Administrative Code

Virginia Administrative Code
Title 10. Finance and Financial Institutions
Agency 5. State Corporation Commission
4/22/2019

Chapter 40. Credit Unions

10VAC5-40-5. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Credit union service organization" or "CUSO" means a corporation, limited liability company, or limited partnership, the voting shares or ownership interest of which is primarily held, directly or indirectly, by one or more credit unions or organizations of credit unions.

"GAAP" means generally accepted accounting principles.

"Immediate family member" means a spouse or other family member living in the same household.

"Officials" means a credit union's directors or committee members.

"Reserves" means the total of undivided earnings, regular reserves, and any other type of funds held in reserve except allowances for loan losses.

"Senior management employee" means a credit union's chief executive officer (typically the president or treasurer/manager), any assistant chief executive officers (e.g., assistant president, vice president, or assistant treasurer/manager), and the chief financial officer (comptroller).

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 24, Issue 22, eff. July 1, 2008.

10VAC5-40-10. Surety bond amount required.

A. Every credit union incorporated and operating under the provisions of Chapter 13 (§ 6.2-1300 et seq.) of Title 6.2 of the Code of Virginia shall obtain and keep in force a blanket surety bond upon all of its officials, committee members and employees in a surety company licensed to do business in Virginia in an amount of at least that shown in the following schedule based upon its total assets as shown by its latest statement of financial condition made to the Commission as of the end of each calendar year:

ASSETS

MINIMUM BOND

$0 to $10,000

Coverage equal to the credit union's assets.

$10,001 to $1,000,000

$10,000 for each $100,000 or fraction thereof.

$1,000,001 to $50,000,000

$100,000 plus $50,000 for each million or fraction over $1,000,000.

$50,000,001 to $295,000,000

$2,550,000 plus $10,000 for each million or fraction thereof over $50,000,000.

Over $295,000,000

$5,000,000

B. The maximum amount of deductibles allowed are based on the credit union's total assets. The following table sets out the maximum deductibles:

ASSETS

MINIMUM DEDUCTIBLE

$0 - $100,000

No deductibles allowed

$100,001 - $250,000

$1,000

$250,001 - $1,000,000

$2,000

Over $1,000,000

$2,000 plus 1/1000 of total assets up to a maximum deductible of $200,000

C. No bond obtained pursuant to this chapter may be canceled unless written notice thereof is given to the Commissioner of Financial Institutions at least 30 days prior to the effective date of such cancellation, and every such bond shall contain a provision to that effect.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from VR225-01-0401, eff. January 28, 1988; amended, January 1, 1991; Virginia Register Volume 28, Issue 1, eff. September 1, 2011.

10VAC5-40-20. Schedule prescribing annual fees paid for examination, supervision, and regulation of state chartered credit unions.

Pursuant to the requirement of § 6.2-1310 of the Code of Virginia, state-chartered credit unions shall pay annual fees for their examination, supervision and regulation in accordance with the following schedule:

SCHEDULE

Total Assets

FEE

$25,000 or less

$4 per $1,000 but not less than $20

Over $25,000 through $100,000

$100 plus $1.75 per $1,000 for assets in excess of $25,000

Over $100,000 through $1,000,000

$231.25 plus $.75 per $1,000 for assets in excess of $100,000

Over $1,000,000 through $5,000,000

$906.25 plus $.60 per $1,000 for assets in excess of $1,000,000

Over $5,000,000 through $10,000,000

$3,306.25 plus $.30 per $1,000 for assets in excess of $5,000,000

Over $10,000,000

$4,806.25 plus $.20 per $1,000 of assets in excess of $10,000,000

(These fees are to be applied to even $1,000 units, with fractional parts of $1,000 dropped.)

The assessment shall be computed on the basis of the credit union's total assets as shown by its Report of Condition as of the close of business for the preceding year (December 31), as filed with the Bureau of Financial Institutions on or before the first day of February.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from VR225-01-0402, eff. December 22, 1981; amended, January 1, 1991; Virginia Register Volume 28, Issue 1, eff. September 1, 2011.

