[Federal Register Volume 60, Number 228 (Tuesday, November 28, 1995)]
[Rules and Regulations]
[Pages 58502-58508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28703]



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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701, 705 and 741


Requirements for Insurance and Technical Amendments

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The final rule consolidates all current regulations and 
requirements that apply to federally insured state-chartered credit 
unions (FISCUs) in one place, the regulations on requirements for 
insurance. The rule does not impose any new requirements on FISCUs. 
This rule will aid FISCUs by simplfying the process of determining 
which regulations they must follow.


[[Page 58503]]

EFFECTIVE DATE: January 29, 1996.

FOR FURTHER INFORMATION CONTACT: Linda Groth, State Program Officer, 
Office of Examination and Insurance, at the above address or telephone 
(703) 518-6360 or Mary Rupp, Staff Attorney, Office of General Counsel, 
at the above address or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    In August 1995, the NCUA requested comments on proposed changes to 
part 741 of its regulations. 60 FR 39274 (August 2, 1995). Part 741 
applies to all credit unions whose accounts are insured by the National 
Credit Union Share Insurance Fund (NCUSIF). It applies to federal 
credit unions (FCUs), FISCUs and credit unions making application for 
insurance of accounts. Part 741 also serves as a reference for FISCUs 
in determining which NCUA rules apply to them. Some regulations that 
apply to FISCUs, however, are not currently included or referenced in 
part 741. Additionally, the Agreement for Insurance of Accounts, which 
outlines conditions for state-chartered credit unions obtaining and 
maintaining federal insurance, contains requirements that are not 
included in part 741. This final rule corrects those shortcomings by 
addressing, in part 741, all regulations and requirements that apply to 
FISCUs. This revision will aid FISCUs by simplifying the process of 
determining which regulations they must follow. The revision does not 
impose any additional requirements or new burdens on FISCUs.
    Additionally, the revision reorganizes part 741 into subparts A and 
B. Subpart A contains requirements that apply to all insured credit 
unions and are not codified elsewhere in NCUA's regulations. Subpart B 
contains requirements that are set forth in various other parts of 
NCUA's regulations affecting FCUs and that are, by incorporation in 
part 741, applicable to FISCUs as well.

Summary of Comments

    Two FISCUs, four trade groups and two credit union leagues 
responded to the proposal. Five of the commenters expressed total 
support for the amendments, one expressed qualified support and two 
objected. The supportive commenters praised the proposal because it 
simplifies the process for determining which regulations apply, it 
clarifies items not mentioned elsewhere and it deletes repetitious 
material. The revised index was cited by one commenter as a 
particularly useful tool.
    One commenter took exception to the following sections of the 
proposal: Criteria Sec. 741.3, Maximum Public Unit and Nonmember 
Accounts and Low Income Designation Sec. 741.204, Corporate Credit 
Unions Sec. 741.206, Management Official Interlocks Sec. 741.209, 
Administrative Actions, Adjudicative Hearings, Rules of Practice and 
Procedure Sec. 741.213, Records Preservation Program Sec. 741.215, 
Truth in Savings Sec. 741.217 and Involuntary Liquidation and Creditor 
Claims Sec. 741.218. The commenter did not object to the substance of 
the sections. The objection was based on the misperception that NCUA is 
``taking more and more authority over state chartered credit unions.'' 
The NCUA Board notes that all of these provisions currently apply to 
FISCUs.
    Two commenters took exception to the provision in proposed 
Sec. 741.3 which requires FISCUs to establish an Investment Valuation 
Reserve Account for those investments owned by FISCUs that do not 
conform to NCUA's investment regulation for federal credit unions (12 
CFR part 703). The reserve must equal the net excess of book value over 
current market value. If the market value cannot be determined, a 
reserve equal to the full book value must be reserved. One commenter 
maintained that this places an undue burden on state-chartered credit 
unions that are following state law. Further, the commenter argued it 
will be costly, difficult and time consuming. The commenters also 
questioned the practice of ``incorporating contractual terms and 
conditions into a regulation.'' The commenters are apparently under the 
misimpression that this is a new requirement being imposed on FISCUs. 
For safety and soundness reasons, this requirement is and for many 
years has been, imposed on FISCUs by the Agreement for Insurance of 
Accounts signed and agreed to all insured state chartered credit unions 
as a condition of federal insurance.

