H.B.
81
126th General Assembly
(As Introduced)
Reps. G. Smith, Webster, McGregor, S. Patton, Ujvagi, Perry, Wolpert, Woodard, Peterson, Barrett, Strahorn, Kearns, Taylor, Allen, Law, Reidelbach, D. Stewart, Carano, Flowers
BILL SUMMARY
· Makes numerous revisions to the Credit Unions Law, including with respect to general powers and services offered; lending authority; authority granted by parity rules; membership; member and nonmember accounts; meetings of the board of directors; compensation; liquidity funds and liquidation; investments; record keeping; confidentiality; use of trade names; and out-of-state credit unions.
· Modifies probate and fiduciary laws and the laws dealing with IOLTAs and on-premises police officers to include credit unions as eligible financial institutions for various purposes.
TABLE OF CONTENTS
General powers and services offered
Authority granted by parity rules
Deposits; shares and share accounts
Amendment of articles by the directors
Confidentiality; public records
CONTENT AND OPERATION
The bill makes
numerous revisions to the Credit Unions Law (R.C. Chapter 1733.), including
with respect to the powers of, and services offered by, credit unions (see COMMENT below); membership criteria and
the regulation of member and nonmember accounts; general operations of a credit
union; and out-of-state credit unions.
The bill also modifies other areas of law to include credit unions as
eligible financial institutions for various purposes.
(R.C. 1733.04)
The bill expands the general powers of credit unions to permit the following:
(1) Charging annual membership or entrance fees in any amount, rather than a one-time fee of not more than $1 per member, as is currently allowed;
(2) Making "reasonable" contributions to any nonprofit civic, charitable, or service organizations;
(3) Engaging in activities and programs as requested by governmental units;
(4) With respect to credit unions serving predominantly low-income members, receiving savings from nonmembers in the form of shares or deposits. "Low-income members" is defined as members whose annual income falls at or below the lowest level standard of living classification established by the Bureau of Labor and Statistics and updated by the Employment and Training Administration of the U.S. Department of Labor, and "predominantly" means a simple majority.[1]
(5) Providing trustee or custodial services authorized under any written trust instrument or custodial agreement (a) created in the United States and (b) forming part of a tax-advantaged savings plan authorized under the Internal Revenue Code. Examples of these services include acting as a trustee or custodian for member retirement, education, or health savings accounts.
(6) Opening and maintaining a student branch in an elementary or secondary school, upon agreement with the school and with the permission of the Superintendent of Financial Institutions. The term "student branch" is the designation given to the credit union for the in-school services and financial education offered to students.
A student branch is for the express use of students. A student's membership expires upon the student's graduation from secondary school. Any student enrolled in a school with a student branch who is not otherwise qualified for membership in the credit union maintaining the student branch is qualified to be a member of that student branch. Faculty, staff, or lineal ancestors or descendents of students may not use a student branch.
The bill authorizes the Superintendent to adopt rules appropriate to the formation and operation of student branches.
(7) Guaranteeing the signature of a member in connection with a transaction involving tangible or intangible property in which a member has or seeks to acquire an interest;
(8) Providing cash advances, making fund transfers, cashing travelers checks, or performing any other service specified by rule or order of the Superintendent for a nonmember if the service is performed under a contractual arrangement in which another financial organization performs the same service for the credit union's members;
(9) Cashing and selling checks, drafts, or money orders, purchasing and selling foreign currencies in exchange for U.S. currency, or making wire transfers for any person (a) in an underserved area or (b) that does not have an established relationship with a financial institution;
(10) Exercising any other power in accordance with rules adopted by the Superintendent.
Under existing law, credit unions may lease or purchase real estate to the extent it is necessary for its immediate use or for its future operation. The purchase of such real estate must first be approved by the Superintendent. The bill removes this approval requirement and, instead, requires that the Superintendent be notified not less than 30 days prior to the purchase. It also permits a credit union to lease space in any real estate it acquires, in accordance with rules adopted by the Superintendent.
(R.C. 1733.25; Section 2)
Loans. Existing law permits credit unions, under certain circumstances, to make loans to members and to other credit unions. Under the bill, credit unions also are authorized to make other extensions of credit to those parties and under those circumstances.