10VAC5-40-30. Regular reserve accounts.

Pursuant to § 6.2-1377 of the Code of Virginia, a state credit union shall establish and maintain a regular reserve account in accordance with applicable provisions of Part 702 of the National Credit Union Administration Rules and Regulations, 12 CFR 702.1 through 702.403, regardless of § 6.2-1377 of the Code of Virginia.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 18, Issue 8, eff. December 15, 2001; amended, Virginia Register Volume 28, Issue 1, eff. September 1, 2011.

10VAC5-40-40. Serving underserved areas.

Any multiple-group state credit union shall have the power to amend its articles of incorporation or bylaws, pursuant to § 6.2-1323 of the Code of Virginia, to expand its field of membership to include individuals and organizations in one or more underserved areas to the same extent, and subject to the same conditions, as is authorized for federal credit unions under 12 USC § 1759. The numerical limitations contained in § 6.2-1327 B 2 and the provisions of § 6.2-1328 of the Code of Virginia shall not apply to the exercise of this power.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 20, Issue 14, eff. March 1, 2004; amended, Virginia Register Volume 28, Issue 1, eff. September 1, 2011.

10VAC5-40-50. Services for nonmembers within the field of membership.

A state-chartered credit union shall have the power to provide the following services to persons within its field of membership regardless of such persons' membership status:

1. Selling negotiable checks (including travelers checks), money orders, and other similar money transfer instruments (including international and domestic electronic fund transfers); and

2. Cashing checks and money orders and receiving international and domestic electronic fund transfers for a fee.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 23, Issue 18, eff. May 1, 2007.

10VAC5-40-60. Credit union service organizations (CUSOs).

A. 1. Except as otherwise provided in this section, a state-chartered credit union shall not, directly or indirectly, invest its funds or make loans pursuant to subdivision 10 of § 6.2-1376 of the Code of Virginia.

2. Except as provided in subsection H of this section, a CUSO shall not, directly or indirectly, invest any of its funds in a corporation, limited liability company, partnership, association, trust, or other legal or commercial entity unless the state-chartered credit union or credit unions having an interest in the CUSO would be permitted to directly invest its funds in such entity and the state-chartered credit union or credit unions comply with the notice requirement in subsection B and the other provisions of this section.

3. CUSOs shall not, directly or indirectly, acquire control of another depository institution, nor invest in shares, stocks, or obligations of an insurance company, trade association, liquidity facility, or similar organization, corporation, or association.

B. 1. A state-chartered credit union shall give the Commissioner of Financial Institutions (commissioner) written notice of its investment in or loans to a CUSO.

2. A state-chartered credit union may invest up to 5.0% of its outstanding shares and reserves in a CUSO. However, a state-chartered credit union's total investments in all CUSOs shall not exceed, in the aggregate, 5.0% of its outstanding shares and reserves.

3. A state-chartered credit union may make loans to a CUSO provided that the amount of the loans, when combined with the credit union's total investments in and loans to all CUSOs, does not exceed, in the aggregate, 5.0% of its outstanding shares and reserves.

4. If the limits specified above are reached or exceeded because of the profitability of the CUSO and the related GAAP valuation of the investment under the equity method, without an additional cash outlay by the state-chartered credit union, divestiture is not required. A state-chartered credit union may continue to invest up to these limits without regard to the increase in the GAAP valuation resulting from a CUSO's profitability.

5. The 5.0% limits specified in this subsection may be exceeded with prior written approval from the commissioner.

C. 1. A state-chartered credit union may invest in or make loans to a CUSO only if the CUSO is or will be structured as a corporation, limited liability company, or limited partnership. A state-chartered credit union may only participate in a limited partnership as a limited partner.

2. A state-chartered credit union may invest in or make loans to a CUSO only if the CUSO primarily serves credit unions, its membership, or the membership of credit unions contracting with the CUSO.

