I
110th CONGRESS
1st Session
H. R. 1537
IN THE HOUSE OF REPRESENTATIVES
March 15, 2007
Mr. Kanjorski (for himself, Mr. Royce, Mrs. Maloney of New York, Mr. LaTourette, Mr. Sherman, Mr. Burton of Indiana, Mr. Gutierrez, Mr. Paul, Mrs. Napolitano, Mr. Chabot, Mr. Ortiz, and Mr. Calvert) introduced the following bill; which was referred to the Committee on Financial Services
A BILL
To modernize credit union net worth standards, advance credit union efforts to promote economic growth, and modify credit union regulatory standards and reduce burdens, and for other purposes.
Short title
This Act may be cited as the Credit Union Regulatory Improvements Act of 2007
.
Capital Modernization
Amendments to net worth categories
Section 216(c)(1) of the Federal Credit Union Act (12 U.S.C. 1790d(c)(1)) is amended as follows:
Well capitalized
In subparagraph (A)(i), by striking 7 percent
and inserting 5.25 percent
.
In subparagraph (A)(ii), by striking it meets any applicable risk-based net worth requirement under subsection (d) of this section
and inserting it has a risk-based net worth ratio of not less than 10 percent
.
Adequately capitalized
In subparagraph (B)(i), by striking 6 percent
and inserting 4.25 percent
.
In subparagraph (B)(ii), by striking it meets any applicable risk-based net worth requirement under subsection (d) of this section
and inserting it has a risk-based net worth ratio of not less than 8 percent
.
Undercapitalized
In subparagraph (C)(i), by striking 6 percent
and inserting 4.25 percent
.
In subparagraph (C)(ii), by striking it fails to meet any applicable risk-based net worth requirement under subsection (d)
and inserting it has a risk-based net worth ratio of less than 8 percent
.
Significantly undercapitalized
By striking subparagraph (D) and inserting the following new subparagraph:
Significantly undercapitalized
An insured credit union is significantly undercapitalized
if—
the credit union has a net worth ratio of less than 3.25 percent;
the credit union has a net worth ratio of less than 4.25 percent and either—
fails to submit an acceptable net worth restoration plan within the time allowed under subsection (f); or
materially fails to implement a net worth restoration plan approved by the Board; or
the credit union has a risk-based net worth ratio of less than 6 percent.
.
Relevant capital measures
Section 216(c)(2) is amended by striking leverage limit
each place such term appears and inserting relevant capital measures
.
Adjustment by federal deposit insurance corporation
Section 216(c)(2)(A) is amended—
by striking Federal banking agencies increase or decrease
and inserting Federal Deposit Insurance Corporation increases or decreases one of
; and
by striking level
each place such term appears and inserting levels
.
Adjusting net worth levels
Section 216(c)(2)(A) is amended by striking not more than the difference between the required minimum level most recently established by the Federal banking agencies and 4 percent of total assets (with respect to institutions regulated by those agencies)
and inserting the increase or decrease made by the Federal Deposit Insurance Corporation
.
Consultation with federal deposit insurance corporation
Section 216(c)(2)(B)(i) is amended by striking Federal banking agencies
and inserting Federal Deposit Insurance Corporation
.
Amendments relating to risk-based net worth requirements
In general
Section 216(d) of the Federal Credit Union Act (12 U.S.C. 1790d(d)) is amended—
in paragraph (1)—
by striking that are complex, as defined by the Board
; and
by inserting , as defined by the Board
before the period at the end; and
by striking paragraph (2) and inserting the following new paragraph:
Standard
The Board shall design the risk-based net worth requirement to take account of any material risks as defined by the Board applicable to insured credit unions that are taken account of by comparable standards applicable to institutions insured by the Federal Deposit Insurance Corporation.
.
Technical and conforming amendment
The heading for subsection (d) of section 216 of the Federal Credit Union Act (12 U.S.C. 1790d(d)) is amended by striking for Complex Credit Unions
.
Treatment based on other criteria
Section 216(h)(2) of the Federal Credit Union Act (12 U.S.C. 1790d(h)(2)) is amended by inserting , except to reclassify an insured credit union into the next lower net worth category, based on interest rate risk, to the extent any such reclassification by a delegatee may be reviewed by the Board,
after to reclassify an insured credit union into a lower net worth category
.
