WSR 00-04-074

PREPROPOSAL STATEMENT OF INQUIRY

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed February 1, 2000, 8:51 a.m. ]

Subject of Possible Rule Making: Revising Division of Credit Unions' rules on participation in commercial business activities, chapter 208-440 WAC.

Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 31.12.516(2), 43.320.040.

Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: 1. The existing rules are outdated and overly restrictive. Credit unions should have more freedom in their prudent judgment to enter into commercial arrangements with third parties to serve their members.

2. The agency intends to review its credit union rules through this and other rule-making proceedings, in accordance with Governor Locke's Executive Order 97-02 (EO 97-02) and the agency's regulatory improvement plan.

EO 97-02 requires agencies to review their rules using the following criteria:

A. Need. Is the rule necessary to comply with the statutes that authorize it? Is the rule obsolete, duplicative, or ambiguous to a degree that warrants repeal or revision? Have laws or other circumstances changed so that the rule should be amended or repealed? Is the rule necessary to protect or safeguard the health, welfare, or safety of Washington's citizens?

B. Effectiveness and Efficiency. Is the rule providing the results that it was originally designed to achieve in a reasonable manner? Are there regulatory alternatives or new technologies that could more effectively or efficiently achieve the same objectives?

C. Clarity. Is the rule written and organized in a clear and concise manner so that is can be readily understood by those to whom it applies?

D. Intent and Statutory Authority. Is the rule consistent with the legislative intent of the statutes that authorize it? Is the rule based upon sufficient statutory authority? Is there a need to develop a more specific legislative authorization in order to protect the health, safety, and welfare of Washington's citizens?

E. Coordination. Could additional consultation and coordination with other governmental jurisdictions and state agencies with similar regulatory authority eliminate or reduce duplication and inconsistency?

F. Cost. Have qualitative and quantitative benefits of the rule been considered in relation to its cost?

G. Fairness. Does the rule result in equitable treatment of those required to comply with it? Should it be modified to eliminate or minimize any disproportionate impacts on the regulated community? Should it be strengthened to provide additional protection?

The agency is interested in your comments on the revisions to chapter 208-440 WAC developed in this rule-making proceeding in light of these criteria.

Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: None.

Process for Developing New Rule: The division solicits input from credit unions and related parties. A preliminary draft of the rule follows.

Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication by contacting Parker Cann, Director of Credit Unions, P.O. Box 41200, Olympia, WA 98504-1200, phone (360) 902-8778, fax (360) 704-6978, e-mail pcann@dfi.wa.gov.

January 31, 2000

John L. Bley

Director

OTS-3699.2

Chapter 208-440 WAC

((RULES ON)) CREDIT UNION PARTICIPATION IN COMMERCIAL ((BUSINESS ACTIVITIES)) ARRANGEMENTS WITH THIRD PARTIES


AMENDATORY SECTION(Amending WSR 96-17-071, filed 8/20/96, effective 9/20/96)

WAC 208-440-010
((Credit union financial interest in commercial enterprise.)) Commercial arrangements with third parties.

((No credit union shall have any direct financial interest in a commercial enterprise by way of stock or other ownership interest in a commercial corporation, by way of partnership interest or participation in a joint venture in a general business enterprise or by way of exchanging money or services for a share of the proceeds of any commercial business enterprise except as provided below:

(1) Any credit union may make loans to commercial enterprises and investments in commercial enterprises to the extent permitted by statute;

(2) Any credit union may engage in the business of renting, leasing or subleasing portions of the land and building(s), in which the credit union carries on its business, to the extent that such land and buildings are not needed for credit union operations;

(3) The director may upon written application grant permission to a credit union to participate in a business enterprise not otherwise authorized by law or by this section, where the director is satisfied that the business enterprise is appropriate and adjunct to ordinary credit union operations and would not be contrary to law.)) (1) Credit unions may enter into arrangements with third parties in order for the third party to directly or indirectly offer goods and services to the credit union's members. These arrangements are referred to in this rule as commercial arrangements.

In connection with commercial arrangements, credit unions may:

(a) Allow third parties to offer goods and services to members through the credit union.

(b) Receive payment from third parties for participation in group purchasing enterprises.

(c) Endorse, directly or indirectly, goods and services of a third party.

This list is not intended to be exhaustive.

As used in this rule, the term "third party" includes, without limitation, credit union service organizations.

(2) Before entering into any commercial arrangements, a credit union's board must adopt a written policy regarding such arrangements, including, without limitation, provision for evaluation of potential risk of liability. The policy may require management to seek board approval of each arrangement, or may delegate the decision to management and provide guidelines for making the decision.

(3) Before entering into or renewing each commercial arrangement, a credit union must:

(a) Ensure that the arrangement is a prudent one and that it does not present safety and soundness risks to the credit union;

(b) Evaluate the potential risk of liability and ensure that the credit union takes appropriate precautions to reduce or offset such risk, including, without limitation, the use of such devices as disclaimers/disclosures to members and bond or insurance coverage; and

(c) Ensure that the contract evidencing the arrangement includes provision for indemnification of the credit union by the third party.

(4) Credit unions must comply with applicable laws in entering into and carrying out commercial arrangements, including any applicable law on privacy of member information.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 31.12.535. 96-17-071, 208-440-010, filed 8/20/96, effective 9/20/96. 96-06-011, recodified as 208-440-010, filed 2/23/96, effective 6/1/96. Statutory Authority: RCW 31.12.360. 79-08-047 (Order 79-2), 419-40-010, filed 7/19/79.]


REPEALER

     The following sections of the Washington Administrative Code are repealed:
WAC 208-440-020 Endorsements of commercial products or services.
WAC 208-440-040 Use of credit union space to advertise commercial products and services.
WAC 208-440-050 Commercial programs offered to credit union members.

Washington State Code Reviser's Office