3. A state-chartered credit union shall account for its investments in or loans to a CUSO in conformity with GAAP.

4. A state-chartered credit union shall obtain written agreements from a CUSO, prior to investing in or making loans to the CUSO, that the CUSO shall:

a. Account for all of its transactions in accordance with GAAP;

b. Prepare quarterly financial statements and obtain an annual financial statement audit of its financial statements by a licensed certified public accountant in accordance with generally accepted auditing standards. A wholly owned CUSO is not required to obtain a separate annual financial statement audit if it is included in the annual consolidated financial statement audit of the credit union that is its parent; and

c. Provide the Bureau of Financial Institutions (bureau) and its staff with complete access to any books and records of the CUSO and the ability to review CUSO internal controls, as deemed necessary by the bureau in carrying out its responsibilities under Chapter 13 (§ 6.2-1300 et seq.) of Title 6.2 of the Code of Virginia.

5. A CUSO shall comply with all applicable federal, state, and local laws and regulations.

D. 1. A state-chartered credit union and a CUSO shall be operated in a manner that demonstrates to the public the separate existence of the state-chartered credit union and the CUSO. Good business practices dictate that each shall operate so that:

a. Its respective business transactions, accounts, and records are not intermingled;

b. Each observes the formalities of its separate company procedures;

c. Each is adequately financed as a separate unit in light of normal obligations reasonably foreseeable in a business of its size and character;

d. Each is held out to the public as a separate enterprise;

e. The state-chartered credit union does not dominate the CUSO to the extent that the CUSO is treated as a department of the credit union; and

f. Unless the state-chartered credit union has guaranteed a loan obtained by the CUSO, all borrowings by the CUSO shall indicate that the state-chartered credit union is not liable.

2. If a CUSO in which a state-chartered credit union has an investment plans to change its structure, the credit union shall obtain prior, written legal advice that the CUSO shall remain established in a manner that will limit potential exposure of the credit union to no more than the loss of funds invested in or loaned to the CUSO. The legal advice shall address factors that have led courts to "pierce the corporate veil" such as inadequate capitalization, lack of separate corporate identity, common boards of directors and employees, control of one entity over another, and lack of separate books and records. The legal advice may be provided by independent legal counsel of either the investing state-chartered credit union or the CUSO.

E. The commissioner may at any time, based upon supervisory, legal, or safety and soundness considerations, prohibit or otherwise limit any CUSO activities or services.

F. A state-chartered credit union may only invest in or make loans to CUSOs that are or will be sufficiently bonded or insured for their specific operations.

G. A state-chartered credit union may only invest in or make loans to CUSOs that are or will be engaged in activities and services that are reasonably related to the operations of credit unions, including but not limited to the following:

1. Checking and currency services (i.e., check cashing, coin and currency services, money orders, savings bonds, travelers checks, and purchase and sale of U.S. Mint commemorative coin services);

2. Clerical, professional and management services (i.e., accounting services, courier services, credit analyses, facsimile transmissions, copying services, internal audits for credit unions, locator services, management and personnel training and support, marketing services, research services, and supervisory committee audits);

3. Business loan origination;

4. Consumer mortgage loan origination and processing;

5. Electronic transaction services (i.e., automated teller machine (ATM) services, credit card and debit card services, data processing, electronic fund transfer (EFT) services, electronic income tax filing, payment item processing, wire transfer services, and cyber financial services);

6. Financial counseling services (i.e., developing and administering Individual Retirement Accounts (IRAs), Keogh, deferred compensation, and other personnel benefit plans, estate planning, financial planning and counseling, income tax preparation, investment counseling, and retirement counseling);

7. Fixed asset services (i.e., management, development, sale, or lease of fixed assets, and sale, lease, or servicing of computer hardware or software);

8. Insurance brokerage or agency (i.e., agency for sale of insurance, provision of vehicle warranty programs, and provision of group purchasing programs);

9. Leasing personal property and real estate leasing of excess CUSO property;

10. Loan support services (i.e., debt collection services, loan processing, loan servicing, loan sales, and selling repossessed collateral);