Final Rule

    The NCUA Board adopts without change the proposed rule published on 
August 2, 1995, as the final rule. 60 FR 39274. Further, the Board is 
making technical corrections to Sections 701.6, 701.21(a), 
701.23(b)(2)(iii) and 705.3. These sections reference part 741 and must 
be revised to reflect the redesignated section numbers in part 741. 
Since these changes are housekeeping and do not have any substantive 
effect on credit unions, the Board finds it unnecessary to either issue 
a proposed rule or delay the rule's effective date.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe the significant economic impact any proposed regulation may 
have on a substantial number of small credit unions (primarily those 
under $1 million in assets). The final rule is a compilation of 
existing regulations and requirements already in place for FISCUs. It 
does not add any additional requirements or burden. Accordingly, the 
NCUA Board has determined and certifies under the authority granted in 
5 U.S.C. 605(b) that the final rule, if adopted, will not have a 
significant economic impact on a significant number of small credit 
unions and that a Regulatory Flexibility Act analysis is not required.

Paperwork Reduction Act

    The final rule does not impose any new paperwork requirements.

Executive Order 12612

    The final rule does not make any substantive changes. Therefore, no 
new analysis of part 741's effect on state interests is required.

List of Subjects in 12 CFR Parts 701, 705 and 741

    Bank deposit insurance, Credit unions, and Reporting and 
recordkeeping requirements.

    By the National Credit Union Administration Board on November 
16, 1995.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA amends 12 CFR chapter VII as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, 1789 and Public Law 101-73. 
Section 701.6 is also authorized by 31 U.S.C. 3717. Section 701.31 
is also authorized by 12 U.S.C. 1601, et seq., 42 U.S.C. 1981 and 42 
U.S.C. 3601-1610. Section 701.35 is also authorized by 12 U.S.C. 
4311-4312.

    2. Section 701.6 is amended by revising paragraph (d)(4) to read as 
follows:


Sec. 701.6  Fees paid by Federal credit unions.

* * * * *
    (d) * * *
    (4) If a credit union makes a combined payment of its operating fee 
and its share insurance deposit as provided in 

[[Page 58504]]
Sec. 741.4 of this chapter and such payment is delinquent, only one 
administrative fee will be charged and interest will be charged on the 
total combined payment.
    3. Section 701.21(a) is amended by revising the fourth sentence to 
read as follows:


Sec. 701.21  Loans to members and lines of credit to members.

    (a) * * * Also, while Sec. 701.21 generally applies to Federal 
credit unions only, its provisions may be used by state-chartered 
credit unions with respect to alternative mortgage transactions in 
accordance with 12 U.S.C. 3801 et seq., and certain provisions apply to 
loans made by federally insured state-chartered credit unions as 
specified in Sec. 741.203 of this chapter. * * *
* * * * *
    4. Section 701.23 is amended by revising paragraph (b)(2)(iii) to 
read as follows:


Sec. 701.23  Purchase, sale, and pledge of eligible obligations.

* * * * *
    (b) * * *
    (2) * * *
    (iii) for purchases under paragraph (b)(1)(ii) of this section, any 
advance written approval required by Sec. 741.8 of this chapter is 
obtained before consummation of such purchase.
* * * * *

PART 705--COMMUNITY DEVELOPMENT REVOLVING LOAN PROGRAM FOR CREDIT 
UNIONS

    5. The authority citation for part 705 continues to read as 
follows:

    Authority: Public Law 97-35, 42 U.S.C. 9822; Public Law 99-609, 
note to 42 U.S.C. 9822; Public Law 101-144, 12 U.S.C 1766(k).

    6. Section 705.3 is amended by revising paragraph (b) to read as 
follows:


Sec. 705.3  Definitions.

