BILL REQ. #:  H-0533.2 

Read first time 01/31/13.   Referred to Committee on Business & Financial Services.

     AN ACT Relating to credit unions' corporate governance, investments, and capital; and amending RCW 31.12.005, 31.12.195, 31.12.225, 31.12.235, 31.12.285, 31.12.365, 31.12.402, 31.12.426, 31.12.436, 31.12.438, 31.12.461, and 31.12.630.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 31.12.005 and 2010 c 87 s 1 are each amended to read as follows:
     Unless the context clearly requires otherwise, as used in this chapter:
     (1) "Board" means the board of directors of a credit union.
     (2) "Board officer" means an officer of the board elected under RCW 31.12.265(1).
     (3) "Branch" of a credit union, out-of-state credit union, or foreign credit union means any facility that meets all of the following criteria:
     (a) The facility is a staffed physical facility;
     (b) The facility is owned or leased in whole or part by the credit union or its credit union service organization; and
     (c) Deposits and withdrawals may be made, or shares purchased, through staff at the facility.
     (4) "Capital" means a credit union's reserves, undivided earnings, and allowance for loan and lease losses, accounts or instruments issued pursuant to RCW 31.12.402(24), and other items that may be included under RCW 31.12.413 or by rule or order of the director.
     (5) "Credit union" means a credit union organized and operating under this chapter.
     (6) "Credit union service organization" means an organization that a credit union has invested in pursuant to RCW 31.12.436(((8))) (1)(h), or a credit union service organization invested in by an out-of-state, federal, or foreign credit union.
     (7) "Department" means the department of financial institutions.
     (8) "Director" means the director of financial institutions.
     (9) "Federal credit union" means a credit union organized and operating under the laws of the United States.
     (10) "Financial institution" means any commercial bank, trust company, savings bank, or savings and loan association, whether state or federally chartered, and any credit union, out-of-state credit union, or federal credit union.
     (11) "Foreign credit union" means a credit union organized and operating under the laws of another country or other foreign jurisdiction.
     (12) "Insolvency" means:
     (a) If, under United States generally accepted accounting principles, the recorded value of the credit union's assets are less than its obligations to its share account holders, depositors, creditors, and others; or
     (b) If it is likely that the credit union will be unable to pay its obligations or meet its share account holders' and depositors' demands in the normal course of business.
     (13) "Loan" means any loan, overdraft line of credit, extension of credit, or lease, in whole or in part.
     (14) "Material violation of law" means:
     (a) If the credit union or person has violated a material provision of:
     (i) Law;
     (ii) Any cease and desist order issued by the director;
     (iii) Any condition imposed in writing by the director in connection with the approval of any application or other request of the credit union; or
     (iv) Any supervisory agreement, or any other written agreement entered into with the director;
     (b) If the credit union or person has concealed any of the credit union's books, papers, records, or assets, or refused to submit the credit union's books, papers, records, or affairs for inspection to any examiner of the state or, as appropriate, to any examiner of the national credit union administration; or
     (c) If a member of a credit union board of directors or supervisory committee, or an officer of a credit union, has breached his or her fiduciary duty to the credit union.
     (15) "Membership share" means an initial share that a credit union may require a person to purchase in order to establish and maintain membership in a credit union.
     (16) "Net worth" means a credit union's capital, less the allowance for loan and lease losses.
     (17) "Operating officer" means an employee of a credit union designated as an officer pursuant to RCW 31.12.265(2).
     (18) "Organization" means a corporation, partnership, association, limited liability company, trust, or other organization or entity.
     (19) "Out-of-state credit union" means a credit union organized and operating under the laws of another state or United States territory or possession.
     (20) "Person" means an organization or a natural person including, but not limited to, a sole proprietorship.
     (21) "Principally" or "primarily" means more than one-half.
     (22) "Senior operating officer" includes:
     (a) An operating officer who is a vice president or above; and
     (b) Any employee who has policy-making authority.
     (23) "Significantly undercapitalized" means a net worth to total assets ratio of less than four percent.
     (24) "Small credit union" means a credit union with up to ten million dollars in total assets.
     (25) "Unsafe or unsound condition" means, but is not limited to:
     (a) If the credit union is insolvent;
     (b) If the credit union has incurred or is likely to incur losses that will deplete all or substantially all of its net worth;
     (c) If the credit union is in imminent danger of losing its share and deposit insurance or guarantee; or
     (d) If the credit union is significantly undercapitalized.
     (26) "Unsafe or unsound practice" means any action, or lack of action, which is contrary to generally accepted standards of prudent operation, the likely consequences of which, if continued, would be abnormal risk of loss or danger to a credit union, its members, or an organization insuring or guaranteeing its shares and deposits.