Additionally, the bill permits a credit union to enter into a loan agreement with a member under the following conditions:
(1) The loan is for less than $1,000 and for not more than 30 days.
(2) A fee may be charged in addition to any interest authorized by law in connection with the loan, which fee is not to be included in the computation of interest for any provision of the Revised Code that regulates interest charged or received in connection with a transaction.
(3) The total interest, fees, and other costs of the loan does not exceed 10% of the principal amount.
(4) The member does not have more than one of these loans outstanding with the credit union.
(5) The loan is not being made to a member for purposes of retiring an existing loan between the credit union and the member, which existing loan is one of these loans.
Interest. Currently, interest on a loan made by a credit union (1) cannot exceed 1.5% per month on unpaid balances, (2) may accrue and be chargeable on a monthly basis and by any technique approved by the Superintendent, and (3) may be computed on the unpaid balance of the loan as of the end of the previous calendar month. The bill eliminates this provision and, instead, permits a credit union to contract for and receive interest at any rate or rates agreed upon or consented to by the parties to the loan or extension of credit, but not exceeding an annual percentage rate of 25%. The computation of the loan or extension of credit balance on which interest is assessed and the method of compounding interest on the balance is to be as agreed upon by the credit union and the member. The interest may be accrued and charged by any technique "as may be determined by" the Superintendent.
Liens. Under current law, total loans to association members cannot exceed 10% of the shares and undivided earnings or the total value of shares pledged by those members as security for loans, whichever is greater.[2] The bill eliminates this restriction and, instead, requires a credit union to have a lien on the membership share, shares, deposits, and accumulated dividends and interest of a member in an individual, joint, trust, or payable on death account for (a) any obligation owed to the credit union by that member or (b) any loan co-signed or guaranteed by the member or account holder. A lien cannot, however, be placed upon the funds in an individual retirement account or an account established pursuant to the Internal Revenue Code.
The bill also provides that a credit union may refuse to allow withdrawals from any share or deposit account by a member while the member has any outstanding obligation to the credit union.
(R.C. 119.01 and 1733.412)
Under existing law, if federal credit unions (organized under the laws of the United States) with home offices in Ohio possess a right, power, or benefit by virtue of statute, rule, regulation, or judicial decision, or will possess a right, power, or benefit by virtue of a rule or regulation issued but not yet effective, and that right, power, or benefit is not possessed by credit unions organized under Ohio law, the Superintendent may by rule authorize credit unions organized under Ohio law to exercise that right, power, or benefit. Any such parity rule becomes effective on the date of its issuance, unless the rule is issued in anticipation of a federal rule or regulation that has been issued but has not yet become effective. In that case, the effective date of the Superintendent's rule is the date on which the federal rule or regulation becomes effective. The Superintendent may revoke a parity rule upon 30 days' written notice to state-chartered credit unions. If a parity rule adopted by the Superintendent is not enacted into law within 30 months from the date of its issuance, the rule is no longer of any effect.
The bill significantly modifies this parity rule authority. Under the bill, the purpose of parity rules is to grant credit unions "doing business under authority granted by the Superintendent" any right, power, or benefit possessed, "by virtue of statute, rule, policy, regulation, interpretation, or judicial decision," by a credit union operating in Ohio and organized or chartered under (1) the Credit Unions Law (R.C. Chapter 1733.), (2) the laws of another state, or (3) the laws of the United States.
The adoption of parity rules is mandatory under the bill, rather than permissive, as in current law. The bill states that the rules are to be adopted under R.C. 111.15 (the abbreviated rule-making procedure) and become effective on the date of their filing. If the rule is adopted in anticipation of a federal regulation or federal law that has been issued or enacted but has not become effective, the effective date of the rule is the later date on which the federal law or regulation becomes effective.
The bill states that parity rules can be amended or rescinded only in accordance with the Administrative Procedure Act (R.C. Chapter 119., which requires public notice and a public hearing). However, a parity rule may be rescinded under R.C. 111.15 if another rule on the same subject has been adopted, and the new rule is intended as a replacement of the original rule.
The bill eliminates the provision stating that a parity rule is of no effect 30 months after its issuance if not enacted into law.
(R.C. 1733.05)
Existing law limits membership of a credit union to (1) groups having a common bond of occupation or association or (2) groups within a well-defined neighborhood, community, or rural district. Under the bill, the membership must "include" those two groups and groups or persons meeting other criteria set forth in rules adopted by the Superintendent.