* * * * *
    (b) For purposes of this part, a ``participating credit union'' 
means a state- or federally-chartered credit union that is specifically 
involved in stimulation of economic development activities and 
community revitalization efforts aimed at benefiting the community it 
serves; whose membership consists of predominantly low-income members 
as defined in paragraph (a) of this section or applicable state 
standards as reflected by a current low-income designation pursuant to 
Sec. 701.32(d)(1) or Sec. 741.204(b) of this chapter or, in the case of 
a state-chartered nonfederally insured credit union, under applicable 
state standards; and has submitted an application for a loan and/or 
technical assistance and has been selected for participation in the 
Program in accordance with this part.
    7. Part 741 is revised to read as follows:

PART 741--REQUIREMENTS FOR INSURANCE

Sec.
741.0  Scope.
Subpart A--Regulations That Apply to Both Federal Credit Unions and 
Federally Insured State-Chartered Credit Unions and That Are Not 
Codified Elsewhere in NCUA's Regulations
741.1  Examination.
741.2  Maximum borrowing authority.
741.3  Criteria.
741.4  Insurance premium and one percent deposit.
741.5  Notice of termination of excess insurance coverage.
741.6  Financial and statistical and other reports.
741.7  Conversion to a state-chartered credit union.
741.8  Purchase of assets and assumption of liabilities.
741.9  Uninsured membership shares.
741.10  Disclosure of share insurance.
Subpart B--Regulations Codified Elsewhere in NCUA's Regulations as 
Applying to Federal Credit Unions That Also Apply to Federally Insured 
State-Chartered Credit Unions
741.201  Minimum fidelity bond requirements.
741.202  Audit and verification requirements.
741.203  Minimum loan policy requirements.
741.204  Maximum public unit and nonmember accounts, and -low-income 
designation.
741.205  Reporting requirements for credit unions that are -newly 
chartered or in troubled condition.
741.206  Corporate credit unions.
741.207  Community development revolving loan program for -credit 
unions.
741.208  Mergers of federally insured credit unions: -voluntary 
termination or conversion of insured status.
741.209  Management official interlocks.
741.210  Central liquidity facility.
741.211  Advertising.
741.212  Share insurance.
741.213  Administrative actions, adjudicative hearings, rules -of 
practice and procedure.
741.214  Report of crime or catastrophic act and Bank Secrecy -Act 
compliance.
741.215  Records preservation program.
741.216  Flood Insurance.
741.217  Truth in savings.
741.218  Involuntary liquidation and creditor claims.

    Authority: 12 U.S.C. 1757, 1766, and 1781-1790.

    Section 741.4 is also authorized by 31 U.S.C. 3717.


Sec. 741.0  Scope.

    The provisions of this part apply to federal credit unions, 
federally insured state-chartered credit unions, and credit unions 
making application for insurance of accounts pursuant to Title II of 
the Act, unless the context of a provision indicates its application is 
otherwise limited. This part prescribes various requirements for 
obtaining and maintaining federal insurance and the payment of 
insurance premiums and capitalization deposit. Subpart A of this part 
contains substantive requirements that are not codified elsewhere in 
this chapter. Subpart B of this part lists additional regulations, set 
forth elsewhere in this chapter as applying to federal credit unions, 
that also apply to federally insured state-chartered credit unions. As 
used in this part, ``insured credit union'' means a credit union whose 
accounts are insured by the National Credit Union Share Insurance Fund 
(NCUSIF).

Subpart A--Regulations that Apply to Both Federal Credit Unions and 
Federally Insured State-Chartered Credit Unions and That are not 
Codified Elsewhere in NCUA's Regulations


Sec. 741.1  Examination.

    As provided in Sections 201 and 204 of the Act (12 U.S.C. 1781 and 
1784), the NCUA Board is authorized to examine any insured credit union 
or any credit union making application for insurance of its accounts. 
Such examination may require access to all records, reports, contracts 
to which the credit union is a party, and information concerning the 
affairs of the credit union. Upon request, such documentation must be 
provided to the NCUA Board or its representative. Any credit union 
which makes application for insurance will be required to pay the cost 
of such examination and processing. To the maximum extent feasible, the 
NCUA Board will utilize examinations conducted by state regulatory 
agencies.