Definitions relating to net worth
Secondary capital accounts for purposes of determining net worth
Section 216(o)(2)(B) of the Federal Credit Union Act (12 U.S.C. 1790d(o)(2)(B)) is amended by inserting , subject to limitations set by the Board to address the safe and sound use of secondary capital to carry out the purpose of this section,
after secondary capital accounts
.
Net worth ratio
Paragraph (3) of section 216(o) of the Federal Credit Union Act (12 U.S.C. 1790d(o)(3)) is amended—
by inserting minus its deposit in the Fund,
after net worth of the credit union
; and
by inserting minus its deposit in the Fund
after total assets of the credit union
.
Risk-based net worth ratio
Section 216(o) of the Federal Credit Union Act (12 U.S.C. 1790d)(o)) is amended by inserting after paragraph (4) the following new paragraph:
Risk-based net worth ratio
The term risk-based net worth ratio
means, with respect to any credit union, the ratio of the net worth of the credit union, plus any loan loss reserves (subject to limitations established by the Board) and minus the credit union’s deposit in the Fund, to the risk assets of the credit union, as defined by the Board.
.
Amendments relating to net worth restoration plans
Temporary waiver of net worth restoration plan requirement in response to disasters
Subsection 216(f)(1) of the Federal Credit Union Act (12 U.S.C. 1790d(f)(1)) is amended by striking Each insured credit union
and inserting Except as determined by the Board in the case of a credit union that becomes or remains no less than undercapitalized due to the impact of a major natural or man-made disaster, each insured credit union
.
Net worth restoration requirement for credit unions that are not well capitalized
Section 216(e) of the Federal Credit Union Act (12 U.S.C. 1790d(e) is amended to read as follows:
Net worth restoration plan requirement applicable to credit unions that are not well capitalized
The Board may require an insured credit union that is not well capitalized to submit a net worth restoration plan, as required under subsection (f), if—
material safety and soundness concerns caused the credit union to become less than well capitalized; and
the safety and soundness concerns remain unresolved.
.
Board action may include order to credit union
Subparagraph (B) of section 216(i)(1) of the Federal Credit Union Act (12 U.S.C. 1790d(i)(1)(B)) is amended—
by inserting order the credit union to
before take such other action
; and
by inserting , in the discretion of the Board,
after as the Board
.
Substitution of 90 calendar days
Subparagraph (A) of section 216(i)(3) of the Federal Credit Union Act (12 U.S.C. 1790d(i)(3)(A)) is amended—
by striking calendar quarter
and inserting 90 calendar days
; and
by inserting first
after the date on which the credit union
.
Clarification of coordination requirement
Clause (ii) of section 216(l)(3)(A) of the Federal Credit Union Act (12 U.S.C. 1790d(l)(3)(A)) is amended by inserting if the Board determines that such action by the official will carry out the purpose of this section
.
Economic Growth
Limits on member business loans
Section 107A(a) of the Federal Credit Union Act (12 U.S.C. 1757a(a)) is amended by striking the lesser of—
and all that follows and inserting 20 percent of the total assets of the credit union.
.
Definition of member business loan
Section 107A(c)(1)(B)(iii) of the Federal Credit Union Act (12 U.S.C. 1757a(c)(1)(B)(iii)) is amended by striking $50,000
and inserting an amount, not to exceed $100,000, that the Board shall prescribe by regulation
.
Restriction on member business loans
Section 216(g)(2) of the Federal Credit Union Act (12 U.S.C. 1790d(g)(2)) is amended by striking until such time as the credit union becomes adequately capitalized
and inserting unless otherwise approved by the Board
.
Member business loan exclusion for loans to nonprofit religious organizations
Section 107A(a) of the Federal Credit Union Act (12 U.S.C. 1757a(a)) is amended by inserting , excluding loans made to nonprofit religious organizations,
after total amount of such loans
.
