H.R. 1537

Credit Union Regulatory Improvements Act of 2007

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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.

1.

Short title

This Act may be cited as the Credit Union Regulatory Improvements Act of 2007.

I

Capital Modernization

101.

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:

(1)

Well capitalized

(A)

In subparagraph (A)(i), by striking 7 percent and inserting 5.25 percent.

(B)

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.

(2)

Adequately capitalized

(A)

In subparagraph (B)(i), by striking 6 percent and inserting 4.25 percent.

(B)

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.

(3)

Undercapitalized

(A)

In subparagraph (C)(i), by striking 6 percent and inserting 4.25 percent.

(B)

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.

(4)

Significantly undercapitalized

By striking subparagraph (D) and inserting the following new subparagraph:

(D)

Significantly undercapitalized

An insured credit union is significantly undercapitalized if—

(i)

the credit union has a net worth ratio of less than 3.25 percent;

(ii)

the credit union has a net worth ratio of less than 4.25 percent and either—

(I)

fails to submit an acceptable net worth restoration plan within the time allowed under subsection (f); or

(II)

materially fails to implement a net worth restoration plan approved by the Board; or

(iii)

the credit union has a risk-based net worth ratio of less than 6 percent.

.

(5)

Relevant capital measures

Section 216(c)(2) is amended by striking leverage limit each place such term appears and inserting relevant capital measures.

(6)

Adjustment by federal deposit insurance corporation

Section 216(c)(2)(A) is amended—

(A)

by striking Federal banking agencies increase or decrease and inserting Federal Deposit Insurance Corporation increases or decreases one of ; and

(B)

by striking level each place such term appears and inserting levels.

(7)

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.

(8)

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.

102.

Amendments relating to risk-based net worth requirements

(a)

In general

Section 216(d) of the Federal Credit Union Act (12 U.S.C. 1790d(d)) is amended—

(1)

in paragraph (1)—

(A)

by striking that are complex, as defined by the Board; and

(B)

by inserting , as defined by the Board before the period at the end; and

(2)

by striking paragraph (2) and inserting the following new paragraph:

(2)

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.

.

(b)

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.

103.

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.

104.

Definitions relating to net worth

(a)

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.

(b)

Net worth ratio

Paragraph (3) of section 216(o) of the Federal Credit Union Act (12 U.S.C. 1790d(o)(3)) is amended—

(1)

by inserting minus its deposit in the Fund, after net worth of the credit union; and

(2)

by inserting minus its deposit in the Fund after total assets of the credit union.

(c)

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:

(5)

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.

.

105.

Amendments relating to net worth restoration plans

(a)

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.

(b)

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:

(e)

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—

(1)

material safety and soundness concerns caused the credit union to become less than well capitalized; and

(2)

the safety and soundness concerns remain unresolved.

.

(c)

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—

(1)

by inserting order the credit union to before take such other action; and

(2)

by inserting , in the discretion of the Board, after as the Board.

(d)

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—

(1)

by striking calendar quarter and inserting 90 calendar days; and

(2)

by inserting first after the date on which the credit union.

(e)

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.

II

Economic Growth

201.

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..

202.

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.

203.

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.

204.

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.

205.

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—

(1)

by striking and at the end of paragraph (16);

(2)

by redesignating paragraph (17) as paragraph (18); and

(3)

by inserting after paragraph (16) the following new paragraph:

(17)

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

.

206.

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—

(1)

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),;

(2)

by striking subparagraph (A) and inserting the following new subparagraph:

(A)

the Board determines, at any time after August 7, 1998, that the local community, neighborhood, or rural district is an underserved area; and

; and

(3)

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.

207.

Underserved area defined

Section 101 of the Federal Credit Union Act (12 U.S.C. 1752) is amended—

(1)

by striking and at the end of paragraph (8);

(2)

by striking the period at the end of paragraph (9) and inserting ; and; and

(3)

by adding at the end the following new paragraph:

(10)

the term underserved area means a geographic area consisting of one or more population census tracts, that encompass or are located within—

(A)

an investment area designated under section 103(16) of the Community Development or Banking and Financial Institutions Act of 1994; or

(B)

a low income community, as defined in section 45D(e) of the Internal Revenue Code of 1986.

.

III

Regulatory Modifications

301.

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:

(b)

Investment for the credit union’s own account

(1)

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.

(2)

Percentage limitations

(A)

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.

(B)

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.

(3)

Investment security defined

(A)

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.

(B)

Further definition by Board

The Board may further define the term investment security.

(4)

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.

(5)

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.

.

302.

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.

303.

Increase in lending and investment limits in credit union service organizations

(a)

Lending

The 1st sentence of section 107(5)(D) of the Federal Credit Union Act (12 U.S.C. 1757(5)(D)) is amended—

(1)

by striking up to 1 per centum of the total paid-in and inserting up to 2 percent of the total paid-in; and

(2)

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.

(b)

Investing

Section 107(7)(I) of the Federal Credit Union Act (12 U.S.C. 1757(7)(I)) is amended—

(1)

by striking up to 1 per centum of the total paid and inserting up to 2 percent of the total paid; and

(2)

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.

304.

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:

(C)

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.

.

305.

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:

(3)

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.

.

306.

Credit union governance

(a)

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:

(b)

Policy and actions of boards of directors of Federal credit unions

(1)

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.

(2)

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—

(A)

each existing member of the credit union not less than 30 days prior to the effective date of such policy; and

(B)

each new member prior to or upon applying for membership.

.

(b)

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..

307.

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.

308.

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—

(1)

by redesignating subparagraphs (E), (F), and (G) as subparagraphs (F), (G), and (H), respectively;

(2)

by inserting after subparagraph (D) the following new subparagraph:

(E)

Conversion voting requirements

(i)

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.

(ii)

Special membership meeting

An insured credit union which provides notices to its members under subparagraph (C) of a proposed conversion shall—

(I)

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

(II)

include a notice of such meeting in the notices provided under subparagraph (C).

(iii)

Prohibition on incentives

An insured credit union proposing to convert under subparagraph (A)—

(I)

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

(II)

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

(3)

by striking the ultimate sentence of subparagraph (B).

309.

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.