Current law also requires the approval of the Superintendent before a group is permitted membership in a credit union. The bill eliminates this provision and, instead, requires the Superintendent, by rules adopted in accordance with the Administrative Procedure Act (R.C. Chapter 119.), to provide the manner in which a person, group, or groups are permitted membership. The only reason the Superintendent can disapprove the membership of a group is on the basis of "safety and soundness" of the credit union.
A field of membership currently cannot be expanded (by interstate charter amendment, conversion, merger, or otherwise) without the approval of all state and federal supervisory authorities affected. The bill only requires approval of the respective state supervisory authorities affected.
Existing law prohibits a person from becoming a member of a credit union unless they subscribe to or purchase at least one membership share of the credit union (see next paragraph). The bill also requires that the person comply with any requirements adopted by the board of directors of the credit union and meet any other criteria set forth in rules adopted by the Superintendent.
(R.C. 1733.01(F), (K), (L), (U), and (W) and 1733.24)
Existing law authorizes a credit union to receive funds for deposit in share accounts, share draft accounts, and share certificates from its members, from other credit unions, and from officers of governmental entities. A "share account" is an account established for a member for which no share certificates are issued but which are included in the registry of shares. As mentioned above, subscription to or purchase of a share of a credit union is a prerequisite for membership in the credit union. These shares are referred to as "membership shares."
The bill does the following:
--Permits credit unions to accept nonmember deposits in accordance with rules adopted by the Superintendent;
--Defines "deposits" as a balance held by a credit union and established by a credit union member, a nonmember, another credit union, or a governmental unit in accordance with standards specified by the credit union, including balances designated as deposits, deposit certificates, or checking accounts. The bill states that a deposit account is a debt owed by the credit union to the account holder. However, ownership of a deposit account does not confer membership or voting rights and does not represent an interest in the capital of the credit union upon dissolution or conversion to another type of institution.
--Defines "shares" as a balance held by a credit union and established in accordance with standards specified by the credit union, including shares, share accounts, share certificates, custodial accounts, probate accounts, guardianship accounts, individual retirement accounts, trust accounts, money market accounts, share checking accounts, and business share accounts. The term does not include membership shares.
--Specifies that, if two or more persons eligible for membership have jointly subscribed for one or more shares under a joint account, each may be admitted to membership.
--Allows shares or share accounts to be issued by a fiduciary or custodian in trust for a member beneficiary or in trust upon the death of a member;
--Provides that, if shares are issued in the name of a minor, (1) the minor is to be assumed to have reached the age of majority and have contractual capacity and (2) redemption of any part or all of the shares or withdrawal of funds by payment to the minor of the shares or funds and any declared dividends or interest releases the credit union from all obligation to the minor as to the shares reduced or funds withdrawn.
(R.C. 1733.16)
Currently, meetings of the board of directors of a credit union may be called by the chairperson, the president, any vice-president, or any two directors. The bill also permits the vice-chairperson to call meetings, and clarifies that the reference to "any vice-president" means any vice-president of the board.
The bill permits meetings of the directors to be held through any communication equipment if all the persons participating can hear each other and the articles or regulations of the credit union do not prohibit such meetings. Participation in a meeting through communication equipment constitutes presence at the meeting.
Existing law requires that notice of each meeting be given to each director at the time and in the manner specified in the regulations or bylaws. The bill adds that, if not otherwise specified in the regulations or bylaws, notice is to be given by personal delivery or by mail, telegram, cablegram, overnight delivery service, or any other means of communication authorized by the director, at least two days before the meeting. The notice of a meeting need not specify the meeting's purpose. In addition, notice of adjournment of a meeting need not be given, if the time and place to which it is adjourned are fixed and announced at the meeting.
(R.C. 1733.33)
The board of directors currently is authorized to adopt amendments to the field of membership article of the credit union's articles of incorporation. Under the bill, the board also may adopt the following amendments to the articles: (1) unless otherwise provided in the articles, an amendment changing the name of the corporation, (2) an amendment changing the place in Ohio where the principal office of the credit union is located, and (3) an amendment changing (a) the authorized number of shares, (b) the express terms, if any, of the shares, and (c) if the shares are classified, the designation of each class, their express terms, and par value, if any, per share.