11. Record retention, security and disaster recovery services (i.e., alarm-monitoring and other security services, disaster recovery services, microfilm, microfiche, optical and electronic imaging, CD-ROM data storage and retrieval services, provision of forms and supplies, and record retention and storage);

12. Securities brokerage services;

13. Shared credit union branch (service center) operations;

14. Student loan origination;

15. Travel agency services;

16. Trust and trust-related services (i.e., acting as administrator for prepaid legal service plans, acting as trustee, guardian, conservator, estate administrator, or in any other fiduciary capacity, and other trust services); and

17. Real estate brokerage services and real estate listing services.

H. In connection with providing a permissible service, a CUSO may invest in a non-CUSO service provider. The amount of the CUSO's investment is limited to the amount necessary to participate in the service provider, or a greater amount if necessary to receive a reduced price for goods or services.

I. In order for a state-chartered credit union to invest in or make loans to a CUSO that is or will be engaged in activities or services that are not enumerated in subsection G of this section, the state-chartered credit union shall obtain prior approval from the State Corporation Commission (commission). A request for commission approval of an activity or service that is not enumerated in subsection G of this section shall be submitted in writing to the commissioner and include a full explanation and complete documentation of the activity or service and how that activity or service is reasonably related to the operations of credit unions.

J. 1. If a state-chartered credit union has outstanding loans or investments in a CUSO, then the credit union's officials, senior management employees, and their immediate family members shall not receive, either directly or indirectly, any salary, commission, investment income, or other income or compensation from the CUSO or from any person being served through the CUSO. This provision does not prohibit the credit union's officials or senior management employees from assisting in the operation of a CUSO, provided the officials or senior management employees are not compensated by the CUSO. Furthermore, the CUSO may reimburse the state-chartered credit union for the services provided by such credit union officials and senior management employees only if the account receivable of the credit union due from the CUSO is paid in full at least every 120 days.

2. The prohibition contained in subdivision 1 of this subsection also applies to state-chartered credit union employees not otherwise covered if the employees are directly involved in dealing with the CUSO, unless the state-chartered credit union's board of directors determines that the credit union's employees' positions do not present a conflict of interest.

3. All transactions with business associates or family members of state-chartered credit union officials, senior management employees, or their immediate family members that are not specifically prohibited by subdivision 1 or 2 of this subsection shall be conducted at arm's length and in the interest of the state-chartered credit union.

K. 1. A state-chartered credit union's investments in CUSOs in existence prior to July 1, 2008, shall conform with this section no later than January 1, 2009, unless the commissioner grants prior written approval to continue the credit union's investments for a stated period.

2. A state-chartered credit union's loans to CUSOs in existence prior to July 1, 2008, shall conform with this section no later than January 1, 2009, unless (i) the commissioner grants prior written approval to continue the credit union's loans for a stated period, or (ii) under the terms of its loan agreement, the credit union cannot require accelerated repayment without breaching the agreement.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 24, Issue 22, eff. July 1, 2008; amended, Virginia Register Volume 28, Issue 1, eff. September 1, 2011.

10VAC5-40-70. Low-income designated credit unions.

A. Upon the filing and investigation of a written application, the Commissioner of Financial Institutions (commissioner) shall designate a state-chartered credit union as a low-income credit union if (i) the commissioner finds that a majority of the credit union's members qualify as low-income members as defined in 12 CFR 701.34 and (ii) the National Credit Union Administration concurs with the designation. If the application filed by a credit union is denied, the commissioner shall notify the credit union of the denial and the reasons for the denial.

B. A low-income designated credit union shall have the following additional powers to the same extent, and subject to the same terms and conditions, as is authorized for federal credit unions that have obtained a low-income designation pursuant to 12 CFR 701.34:

1. To accept nonmember deposits in accordance with 12 CFR 701.32 and 12 CFR 741.204.

2. To accept secondary capital in accordance with 12 CFR 701.34 and 12 CFR 741.204.

3. To participate in the Community Development Revolving Loan Program in accordance with 12 CFR Part 705.

4. To be eligible for an exception to the aggregate loan limit on member business loans in accordance with 12 CFR 723.17 and 12 CFR 723.18.

