions, the examination and supervision of credit unions by regulators, the permissible lending and investment activities of credit unions, and the merger or liquidation of credit unions.

SUMMARY:   Statutory provisions regulating credit unions are modified.  These modifications clarify existing law, make regulation of credit unions more consistent with the regulation of banks, deregulate some practices, and provide expanded authority in some instances. 

Generally, many credit union administrative and bylaw provisions are deregulated; the credit union board of directors is given more discretion in these areas, although the board must address certain items.  Bylaw changes need approval by a simple majority of the board, not the two-thirds majority of all board members under current law; field of membership changes must also be approved by the director of the Department of  Financial Institutions (DFI).  Provisions specifically provide for limiting personal liability of directors and indemnifying directors, supervisory committee members, officers, and employees.  The fiduciary duties owed to credit unions by directors and officers are clarified.  Compliance officer or committee documents are confidential.  Expelled members= shares and deposit accounts must be paid promptly; the credit union can deduct penalties for early withdrawals when expelling members.  Credit unions need not document loans in writing.  The ability of out-of-state and foreign credit unions to operate a branch in Washington is clarified and expanded; the current requirement that 50% of the members be from Washington is removed.

The authority and powers of credit unions are clarified in many cases and expanded in some cases.  For instance, credit unions are given specific authority to enter into leases or sell group life insurance to members; this authority likely is implied now.  Several areas in which credit union authority and powers are expanded include: (1) credit unions can borrow money up to 50% of total shares, deposits, and capital (current law allows up to 50% of paid in and unimpaired capital and surplus); (2) credit unions can sell most of their assets without prior approval of the director of the DFI (current law requires DFI approval when selling over 10% of assets); (3) credit unions can purchase loans from others if the credit union=s policies would have permitted originating the loan (current law requires the originating credit union hold at least 10% of the loan); (4) credit unions can establish or relocate a branch and must provide DFI notice within 30 days after commencing business at the new or relocated branch (current law requires 30 days prior notice); (5) credit unions can loan to one borrower up to 25% of the credit union=s capital (current law allows up to 2.5% of the credit union=s assets be loaned to a member); (6) credit unions can invest in loans held by other credit unions, loans made to members of the credit union by other financial institutions, and, with DFI=s approval, loans to nonmembers made by other lenders; and (7) credit unions can lend to other credit unions up to 25% of total shares, deposits, and capital (current law allows up to 25% of paid-in and unimpaired capital).

 Clarification is made that examinations and investigations by DFI are confidential.  DFI charges fees to credit unions to cover the costs of operating the Division of Credit Unions.  The DFI director=s ability to serve notice to remove or suspend a credit union director, supervisory committee member, or officer or employee is clarified.  The process, including the right to a hearing, is specified. 

Credit unions must comply with generally accepted accounting principles as specified by rule by the director of the DFI (beginning January 1, 1999).

The director of the DFI is given authority, in addition to current authority to appoint a liquidating agent, to place a credit union under supervisory direction, appoint a conservator, and appoint a receiver for dissolving or failing credit unions, similar to the authority the DFI has for banks.

Fiscal Note:  Requested.

Effective Date:  Ninety days after adjournment of session in which bill is passed, except for section 36, which takes effect one year after the effective date of this act, and section 51, which takes effect on January 1, 1999.

Rulemaking: The director of the Department of Financial Institutions is granted rule-making authority.