Credit unions authorized to lease space in buildings in credit union offices in underserved areas
Section 107 of the Federal Credit Union Act (12 U.S.C. 1757) is amended—
by striking and
at the end of paragraph (16);
by redesignating paragraph (17) as paragraph (18); and
by inserting after paragraph (16) the following new paragraph:
with regard to any building purchased or constructed by the credit union for a credit union office or credit union operations in an underserved area, to lease office space in such building that is separate and clearly distinct from any office or operation of the credit union to any business enterprise, subject to such regulations the Board may prescribe, taking into account the safety and soundness of the credit union; and
.
Amendments relating to credit union service to underserved areas
Paragraph (2) of section 109(c) of the Federal Credit Union Act (12 U.S.C. 1759(c)(2)) is amended—
in that portion of the paragraph that precedes subparagraph (A), by striking the field of membership category of which is described in subsection (b)(2),
;
by striking subparagraph (A) and inserting the following new subparagraph:
the Board determines, at any time after August 7, 1998, that the local community, neighborhood, or rural district is an underserved area; and
; and
in subparagraph (B), by inserting not later than 2 years of having an underserved area added to the credit union’s charter
before the credit union
.
Underserved area defined
Section 101 of the Federal Credit Union Act (12 U.S.C. 1752) is amended—
by striking and
at the end of paragraph (8);
by striking the period at the end of paragraph (9) and inserting ; and
; and
by adding at the end the following new paragraph:
the term underserved area
means a geographic area consisting of one or more population census tracts, that encompass or are located within—
an investment area designated under section 103(16) of the Community Development or Banking and Financial Institutions Act of 1994; or
a low income community, as defined in section 45D(e) of the Internal Revenue Code of 1986.
.
Regulatory Modifications
Investments in securities by Federal credit unions
Section 107 of the Federal Credit Union Act (12 U.S.C. 1757) (as amended by section 205 of this Act) is amended by inserting after subsection (a) the following new subsection:
Investment for the credit union’s own account
In general
In addition to the investments authorized in subsection (a), a Federal credit union may purchase and hold for its own account such investment securities of investment grade as the Board may authorize by regulation, subject to such limitations and restrictions as the Board may prescribe in the regulations.
Percentage limitations
Single obligor
In no event may the total amount of investment securities of any single obligor or maker held by a Federal credit union for the credit union’s own account exceed at any time an amount equal to 10 percent of the net worth of the credit union.
Aggregate investments
In no event may the aggregate amount of investment securities held by a Federal credit union for the credit union’s own account exceed at any time an amount equal to 10 percent of the assets of the credit union.
Investment security defined
In general
For purposes of this subsection, the term investment security means marketable obligations evidencing the indebtedness of any person in the form of bonds, notes, or debentures and other instruments commonly referred to as investment securities.
Further definition by Board
The Board may further define the term investment security.
Investment grade defined
The term investment grade means with respect to an investment security purchased by a credit union for its own account, an investment security that at the time of such purchase is rated in one of the 4 highest rating categories by at least 1 nationally recognized statistical rating organization.
Clarification of prohibition on stock ownership
No provision of this subsection shall be construed as authorizing a Federal credit union to purchase shares of stock of any corporation for the credit union’s own account, except as otherwise permitted by law.
.
Authority of NCUA to establish longer maturities for certain credit union loans
Section 107(5) of the Federal Credit Union Act (12 U.S.C. 1757(5)) is amended in the matter preceding subparagraph (A), by striking except as otherwise provided herein
and inserting or any longer maturity as the Board may allow, in regulations
.
Increase in lending and investment limits in credit union service organizations
Lending
The 1st sentence of section 107(5)(D) of the Federal Credit Union Act (12 U.S.C. 1757(5)(D)) is amended—
by striking up to 1 per centum of the total paid-in
and inserting up to 2 percent of the total paid-in
; and
by inserting , except that the percentage limitation on any such loans by any credit union may be reduced by order of the Board when the Board determines such reduction is appropriate to preserve the safety and soundness of the credit union
before the period at the end.
Investing
Section 107(7)(I) of the Federal Credit Union Act (12 U.S.C. 1757(7)(I)) is amended—
by striking up to 1 per centum of the total paid
and inserting up to 2 percent of the total paid
; and
by inserting , and such approval authority includes the authority to reduce the percentage limitation on any such investment by any credit union if the Board determines such reduction is appropriate to preserve the safety and soundness of the credit union
after with the approval of the Board
.