(R.C. 1733.22)
Current law prohibits an officer, director, or employee of a credit union from receiving any commission, salary, or other wages for services arising out of the individual's association with the credit union except per diem, wages, or salary that the individual receives as compensation for the individual's services to the credit union. Under the bill, this prohibition applies "unless otherwise provided in rules adopted by the Superintendent."
Current law also prohibits a director or committee member from receiving any compensation for the individual's services, but states that they are entitled to reimbursement for expenses incurred in connection with the business of the credit union, if authorized by the board of directors and not prohibited by the articles or regulations. Under the bill, directors and committee members may receive compensation for their services if determined or authorized by rule of the Superintendent and by the articles or regulations. In addition, they are entitled to reimbursement for expenses incurred if authorized by the board.
(R.C. 1733.31 and 1733.37)
Each credit union currently is required to maintain a liquidity fund equal to 5% of its shares, but the Superintendent may require a particular credit union or all credit unions to establish a liquidity fund in excess of that amount if economic conditions or other appropriate circumstances so warrant. The bill eliminates this provision and, instead, permits the Superintendent, by rule, to require a credit union to establish a liquidity fund.
Existing law sets forth the order in which the expenses and other liabilities of a credit union are to be paid in the course of liquidation of the credit union. Generally, the assets are first used to pay the expenses incidental to liquidation, then any liability due nonmembers, and then redemption of shares and share accounts. Any assets remaining are distributed to the members proportionately to the purchase price of shares held by each member as of the date dissolving was voted or the date of suspension, as the case may be. The bill eliminates "the date of suspension" as a potential reference date for purposes of this provision.
(R.C. 1733.30)
The bill authorizes credit unions to make additional types of investments. Under the bill, funds not required for the purpose of loans may be invested in state or federally chartered credit unions doing business in Ohio; in accounts, deposits, or shares of insured credit unions doing business outside Ohio; and in credit union service corporations.
The bill also permits credit unions to do the following:
--Purchase loans made to individual members of another credit union, subject to the approval of the Superintendent;
--Purchase all or a part of the assets of another credit union or sell all or part of its assets to another credit union; and
--Make other investments in accordance with rules adopted by the Superintendent.
(R.C. 1733.29)
Current law specifies the records that must be kept and maintained by credit unions. The bill requires that credit unions also "maintain the authorized processes for recording or storing documents or instruments," as may be required by the Superintendent by rule.
The bill permits credit unions to keep documents in electronic form if, in the regular course of business, a credit union possesses, records, or generates any document, representation, image, reproduction, or combination thereof, of any agreement, transaction, act, occurrence, or event. In that case, the recording, comprising, or reproduction is to have the same force and effect as one comprised, recorded, or created on paper or other tangible form by writing, typing, printing, or similar means.
The bill also permits a credit union to make use of electronic signatures in any communication, acknowledgment, agreement, or contract between the credit union and its member or any other person. It authorizes any party to the communication, acknowledgment, agreement, or contract to affix a signature by use of a digital signature. "Digital signature" is defined as an encrypted electronic identifier, created by computer, intended by the party using it to have the same force and effect as the use of a manual signature. Under the bill, a digital signature, when lawfully used by the person whose signature it purports to be, is to have the same force and effect as the use of a manual signature if it is (1) unique to the person using it, (2) capable of verification, (3) under the sole control of the person using it, and (4) linked to data in such a manner that if the data are changed, the digital signature is invalidated. The bill does not, however, require any credit union to use or permit the use of a digital signature.
The bill states that recordings, copies, photographic images, or stored representations of original documents made in accordance with the bill, or reproductions of original documents produced from such recordings, copies, photographic images, or stored representations, when properly identified by the officer by whom or under whose supervision they were made or who has custody of them, have the same effect at law as the original records or records made by any other legally authorized means. They may be offered in the same manner and are to be received in evidence in any court where the original records, or records made by other legally authorized means, could have been introduced and received. Certified or authenticated duplicates of recordings, copies, photographic images, or stored representations of original documents made in accordance with the bill, or of reproductions of original documents produced from recordings, copies, photographic images, or stored representations made in accordance with the bill, are to be admitted in evidence in the same manner as the original documents.