5. To obtain funds from the Community Development Financial Institutions Fund operated by the United States Department of the Treasury.

Whenever any of the federal regulations referenced in this subsection require a credit union to submit a written request, plan, application, or other documents to the National Credit Union Administration, the credit union shall send a copy of such written request, plan, application, or other documents to the commissioner.

C. The commissioner may at any time, based upon supervisory, legal, or safety and soundness considerations, impose additional terms or conditions upon a low-income designated credit union in conjunction with its exercise of any of the powers enumerated in subsection B of this section.

D. A low-income designated credit union shall submit written reports to the commissioner containing any information that the commissioner may require concerning the credit union's services to low-income members.

E. 1. If the commissioner determines that a low-income designated credit union no longer meets the criteria for the low-income designation, the commissioner shall notify the credit union in writing. The credit union shall, within five years, meet the criteria for the designation or comply with the regulatory requirements applicable to state-chartered credit unions that do not have a low-income designation. The designation shall remain in effect during the five-year period.

2. If a credit union is unable to qualify again for the designation but has secondary capital or nonmember deposits with a maturity beyond the five-year period, the commissioner may extend the time for the credit union to comply with regulatory requirements to allow the credit union to satisfy the terms of any account agreements.

3. Within 60 days of the date of the notice from the commissioner, a credit union may appeal the commissioner's determination that the credit union no longer meets the criteria for a low-income designation to the State Corporation Commission by filing a petition in accordance with its Rules of Practice and Procedure (5VAC5-20).

4. A low-income designation shall be removed by the commissioner with the concurrence of the National Credit Union Administration.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 28, Issue 13, eff. February 15, 2012.

10VAC5-40-80. Loan participations.

Notwithstanding any provision of Chapter 13 (§ 6.2-1300 et seq.) of Title 6.2 of the Code of Virginia relating to loan participations or cooperative loans, a state-chartered credit union may purchase a participation interest in a loan to the same extent, and subject to the same terms and conditions, as is authorized for federal credit unions under 12 CFR 701.22.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 30, Issue 10, eff. January 1, 2014.

10VAC5-40-90. Benefits for employees of state-chartered credit unions.

A. A state-chartered credit union may provide employee benefits, including retirement benefits, to its employees and officers. The kind and amount of these benefits shall be reasonable given the credit union's size, financial condition, and the duties of the employees.

B. When a state-chartered credit union is the benefit plan trustee or custodian, the plan shall be authorized and maintained to the same extent, and subject to the same terms and conditions, as is authorized for federal credit unions under 12 CFR Part 724. When the benefit plan trustee or custodian is a party other than a state-chartered credit union, the benefit plan shall be maintained in accordance with applicable laws, including any applicable regulations adopted by the U.S. Department of Labor, the U.S. Department of the Treasury, or any other federal or state authority exercising jurisdiction over the plan.

C. Notwithstanding the investment limitations set forth in § 6.2-1376 of the Code of Virginia, a state-chartered credit union investing to fund an obligation under an employee benefit plan, as defined in 29 USC § 1002(3), may purchase an investment if (i) the investment is directly related to the credit union's obligation or potential obligation under the employee benefit plan and (ii) the credit union holds the investment only for as long as it has an actual or potential obligation under the employee benefit plan.

D. A state-chartered credit union may invest to fund a defined benefit plan, as defined in 29 USC § 1002(35), provided that the investment complies with subsection C of this section. If a credit union invests to fund a defined benefit plan that is not subject to the fiduciary responsibility provisions of Part 4 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 USC § 1001 et seq., it shall diversify its investment portfolio to minimize the risk of large losses unless it is clearly prudent not to do so under the circumstances.

E. A state-chartered credit union shall not occupy the position of a fiduciary, as defined in ERISA and the regulations adopted by the U.S. Department of Labor.

Statutory Authority

§§ 6.2-1303 and 12.1-13 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 30, Issue 10, eff. January 1, 2014.



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