Sec. 741.2  Maximum borrowing authority.

    Any credit union which makes application for insurance of its 
accounts pursuant to Title II of the Act, or any insured credit union, 
must not borrow, from any source, an aggregate amount in excess of 50 
per centum of its paid-in and unimpaired capital and surplus (shares 
and undivided earnings, plus net income or minus net loss). 

[[Page 58505]]



Sec. 741.3  Criteria.

    In determining the insurability of a credit union which makes 
application for insurance and in continuing the insurability of its 
accounts pursuant to Title II of the Act, the following criteria shall 
be applied:
    (a) Adequacy of reserves (1) General rule. State-chartered credit 
unions must meet, at a minimum, the statutory reserve and full and fair 
disclosure requirements imposed on federal credit unions by Section 116 
of the Act and part 702 of this chapter.
    (2) Charges against reserves. State-chartered credit unions may 
charge losses, including losses other than loan losses, against the 
statutory reserve in accordance with either state law or procedures 
established by the state supervisory authority. However, charges for 
losses other than loan losses shall be made only after notification to 
the Re- gional Director, unless the credit union's ratio of capital to 
assets is greater than 6 percent and the charge reduces the ratio by no 
more than \1/2\ percent. For purposes of this section, capital is 
defined as the total of the Regular Reserve, the Allowance for Loan 
Losses, the Allowance for Investment Losses, Undivided Earnings, and 
other reserves.-
    (3) Special reserve for nonconforming investments. State-chartered 
credit unions (except state-chartered corporate credit unions) are 
required to establish an additional special reserve for investments if 
those credit unions are permitted by their respective state laws to 
make investments beyond those authorized in the Act or the NCUA Rules 
and Regulations. For any investment other than loans to members and 
obligations or securities expressly authorized in Title I of the Act 
and part 703 of this chapter, as amended, state-chartered credit unions 
(except state-chartered corporate credit unions) are required to 
establish and maintain at the end of each accounting period and prior 
to payment of any dividend, an Investment Valuation Reserve Account in 
an amount at least equal to the net excess of book value over current 
market value of the investments. If the market value cannot be 
determined, an amount equal to the full book value will be established. 
When at the end of any dividend period, the amount in the Investment 
Valuation Reserve exceeds the difference between book value and market 
value, the board of directors may authorize the transfer of the excess 
to Undivided Earnings.
    (b) Financial condition and policies. The following factors are to 
be considered in determining whether the credit union's financial 
condition and policies are both safe and sound:
    (1) The existence of unfavorable trends which may include excessive 
losses on loans (i.e., losses which exceed the regular reserve or its 
equivalent [in the case of state-chartered credit unions] plus other 
irrevocable reserves established as a contingency against losses on 
loans), the presence of special reserve accounts used specifically for 
charging off loan balances of deceased borrowers, and an expense ratio 
so high that the required transfers to reserves create a net operating 
loss for the period or that the net gain after these transfers is not 
sufficient to permit the payment of a nominal dividend;
    (2) The existence of written lending policies, including adequate 
documentation of secured loans and the protection of security interests 
by recording, bond, insurance, or other adequate means, adequate 
determination of the financial capacity of borrowers and co-makers for 
repayment of the loan, and adequate determination of value of security 
on loans to ascertain that said security is adequate to repay the loan 
in the event of default;
    (3) Investment policies which are within the provisions of 
applicable law and regulations, i.e., the Act and part 703 of this 
chapter for federal credit unions and the laws of the state in which 
the credit union operates for state-chartered credit unions, except 
state-chartered corporate credit unions. State-chartered corporate 
credit unions are permitted to make only those investments that are in 
conformance with part 704 of this chapter and applicable state laws and 
regulations;
    (4) The presence of any account or security, the form of which has 
not been approved by the Board, except for accounts authorized by state 
law for state-chartered credit unions.
    (c) Fitness of management. The officers, directors, and committee 
members of the credit union must have conducted its operations in 
accordance with provisions of applicable law, regulations, its charter 
and bylaws. No person shall serve as a director, officer, committee 
member, or employee of an insured credit union who has been convicted 
of any criminal offense involving dishonesty or breach of trust, except 
with the written consent of the Board.
    (d) Insurance of member accounts would not otherwise involve undue 
risk to the NCUSIF. The credit union must maintain adequate fidelity 
bond coverage as specified in Sec. 741.201. Any circumstances which may 
be unique to the particular credit union concerned shall also be 
considered in arriving at the determination of whether or not an undue 
risk to the NCUSIF is or may be present. For purposes of this section, 
the term ``undue risk to the NCUSIF'' is defined as a condition which 
creates a probability of loss in excess of that normally found in a 
credit union and which indicates a reasonably foreseeable probability 
of the credit union becoming insolvent because of such condition, with 
a resultant claim against the NCUSIF.
    (e) Powers and purposes. The credit union must not perform services 
other than those which are consistent with the promotion of thrift and 
the creation of a source of credit for its members, except as otherwise 
permitted by law or regulation.
    (f) Letter of disapproval. A credit union whose application for 
share insurance is disapproved shall receive a letter indicating the 
reasons for such disapproval, a citation of the authority for such 
disapproval, and suggested methods by which the applying credit union 
may correct its deficiencies and thereby qualify for share insurance.
    (g) Nothing in this section shall preclude the NCUA Board from 
imposing additional terms or conditions pursuant to the insurance 
agreement.