(R.C. 1733.32)
Current law states that information obtained by the Superintendent of Financial Institutions as a result of the examination of a credit union or from required financial reports is confidential, except under certain circumstances. The bill provides additional exceptions. It permits the Superintendent to disclose information contained in a credit union's annual financial report, or the financial report prepared by a credit union whenever requested to do so by the Superintendent, to (1) share guarantee insurance organizations, (2) federal or state agencies, or (3) the general public. Additionally, the bill states that these financial reports, call reports, and financial statements required to be filed with the Division of Financial Institutions are public records.
(R.C. 1733.44)
The bill authorizes a credit union to adopt or change one or more trade names if the credit union gives written notice of the proposed trade name to the Superintendent of Financial Institutions at least 30 days prior to using it. The Superintendent may deny a credit union the right to use a given trade name, or terminate a credit union's right to use a trade name, for any reason. A credit union using a trade name is required to clearly and conspicuously disclose the legal name of the credit union and the trade name (1) in all signs, advertising, mailings, or similar materials and (2) in all legal documents, certificates of deposit, signature cards, loan agreements, account statements, checks, drafts, and other similar documents.
The bill prohibits a trade name from containing the phrase "credit union."
(R.C. 1733.38)
Existing law allows credit unions organized under the laws of another state to do business in Ohio if certain conditions are met. One such condition is that a credit union organized and doing business under Ohio law be permitted to do business in the other state (under conditions substantially similar to those applicable to out-of-state credit unions under Ohio law).
The bill modifies this condition by requiring that an Ohio-chartered credit union be permitted to do business in the other state "or territory where it is permitted to conduct business as a credit union."
(R.C. 2101.161, 2105.31, 2109.13, 2109.372, and 2109.41)
The bill modifies several probate-related statutes to include credit unions as eligible financial institutions, as follows:
--Permits prepaid and unearned costs assessed by probate courts to be deposited in federal credit unions or Ohio-chartered credit unions;
--Modifies the definition of "co-owners with right of survivorship" for purposes of the Uniform Simultaneous Death Act (R.C. 2105.31 to 2105.39), to expressly include credit union accounts that entitle one or more persons to the entire account on the death of the other person or persons;
--Permits the probate court, rather than requiring a bond from a fiduciary, to authorize the deposit of personal property of the estate with a federal credit union or Ohio-chartered credit union in connection with certain estates;
--Authorizes a fiduciary to make a temporary investment of funds held in liquid form in deposits with insured credit unions, if certain conditions are met; and
--Authorizes a fiduciary, upon appointment and throughout the administration of a trust, to deposit all funds received by the fiduciary in a credit union located in Ohio.
(R.C. 4705.09)
The bill permits an attorney or group of attorneys to establish an interest-bearing trust account (IOLTA), for purposes of depositing client funds, with a credit union insured by a credit union share guaranty corporation established under Ohio law (R.C. Chapter 1761.), in addition to other financial institutions specified in current law.
(R.C. 4973.17)
Current law authorizes various financial institutions or associations of such institutions to apply to the Secretary of State for the appointment and commission of persons to act as police officers for and on the premises of the financial institutions. The bill grants credit unions the same authority.
COMMENT
Generally, credit unions are nonprofit financial institutions whose customers (members) qualify for membership in a number of ways, for example, they reside in a common geographic area or are employed by the same employer. In addition, in order to do business with a credit union, a member must purchase one share of the credit union, which share gives the member an equal vote with other members in determining a credit union's board of directors. Generally, credit unions may be state-chartered (in Ohio, chartered pursuant to Chapter 1733.) or federal-chartered and may be insured through the National Credit Union Administration. An Ohio-chartered credit union also may be insured by a credit union share guaranty corporation established and operating under Chapter 1761.
HISTORY
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ACTION |
DATE |
JOURNAL ENTRY |
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Introduced |
02-23-05 |
p. 233 |
H0081-I-126.doc/jc
[1] The bill adds to the current definition of "credit union" the statement that a credit union may be designated as a low-income credit union if it serves predominantly low-income members (R.C. 1733.01(A)).
[2] "Association member" is defined under current law as any member of a credit union other than an individual member or a credit union (R.C. 1733.01(E)).