Current through Reg. 49, No. 38; September 20, 2024
(a)
General. No credit union may issue certificates of indebtedness pursuant to
this section or amend the terms of such certificates unless it has obtained a
written letter from the commissioner stating that the commissioner does not
object ("non-objection letter"). All requirements of the provisions of this
section must be met before a non-objection letter will be issued.
(b) Form of application; supporting
information. Applications must be in the form prescribed by the commissioner
and shall include all information and exhibits required by the application
instructions.
(c) Requirements as
to certificates. Certificates of Indebtedness issued pursuant to this section
shall meet all of the following requirements:
(1) Form of certificate. Each certificate
evidencing subordinated debt issued by a credit union pursuant to this section
shall:
(A) Bear on its face, in bold-face
type, the following legends:
(i) "This
certificate is not a share account or deposit and it is not insured by the
United States or any other insuring organization or fund"; and
(ii) "This certificate is not eligible for
purchase by any credit union or a credit union service organization thereof
without the prior written approval of the Credit Union Commissioner of the
State of Texas."
(B)
Clearly state that the certificate--
(i) Is
subordinated to all other claims of the credit union's creditors;
(ii) Is totally unsecured; and
(iii) May not be used as collateral for any
loan by the issuing credit union.
(C) Shall include within its terms the right
of the issuing credit union to prepay the obligation, which shall, at a
minimum, include the right to prepay any amount without premium or penalty any
time during the fifteen months prior to the maturity date;
(D) Shall contain the following statement:
"Notwithstanding anything to the contrary in this certificate (or in any
related documents);
(i) if the NCUA or other
insuring organization shall be appointed liquidating agent for the issuer of
this certificate ("the issuer") and in its capacity as such shall cause the
issuer to merge with or into another credit union, or in such capacity shall
sell or otherwise convey part or all of the assets of the issuer to another
credit union or shall arrange for the assumption of less than all of the
liabilities of the issuer by one or more credit unions, the NCUA or other
insuring organization shall have no obligation, either in its capacity as
liquidating agent or in its corporate capacity, to contract for or to otherwise
arrange for the assumption of the obligations represented by this certificate
in whole or in part by any credit union or credit unions which results from any
such merger or which has purchased or otherwise acquired from the NCUA or other
insuring organization as liquidating agent for the issuer, any of the assets of
the issuer, or which, pursuant to any arrangement with the NCUA or insuring
organization, has assumed less than all of the liabilities of the issuer. To
the extent that obligations represented by this certificate have not been
assumed in full by a credit union with or into which the issuer may have been
merged, as described in this paragraph (A), and/or by one or more credit unions
which have succeeded to all or a portion of the assets of the issuer, or which
have assumed a portion but not all of the liabilities of the issuer as a result
of one or more transactions entered into by the NCUA or other insuring
organization as liquidating agent for the issuer, then the holder of this
certificate shall be entitled to payments on this obligation in accordance with
the procedures and priorities set forth in any applicable law.
(ii) In the event that the obligation
represented by this certificate is assumed in full by another credit union,
which shall succeed by merger or otherwise to substantially all of the assets
and the business of the issuer, or which shall by arrangement with the NCUA or
insuring organization assume all or a portion of the liabilities of the issuer,
and payment or provision for shall have been made in respect of all matured
installments of interests upon the certificates together with all matured
installments of principal on such certificates which shall have become due
otherwise than by acceleration, than any default caused by the appointment of a
liquidating agent for the issuer shall be deemed to have been cured, and any
declaration consequent upon such default declaring the principal and interest
on the certificate to be immediately due and payable shall be deemed to have
been rescinded.
(iii) This
certificate is not eligible to be purchased or held by any credit union or
credit union service organization thereof. The issuer of this certificate may
not recognize on its transfer books any transfer made to a credit union or any
credit union service organization thereof and will not be obligated to make any
payments of principal or interest on this certificate if the owner of this
certificate is a credit union or any credit union service organization
thereof."
(2)
Limitations as to term and prepayment.
(A) No
certificate of indebtedness issued by a credit union pursuant to this section
shall have an original period to maturity of less than seven years. During the
first six years that such a certificate is outstanding, the total of all
required sinking fund payments, other required prepayments, and required
reserve allocations with respect to the portion of such six years as have
elapsed shall at no time exceed the original principal amount or original
redemption price, thereof multiplied by a fraction, the numerator of which is
the number of years that have elapsed since the issuance of the certificate and
the denominator of which is the number of years covered by the original period
to maturity.
(B) No voluntary
prepayment of principal shall be made and no payment of principal shall be
accelerated without the approval of the commissioner if the credit union's net
worth ratio is below 6% or, if after giving effect to such payment, the credit
union's net worth ratio would fall below 6%.
(d) Offering circular. The credit union shall
submit the proposed offering circular to the Department. The offering circular
must state the following in bold print: "These certificates have not been
approved by the Texas Credit Union Department nor has the Texas Credit Union
Department approved this offering circular."
(e) Supervisory objection. Generally, the
commissioner will not issue a non-objection letter where:
(1) The proposed issue fails to transfer risk
away from the National Credit Union Share Insurance Fund or other insuring
organization and onto the certificate holders.
(2) Information submitted in connection with
the application or otherwise available to the Department indicates that the
credit union will not be able to service the proposed debt. Evaluation of the
issuer's ability to service debt should be prospective, based upon the issuer's
business plan.
(3) The ratio of
subordinated debt included as equity capital to the credit union's net worth
requirements exceeds one-third, after giving effect to the proposed
issue.