Sec. 2   RCW 31.12.195 and 1997 c 397 s 13 are each amended to read as follows:
     (1) A special membership meeting of a credit union may be called by a majority of the board, a majority vote of the supervisory committee, or upon written application of at least ten percent or two thousand of the members of a credit union, whichever is less.
     (2) A request for a special membership meeting of a credit union shall be in writing and shall state specifically the purpose or purposes for which the meeting is called. At this meeting, only those agenda items detailed in the written request may be considered. If the special membership meeting is being called for the removal of one or more directors, the request shall state the name of the director or directors whose removal is sought.
     (3) Upon receipt of a request for a special membership meeting, the secretary of the credit union shall designate the time and place at which the special membership meeting will be held. The designated place of the meeting must be a reasonable location within the county in which the principal place of business of the credit union is located, unless provided otherwise by the bylaws. The designated time of the membership meeting must be ((no sooner than twenty, and)) no later than ((thirty)) ninety days after the request is received by the secretary.
     The secretary shall give notice of the meeting ((within ten days of receipt of the request)) at least thirty days before the special membership meeting, or within such other reasonable time period as may be provided by the bylaws. The notice must include the purpose or purposes for which the meeting is called, ((as provided in the bylaws. If)) and, if the special membership meeting is being called for the removal of one or more directors, the notice must state the name of the director or directors whose removal is sought.
     (4) Except as provided in this subsection, the chairperson of the board shall preside over special membership meetings. If the purpose of the special meeting includes the proposed removal of the chairperson, the next highest ranking board officer whose removal is not sought shall preside over the special meeting. If the removal of all board officers is sought, the chairperson of the supervisory committee shall preside over the special meeting.
     (5) Special membership meetings shall be conducted according to the rules of procedure approved by the board.

Sec. 3   RCW 31.12.225 and 2001 c 83 s 6 are each amended to read as follows:
     (1) The business and affairs of a credit union shall be managed by a board of not less than five and not greater than fifteen directors.
     (2) The directors must be elected at the credit union's annual membership meeting. They shall hold their offices until their successors are qualified and elected or appointed.
     (3) Directors shall be elected to terms of between one and three years, as provided in the bylaws. If the terms are longer than one year, the directors must be divided into classes, and an equal number of directors, as nearly as possible, must be elected each year.
     (4) Any vacancy on the board must be filled by an interim director appointed by the board, unless the interim director would serve a term of fewer than ninety days. Interim directors appointed to fill vacancies created by expansion of the board will serve until the next annual meeting of members. Other interim directors will serve out the unexpired term of the former director, unless provided otherwise in the credit union's bylaws.
     (5) The board will have at least six regular meetings ((not less frequently than once each month)) each year, with at least one of these meetings held in each calendar quarter. The director may require the board to meet more frequently than six times per year if the director finds it necessary in order to address matters noted in any examination. The director may adopt rules to interpret this section.

Sec. 4   RCW 31.12.235 and 2001 c 83 s 7 are each amended to read as follows:
     (1) A director must be a natural person and a member of the credit union. If a director ceases to be a member of the credit union, the director shall no longer serve as a director.
     (2)(a) If a director is absent from ((four)) more than one-fourth of the regular board meetings in any twelve-month period in a term without being reasonably excused by the board, the director shall no longer serve as a director for the period remaining in the term.
     (b) The board secretary shall promptly notify the director that he or she shall no longer serve as a director. Failure to provide notice does not affect the termination of the director's service under (a) of this subsection.
     (3) A director must meet any qualification requirements set forth in the credit union's bylaws. If a director fails to meet these requirements, the director shall no longer serve as a director.
     (4) The operating officers and employees of the credit union may serve as directors of the credit union, but only as permitted by the credit union's bylaws. In no event may the operating officers and employees of the credit union constitute a majority of the board.