Sec. 741.4  Insurance premium and one percent deposit.

    (a) Scope. This section implements the requirements of Section 202 
of the Act (12 U.S.C. 1782) providing for capitalization of the NCUSIF 
through the maintenance of a deposit by each insured credit union in an 
amount equaling one percent of its insured shares and payment of an 
annual insurance premium.
    (b) Definitions. For purposes of this section:
    (1) Insurance year means the period from January 1 through December 
31;
    (2) Insured shares means the total amount of a credit union's 
share, share draft and share certificate accounts, or their equivalent 
under state law (which may include deposit accounts), authorized to be 
issued to members, other credit unions, public units, or nonmembers 
(where permitted under the Act or equivalent state law). ``Insured 
shares'' does not include amounts in excess of insurance coverage as 
provided in part 745 of this chapter; and
    (3) Normal operating level means a total value of the NCUSIF equity 
equaling 1.3 percent of the aggregate of all insured shares in insured 
credit unions as of the end of the preceding insurance year, or such 
lower value as 

[[Page 58506]]
established by action of the NCUA Board.
    (c) One percent deposit. Each insured credit union shall maintain 
with the NCUSIF during each insurance year a deposit in an amount 
equaling one percent of the total of the credit union's insured shares 
as of the close of the preceding insurance year. The deposit amount 
shall be adjusted annually on a date to be determined by the NCUA 
Board.
    (d) Premium. Unless waived by the NCUA Board, each insured credit 
union shall pay to the NCUSIF, on a date to be determined by the NCUA 
Board, an insurance premium for that insurance year in an amount 
equaling one-twelfth of one percent of the credit union's total insured 
shares as of the close of the preceding insurance year.
    (e) Redistribution of NCUSIF equity. When the NCUSIF exceeds its 
normal operating level, the NCUA Board will, at least annually, make a 
proportionate adjustment for insured credit unions of the amount 
necessary to reduce the NCUSIF to its normal operating level. Such 
adjustment will be in the form determined by the NCUA Board and may 
include a waiver of insurance premiums, premium rebates, and/or 
distributions from NCUSIF equity.
    (f) Forms 1304 and 1305. A certified copy of Form 1304 will be 
provided to all federally insured state-chartered credit unions and 
Form 1305 to all federally chartered credit unions in connection with 
the computation and funding of their annual premium payment and any 
change in their one percent deposit. Form 1305 also includes the annual 
operating fee. Forms 1304 and 1305 are invoices and are precalculated 
based on the credit union's previous year's insured shares. The forms 
provide for any adjustments declared by the NCUA Board, resulting in a 
single net transfer of funds between the credit union and the NCUA. 
Additional copies of each credit union's Form 1304 and 1305 may be 
obtained from the appropriate NCUA Regional Office.
    (g) New charters. A newly-chartered credit union that obtains share 
insurance coverage from the NCUSIF during the insurance year in which 
it has obtained its charter shall not be required to pay an insurance 
premium for that insurance year. The credit union shall fund its one 
percent deposit on a date to be determined by the NCUA Board in the 
following insurance year, but shall not participate in any distribution 
from NCUSIF equity related to the period prior to the credit union's 
funding of its deposit.
    (h) Conversion to Federal insurance. An existing credit union that 
converts to insurance coverage with the NCUSIF during an insurance year 
shall immediately fund its one percent deposit based on the total of 
its shares as of the close of the month prior to conversion and shall 