Voluntary mergers involving multiple common-bond credit unions
Section 109(d)(2) of the Federal Credit Union Act (12 U.S.C. 1759(d)(2)) is amended by striking subparagraph (C) and inserting the following new subparagraph:
any group transferred in connection with a voluntary merger of any such Federal credit union with another insured credit union, as approved by the Board on or after August 7, 1998, in accordance with guidelines and regulations issued under section 120.
.
Conversions of certain credit unions to a community charter
Section 109(g) of the Federal Credit Union Act (12 U.S.C. 1759(g)) is amended by inserting after paragraph (2) the following new paragraph:
Criteria for continued membership of certain member groups in community charter conversions
In the case of a voluntary conversion of a credit union described in paragraph (1) or (2) of subsection (b) into a community credit union described in subsection (b)(3), the Board shall prescribe, by regulation, the criteria under which the Board may determine that a member group or other portion of a credit union’s existing membership, that is located outside the well-defined local community, neighborhood, or rural district that shall constitute the community charter, can be satisfactorily served by the credit union and remain within the community credit union’s field of membership permitting new members to be added from such groups.
.
Credit union governance
Expulsion of members for just cause
Subsection (b) of section 118 of the Federal Credit Union Act (12 U.S.C. 1764(b)) is amended to read as follows:
Policy and actions of boards of directors of Federal credit unions
Expulsion of members for nonparticipation or for just cause
The board of directors of a Federal credit union may, by majority vote of a quorum of directors, adopt and enforce a policy with respect to expulsion from membership, by a majority vote of such board of directors, based on just cause, including disruption of credit union operations, or on nonparticipation by a member in the affairs of the credit union.
Written notice of policy to members
If a policy described in paragraph (1) is adopted, written notice of the policy as adopted and the effective date of such policy shall be provided to—
each existing member of the credit union not less than 30 days prior to the effective date of such policy; and
each new member prior to or upon applying for membership.
.
Term limits authorized for Board members of Federal credit unions
Section 111(a) of the Federal Credit Union Act (12 U.S.C. 1761(a)) is amended by adding at the end the following new sentence: The bylaws of a Federal credit union may limit the number of consecutive terms any person may serve on the board of directors of such credit union.
.
Providing the national credit union administration with greater flexibility in responding to market conditions
Section 107(5)(A)(vi)(I) of the Federal Credit Union Act (12 U.S.C. 1757(5)(A)(vi)(I)) is amended by striking six-month period and that prevailing interest rate levels
and inserting 6-month period or that prevailing interest rate levels
.
Credit union conversion voting requirements
Section 205(b)(2) of the Federal Credit Union Act (12 U.S.C. 1785(b)(2)(B)) is amended—
by redesignating subparagraphs (E), (F), and (G) as subparagraphs (F), (G), and (H), respectively;
by inserting after subparagraph (D) the following new subparagraph:
Conversion voting requirements
In general
Approval of a proposal for conversion in an election set by a majority of the directors of an insured credit union under subparagraph (B) shall be by the affirmative vote of a majority of the members of the insured credit union who vote on the proposal, in a vote in which at least 30 percent of the credit union membership participates.
Special membership meeting
An insured credit union which provides notices to its members under subparagraph (C) of a proposed conversion shall—
hold a special meeting of the membership to provide information regarding the proposal at least 30 days before making any ballots available to its members; and
include a notice of such meeting in the notices provided under subparagraph (C).
Prohibition on incentives
An insured credit union proposing to convert under subparagraph (A)—
is expressly prohibited from using or providing any incentive in any form of prize raffles, contests, giveaways, or other voting incentives in connection with the member vote on conversion; and
may make no mention of any incentive in the notices to members or in other materials it sends or otherwise communicates to members pursuant to subparagraph (C).
; and
by striking the ultimate sentence of subparagraph (B).
Exemption from pre-merger notification requirement of the Clayton Act
Section 7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7)) is amended by inserting section 205(b)(3) of the Federal Credit Union Act (12 U.S.C. 1785(b)(3)),
before or section 3
.