Sec. 5   RCW 31.12.285 and 1997 c 397 s 21 are each amended to read as follows:
     The board may ((suspend)), for cause, suspend a member of the board or a member of the supervisory committee until a special membership meeting, called for that purpose, is held under RCW 31.12.195. The membership meeting must be held within ((thirty)) sixty days after the suspension. The members attending the meeting shall vote whether to remove a suspended party. For purposes of this section, "cause" includes demonstrated financial irresponsibility, a breach of fiduciary duty to the credit union, or activities which, in the judgment of the board, threaten the safety and soundness of the credit union.

Sec. 6   RCW 31.12.365 and 2001 c 83 s 12 are each amended to read as follows:
     (1) A credit union may pay to its directors and supervisory committee members ((of committees shall not receive)) reasonable compensation for their service as directors and supervisory committee members. ((However, this subsection does not prohibit)) A credit union may also provide to its directors ((or)) and supervisory committee members ((from receiving)):
     (a) Gifts of minimal value; ((and))
     (b) Insurance coverage or incidental services, available to employees generally((.
     (2) Directors and members of committees may receive)); and
     (c) Reimbursement for reasonable expenses incurred on behalf of themselves and their spouses in the performance of the directors' and supervisory committee members' duties.
     (((3) Loans to directors and supervisory and credit committee members may not be made under more favorable terms and conditions than those made to members generally)) (2) The director may adopt rules to interpret this section.

Sec. 7   RCW 31.12.402 and 2011 c 303 s 6 are each amended to read as follows:
     A credit union may:
     (1) Issue shares to and receive deposits from its members in accordance with RCW 31.12.416;
     (2) Make loans to its members in accordance with RCW 31.12.426 and 31.12.428;
     (3) Pay dividends and interest to its members in accordance with RCW 31.12.418;
     (4) Impose reasonable charges for the services it provides to its members;
     (5) Impose financing charges and reasonable late charges in the event of default on loans, subject to applicable law, and recover reasonable costs and expenses, including, but not limited to, collection costs, and reasonable attorneys' fees incurred both before and after judgment, incurred in the collection of sums due, if provided for in the note or agreement signed by the borrower;
     (6) Acquire, lease, hold, assign, pledge, sell, or otherwise dispose of interests in personal property and in real property in accordance with RCW 31.12.438;
     (7) Deposit and invest funds in accordance with RCW 31.12.436;
     (8) Borrow money, up to a maximum of fifty percent of its total shares, deposits, and net worth;
     (9) Discount or sell any of its assets, or purchase any or all of the assets of another credit union, out-of-state credit union, or federal credit union. However, a credit union may not discount or sell all, or substantially all, of its assets without the approval of the director;
     (10) Accept deposits of deferred compensation of its members;
     (11) Act as fiscal agent for and receive payments on shares and deposits from the federal government or this state, and any agency or political subdivision thereof;
     (12) Engage in activities and programs as requested by the federal government, this state, and any agency or political subdivision thereof, when the activities or programs are not inconsistent with this chapter;
     (13) Hold membership in credit unions, out-of-state credit unions, or federal credit unions and in organizations controlled by or fostering the interests of credit unions, including, but not limited to, a central liquidity facility organized under state or federal law;
     (14) Pay additional dividends and interest to members, or an interest rate refund to borrowers;
     (15) Enter into lease agreements, lease contracts, and lease-purchase agreements with members;
     (16) Act as insurance agent or broker for the sale to members of:
     (a) Group life, accident, health, and credit life and disability insurance; and
     (b) Other insurance that other types of Washington state-chartered financial institutions are permitted to sell, on the same terms and conditions that these institutions are permitted to sell such insurance;
     (17) Impose a reasonable service charge for the administration and processing of accounts that remain dormant for a period of time specified by the credit union;
     (18) Establish and operate on-premises or off-premises electronic facilities;
     (19) Enter into formal or informal agreements with another credit union for the purpose of fostering the development of the other credit union;
     (20) Work with community leaders to develop and prioritize efforts to improve the areas where their members reside by making investments in the community through contributions to organizations that primarily serve either a charitable, social, welfare, or educational purpose, or are exempt from taxation pursuant to section 501(c)(3) of the internal revenue code;
     (21) Limit the personal liability of its directors in accordance with provisions of its articles of incorporation that conform with RCW 23B.08.320;
     (22) Indemnify its directors, supervisory committee members, officers, employees, and others in accordance with provisions of its articles of incorporation or bylaws that conform with RCW 23B.08.500 through 23B.08.600;
     (23) Conduct a promotional contest of chance as authorized in RCW 9.46.0356(l)(b), as long as the conditions of RCW 9.46.0356(5) and 30.22.260 are complied with to the satisfaction of the director; ((and))
     (24) Offer and issue accounts or instruments that are not shares or deposits, are not insured as described in RCW 31.12.408, and are included in the credit union's net worth pursuant to the federal credit union act, 12 U.S.C. Sec. 1790d. The director may adopt rules to implement this subsection; and
     (25) Exercise such incidental powers as are necessary or convenient to enable it to conduct the business of a credit union.

