Current through Register Vol. 50, No. 3, March 20, 2024
A. Scope. Sections
644(B)(3)(d) of Title 6 of the Louisiana Revised Statutes authorize
state-chartered credit unions to invest in and make loans to credit union
service organizations. This rule implements that statute by addressing various
issues, including monetary limits on loans and investments, the structure of
credit union service organizations, their customer base, and the range of
services and activities that they may provide. The rule also establishes
prudent standards for a state-chartered credit union's involvement with credit
union service organizations, through provisions concerning conflicts of
interest, accounting practices, and access by the Office of Financial
Institutions to books and records. The rule applies only in cases where one or
more state-chartered credit unions have invested in or made loans to an
organization pursuant to Section 644(B)(3)(d) The rule does not regulate credit
union service organizations directly; instead, it establishes conditions of
state-chartered credit union investments in and loans to such
organizations.
B. Limits Imposed by
R.S.
6:644(B)(4)(d) and
R.S.
6:656(A)(4). The provisions
of Chapter 8, Title 6, Louisiana Revised Statutes, Credit Unions:
1. authorize a state-chartered credit union
to invest in shares, stocks, loans, or other obligations of credit union
service organizations in amounts not exceeding, in the aggregate, 1 percent of
the credit union's paid-in and unimpaired capital and surplus;
2. authorize a state-chartered credit union
to make loans to credit union service organizations in amounts not exceeding,
in the aggregate, one percent of the credit union's paid-in and unimpaired
capital and surplus;
3. require
that a credit union service organization's activities be confined or restricted
to credit unions and exist primarily to meet the needs of their member credit
unions, and whose business relates to the daily operations of the credit unions
they serve; and
4. require that a
state-chartered credit union's investment in or loan to a credit union service
organization must receive the prior approval of the board of directors and
documented in its official minutes.
C. Definitions
Affiliated Credit Union- a credit union
which has either invested in or made loans to a credit union service
organization.
Immediate Family Member- a spouse or other
family member living in the same household.
Official- any director or committee
member.
Paid-in and Unimpaired Capital and
Surplus-shares and undivided earnings.
Senior Management Employee- the credit
union's president, vice president, secretary, treasurer, chief executive
officer, any assistant chief executive officers, the chief financial officer,
or any other elected officer of an affiliated credit union.
D. Regulatory Provisions
1. Limits on Funding. A state-chartered
credit union, either alone or with other credit unions and/or with
non-credit-union parties, may invest in and/or lend to a credit union service
organization. A state credit union's investment in paid-in and unimpaired
capital and surplus of a credit union service organization may not exceed, in
the aggregate, one percent of the credit union's capital and surplus as of its
last calendar year-end financial report. In addition, a state-chartered credit
union's loans to credit union service organizations may not exceed, in the
aggregate, one percent of the credit union's paid-in and unimpaired capital and
surplus as of its last calendar year-end financial report.
2. Structure. A state-chartered credit union
may invest in or lend to a credit union service organization only if the
organization is structured as a corporation or a limited partnership.
a. Corporation. A credit union service
organization chartered as a corporation or limited liability company must be
adequately capitalized and operated as a separate entity. A state-chartered
credit union investing in or lending to such a corporation must take all steps
necessary to ensure that it will not be held liable for obligations of the
corporation.
b. Limited
Partnership. A state-chartered credit union may participate only as a limited
partner in a credit union service organization structured as a limited
partnership or registered limited liability partnership. As a limited partner,
the credit union must not engage in those activities (e.g., control,
management, decision making), which, under state law, would cause the credit
union to lose its status as a limited partner, and, correspondingly, its
limited liability, and be treated as a general partner.
3. Legal Opinion. A state-chartered credit
union making an investment in or loan to a credit union service organization
must obtain written legal advice as to whether the credit union service
organization is established in a manner that will limit the credit union's
potential exposure to no more than the loss of funds invested in or lent to the
credit union service organization.
4. Customer Base. A state-chartered credit
union may invest in or loan to a credit union service organization only if the
organization primarily serves credit unions and/or the membership of
affiliated credit unions, as defined in Subsection C of this
Section.
5. Permissible Services
and Activities
a. A state-chartered credit
union may invest in and/or loan to those credit union service organizations
which provide only one or more of the following services and activities.
i. Operational Services. Credit card and
debit card services; check cashing and wire transfers; internal audits for
credit unions; ATM services; EFT services; data processing; shared credit union
branch (service center) operations; sale of repossessed collateral; management,
development, sale or lease of fixed assets; sale, lease or servicing of
computer hardware or software; management and personnel training and support;
payment item processing; locator services; marketing services; research
services; record retention and storage; microfilm, microfiche, and optical disk
services; alarm monitoring and other security services; debt collection
services; credit analysis; consumer mortgage loan origination; loan processing,
servicing and sales; coin and currency services; provision for forms and
supplies.
ii. Financial Services.
Financial services are limited to those activities as enumerated in 12 CFR
§701.27 (d)(5)(ii), and approved for federally-chartered credit unions
operating in the state.
b. Additional services or activities must be
approved by the Commissioner of Financial Institutions before a state-chartered
credit union may invest in or loan to the credit union service organization
that offers the service or activity.
6. Conflict of Interest
a. Individuals who serve as officials of, or
senior management employees of an affiliated state-chartered credit union, as
defined in Subsection C of this Section, and immediate family members of such
individuals, may not receive any salary, commission, investment income, or
other income or compensation from a credit union service organization, either
directly or indirectly, or from any person being served through the credit
union service organization. This provision does not prohibit an official or
senior management employee of a state-chartered credit union from serving on
the board of directors of a credit union service organization, provided the
individual is not compensated by the credit union service
organization.
b. The prohibition
contained in Subparagraph D.6.a of this Section also applies to any affiliated
state-chartered credit union employee not otherwise covered if that employee is
directly involved in dealing with the credit union service organization, unless
the board of directors determines that the employee's position does not present
a conflict of interest.
c. All
transactions with business associates or family members not specifically
prohibited by Subparagraphs D.6.a-c must be conducted at arm's length and in
the interest of the credit union.
7. Accounting Procedures; Access to
Information
a. Credit Union Accounting. A
state-chartered credit union must follow Generally Accepted Accounting
Principles (GAAP) in its involvement with credit union service
organizations.
b. Credit Union
Service Organization Accounting; Audits and Financial Statements; OFI Access to
Books and Records. An affiliated state-chartered credit union must obtain
written agreements from a credit union service organization, prior to investing
in or lending to the organization, that the organization will:
i. follow GAAP;
ii. render financial statements (balance
sheet and income statement) at least quarterly and obtain a certified public
accountant audit annually and provide copies of such to the affiliated
state-chartered credit union; and
iii. provide the Commissioner of Financial
Institutions, or his designated representatives, with complete access to any
books and records of the credit union service organization, as deemed necessary
in carrying out his responsibilities under the Louisiana Credit Union
Law;
iv. notwithstanding the
examinations fees, authorized by
R.S.
6:646(B)(4), the
commissioner may charge a fee of $50 per hour per examiner for the purpose of
determining whether an affiliated state-chartered credit union and the credit
union service organization are in compliance with the Louisiana Credit Union
Law and this rule. The cost of any such compliance review shall be billed
directly to the credit union service organization.
E. Other Laws. A credit
union service organization must comply with applicable state, federal and local
laws.
F. Effective Date. This rule
shall become effective on October 20, 1994.
AUTHORITY NOTE:
Promulgated in accordance with
R.S.
6:121(B)(1).