(4) The proposed deployment
of the proceeds of the proposed issue is contrary to the credit union's
business plan, is unrealistic in its assumptions, or is inconsistent with the
principles of safety and soundness.
(5) The credit union has failed to comply
with the terms and conditions imposed upon previous subordinated debt
issuances, or has failed to comply with any outstanding enforcement action,
written agreement or any other significant supervisory requirement.
(f) Additional requirements. The
commissioner may impose on the credit union such requirements or conditions
with regard to certificates or the offering or issuance thereof as the
commissioner may deem necessary or desirable for the protection of purchasers,
the credit union, the National Credit Union Share Insurance Fund, or other
insuring organization, as the case may be.
(g) Limitation on offering period. Following
the date of the issuance of a non-objection letter, the credit union shall have
an offering period of not more than one year in which to complete the sale of
the certificates of indebtedness issued pursuant to this section. The
commissioner may in his discretion extend such offering period if a written
request showing good cause for such extension is filed with the Department not
later than 30 days before the expiration of such offering period or any
previous extension thereof.
(h)
Policies and Procedures. Before any offers or sales of the certificates are
made on the premises of the credit union or its credit union service
organization, the credit union shall submit to the Department a set of polices
and procedures for such sale of certificates that is satisfactory to the
Department.
(i) Records. A credit
union shall establish and maintain certificate of indebtedness documentation
practices and records that demonstrate the credit union appropriately
administers and monitors certificate of indebtedness-related activities. The
credit union's records should adequately evidence ownership, balances, and all
transactions involving each certificate. The credit union may maintain records
on certificate of indebtedness activities in any format that is consistent with
standard business practices.
(j)
Disclosures.
(1) In connection with the
purchase of a certificate of indebtedness by a person from the issuing credit
union or its credit union service organization, the credit union and/or the
credit union service organization must disclose to the person that:
(A) The certificate of indebtedness is not a
share or deposit;
(B) The
certificate of indebtedness is not insured by the National Credit Union Share
Insurance Fund or any other insuring organization;
(C) There is investment risk associated with
the certificate of indebtedness, including the possible loss of value;
and
(D) The credit union may not
condition an extension of credit on a person's purchase of a certificate of
indebtedness.
(2) The
disclosures required by paragraph (1) above must be provided orally and in
writing before the completion of the sale of a certificate of indebtedness. If
the sale of a certificate of indebtedness is conducted by telephone, the credit
union may provide the written disclosure required by paragraph (1) by mail
within three business days beginning the first business day after the sale,
solicitation, or offer.
(3) A
credit union may provide the written disclosures required by paragraph (1)
through electronic media instead of on paper, if the person affirmatively
consents to receiving the disclosures electronically and if the disclosures are
provided in a format that the person may retain or obtain later, for example,
by printing or storing electronically (such as by downloading).
(4) The disclosures provided shall be
conspicuous and designed to call attention to the nature and significance of
the information provided.
(k) Sales Activities. A credit union must, to
the extent practicable:
(1) Keep the area
where the credit union conducts transactions involving certificate of
indebtedness physically segregated from areas where shares and deposits are
routinely accepted from members;
(2) Identify the area where certificate of
indebtedness activities occur; and
(3) Clearly delineate and distinguish those
areas from the areas where the credit union's share- and deposit-taking
activities occur.
(l)
Referrals. Any person who accepts deposits from members in an area where such
transactions are routinely conducted in a credit union may refer a member who
seeks to purchase a certificate of indebtedness to a qualified person who sells
that product only if the person making the referral receives no additional
compensation for making the referral.
(m) Reports. Within 30 days after completion
of the sale of the subordinated debt issued pursuant to this section, the
credit union shall transmit a written report to the Department stating the
number of purchases, the total dollar amount of certificates sold, and the
amount of net proceeds received by the credit union. The credit union's report
shall clearly state the amount of subordinated debt, net of all expenses that
the credit union intends to have counted as equity capital. In addition, the
credit union, shall submit to the Department, certification of compliance with
all applicable laws and regulations in connection with the offering, issuance,
and sale of the certificates.
(n)
Equity capital. When a certificate of indebtedness has a remaining maturity of
5 years, the amount of the certificates that may be considered equity capital
shall be reduced by a minimum of 20% of the original amount of the certificate
per year. The equity capital shall be reduced by a constant monthly
amortization to ensure the recognition of subordinated debt is fully amortized
when the certificate matures or is prepaid.
(o) Prohibited practices.
(1) A credit union may not engage in any
practice or use any advertisement at any office of, or on behalf of, a credit
union that could mislead any person or otherwise cause a reasonable person to
reach an erroneous belief with respect to:
(A) the fact that a certificate of
indebtedness a credit union sells or offers for sale is not insured by the
National Credit Union Share Insurance Fund or other insuring
organization;
(B) the fact that
there is an investment risk, including the potential that principal may be lost
and that the certificate may decline in value; or
(C) the fact that the approval of an
extension of credit to a person by the credit union or credit union service
organization may not be conditioned on the purchase of a certificate of
indebtedness from the credit union or credit union service
organization.
(2) No
credit union shall directly or indirectly:
(A) employ any device, scheme or artifice to
defraud,
(B) make any untrue
statement of a material fact or omit to state a material fact necessary in
order to make statements made, in light of the circumstances under which they
were made, not misleading, or
(C)
engage in any act, practice, or course of business which operates as a fraud or
deceit upon any person, in connection with the purchase or sale of any
certificate of indebtedness.