Sec. 8   RCW 31.12.426 and 2001 c 83 s 17 are each amended to read as follows:
     (1) A credit union may make secured and unsecured loans to its members under policies established by the board, subject to the loans to one borrower limits provided for in RCW 31.12.428. Each loan must be evidenced by records adequate to support enforcement or collection of the loan and any review of the loan by the director. Loans must be in compliance with rules adopted by the director.
     (2) Loans to directors, supervisory committee members, and credit committee members may not be made under more favorable terms and conditions than those made to members generally.
     (3) A credit union may obligate itself to purchase loans in accordance with RCW 31.12.436(1)(a), if the credit union's underwriting policies would have permitted it to originate the loans.

Sec. 9   RCW 31.12.436 and 2001 c 83 s 19 are each amended to read as follows:
     (1) A credit union may invest its funds in any of the following, as long as ((they)) the investments are deemed prudent by the board:
     (((1))) (a) Loans held by credit unions, out-of-state credit unions, or federal credit unions; loans to members held by other lenders; and loans to nonmembers held by other lenders, with the approval of the director;
     (((2))) (b) Bonds, securities, or other investments that are fully guaranteed as to principal and interest by the United States government, and general obligations of this state and its political subdivisions;
     (((3))) (c) Obligations issued by corporations designated under 31 U.S.C. Sec. 9101, or obligations, participations or other instruments issued and guaranteed by the federal national mortgage association, federal home loan mortgage corporation, government national mortgage association, or other government-sponsored enterprise;
     (((4))) (d) Participations or obligations which have been subjected by one or more government agencies to a trust or trusts for which an executive department, agency, or instrumentality of the United States has been named to act as trustee;
     (((5))) (e) Share or deposit accounts of other financial institutions, the accounts of which are federally insured or insured or guaranteed by another insurer or guarantor approved by the director. The shares and deposits made by a credit union under this subsection (1)(e) may exceed the insurance or guarantee limits established by the organization insuring or guaranteeing the institution into which the shares or deposits are made;
     (((6))) (f) Common trust or mutual funds whose investment portfolios consist of securities issued or guaranteed by the federal government or an agency of the government;
     (((7))) (g) Up to five percent of the capital of the credit union, in debt or equity issued by an organization owned by the Washington credit union league;
     (((8))) (h) Shares, stocks, loans, or other obligations of organizations whose primary purpose is to strengthen, advance, or provide services to the credit union industry or credit union members. A credit union may in the aggregate invest an amount not to exceed one percent of its assets in organizations under this subsection (1)(h). In addition, a credit union may in the aggregate lend an amount not to exceed one percent of its assets to organizations under this subsection (1)(h). These limits do not apply to investments in, and loans to, an organization:
     (((a))) (i) That is wholly owned by one or more credit unions or federal or out-of-state credit unions; and
     (((b))) (ii) Whose activities are limited exclusively to those authorized by this chapter for a credit union;
     (((9))) (i) Loans to credit unions, out-of-state credit unions, or federal credit unions. The aggregate of loans issued under this subsection (1)(i) is limited to twenty-five percent of the total shares and deposits of the lending credit union;
     (((10))) (j) Key person insurance policies, the proceeds of which inure exclusively to the benefit of the credit union; ((or
     (11))) (k) A registered investment company or collective investment fund, as long as the prospectus of the company or fund restricts the investment portfolio to investments and investment transactions that are permissible for credit unions; or
     (l) Other investments approved by the director upon written application.
     (2) If a credit union has lawfully made an investment that later becomes impermissible because of a change in circumstances or law, and the director finds that this investment will have an adverse effect on the safety and soundness of the credit union, then the director may require that the credit union develop a reasonable plan for the divestiture of the investment.

Sec. 10   RCW 31.12.438 and 2001 c 83 s 20 are each amended to read as follows:
     (1) A credit union may invest in real property or leasehold interests primarily for its own use or the use of a credit union service organization in conducting business, including, but not limited to, structures and fixtures attached to real property, subject to the following limitations:
     (a) The credit union's net worth equals at least five percent of the total of its share and deposit accounts;
     (b) The board approves the investment; and
     (c) The aggregate of all such investments does not exceed seven and one-half percent of the total of its share and deposit accounts.
     (2) If the real property or leasehold interest is acquired for future expansion, the credit union must ((satisfy the use requirement in subsection (1) of this section)) partially occupy the premises within three years after the credit union makes the investment, if the premises are improved at the time of acquisition, or within six years after the credit union makes the investment, if the premises are unimproved at the time of acquisition.
     (3) The director may, upon written application, waive any of the limitations listed in subsection (1) or (2) of this section, and the director may adopt rules to interpret this section.

Sec. 11   RCW 31.12.461 and 2001 c 83 s 21 are each amended to read as follows:
     (1) For purposes of this section, the merging credit union is the credit union whose charter ceases to exist upon merger with the continuing credit union. The continuing credit union is the credit union whose charter continues upon merger with the merging credit union.
     (2) A credit union may be merged with another credit union with the approval of the director and in accordance with requirements the director may prescribe. The merger must be approved by a ((two-thirds)) majority vote of the board of each credit union and a two-thirds majority vote of those members of the merging credit union voting on the merger at a membership meeting. The requirement of approval by the members of the merging credit union may be waived by the director if the merging credit union is in imminent danger of insolvency.
     (3) The property, rights, and interests of the merging credit union transfer to and vest in the continuing credit union without deed, endorsement, or instrument of transfer, although instruments of transfer may be used if their use is deemed appropriate. The debts and obligations of the merging credit union that are known or reasonably should be known are assumed by the continuing credit union. The continuing credit union shall cause to be published notice of merger once a week for three consecutive weeks in a newspaper of general circulation in the county in which the principal place of business of the merging credit union is located. The notice of merger must also inform creditors of the merging credit union how to make a claim on the continuing credit union, and that if a claim is not made upon the continuing credit union within thirty days of the last date of publication, creditors' claims that are not known by the continuing credit union may be barred. Except for claims filed as requested by the notice, or debts or obligations that are known or reasonably should be known by the continuing credit union, the debts and obligations of the merging credit union are discharged. Upon merger, the charter of the merging credit union ceases to exist.
     (4) Mergers are effective after the thirty-day notice period to creditors and all regulatory waiting periods have expired, and upon filing of the credit union's articles of merger by the secretary of state, or a later date stated in the articles, which in no event may be later than ninety days after the articles are filed.

Sec. 12   RCW 31.12.630 and 1997 c 397 s 58 are each amended to read as follows:
     The director may request a special meeting of the board of a credit union if the director believes that a special meeting is necessary for the welfare of the credit union or the purposes of this chapter. The director's request for a special board meeting must be made in writing to the secretary of the board ((and the request must be handled in the same manner as a call for a special meeting under RCW 31.12.195)). On receipt of such a request, the secretary shall designate a time and place for the special board meeting, which shall be held within thirty days after receipt of the request. The director may require the attendance of all of the directors at the special board meeting, and an absence unexcused by the director constitutes a violation of this chapter.