pay a premium (unless waived in whole or in part for all insured credit 
unions during that year) in an amount that is prorated to reflect the 
remaining number of months in the insurance year. The credit union will 
be entitled to a prorated share of any distribution from NCUSIF equity 
declared subsequent to the credit union's conversion.
    (i) Mergers of nonfederally insured credit unions. Where a 
nonfederally insured credit union merges into a federally insured 
credit union, the continuing federally insured credit union shall 
immediately pay to the NCUSIF a prorated insurance premium (unless 
waived in whole or in part for all federally insured credit unions), 
and an additional one percent deposit based upon the increase in 
insured shares resulting from the merger.
    (j) Return of deposit. Any insolvent credit union that is closed 
for involuntary liquidation will not be entitled to a return of its 
deposit. Any solvent credit union that is closed due to involuntary 
liquidation shall be entitled to a return of its deposit prior to final 
distribution of member shares. Any other credit union whose insurance 
coverage with the NCUSIF terminates will be entitled to a return of the 
full amount of its deposit immediately after the final date on which 
any shares of the credit union are insured, except that the NCUA Board 
reserves the right to delay payment by up to one year if it determines 
that immediate payment would jeopardize the financial condition of the 
NCUSIF. This includes termination of insurance due to mergers and 
consolidations. A credit union that receives a return of its deposit 
during an insurance year shall have the option of leaving a nominal sum 
on deposit with the NCUSIF until the next distribution from NCUSIF 
equity and will thus qualify for a prorated share of the distribution.
    (k) Assessment of administrative fee and interest for delinquent 
payment. Each federally insured credit union shall pay to the NCUA an 
administrative fee, the costs of collection, and interest on any 
delinquent payment of its capitalization deposit or insurance premium. 
A payment will be considered delinquent if it is postmarked later than 
the date stated in the invoice provided to the credit union. The NCUA 
may waive or abate charges or collection of interest, if circumstances 
warrant.
    (1) The administrative fee for a delinquent payment shall be an 
amount as fixed from time to time by the NCUA Board based upon the 
administrative costs of such delinquent payments to the NCUA in the 
preceding year.
    (2) The costs of collection shall be calculated as the actual hours 
expended by NCUA personnel multiplied by the average hourly cost of the 
salaries and benefits of such personnel.
    (3) The interest rate charged on any delinquent payment shall be 
the U.S. Department of the Treasury Tax and Loan Rate in effect on the 
date when the payment is due as provided in 31 U.S.C. 3717.


Sec. 741.5  Notice of termination of excess insurance coverage.

    In the event of a credit union's termination of share insurance 
coverage other than that provided by the NCUSIF, the credit union must 
notify all members in writing of such termination at least thirty days 
prior to the effective date of termination.


Sec. 741.6  Financial and statistical and other reports.

    (a) Each operating insured credit union with assets in excess of 
$50,000,000 shall file with the NCUA a quarterly Financial and 
Statistical Report on Form NCUA 5300, on or before January 22 (as of 
the previous December 31), April 22 (as of the previous March 31), July 
22 (as of the previous June 30) and October 22 (as of the previous 
September 30) of each year. All other operating insured credit unions 
shall file with the NCUA on or before January 31 and on or before July 
31 of each year a semiannual Financial and Statistical Report on Form 
NCUA 5300, as of the previous December 31 (in the case of the January 
filing) or June 30 (in the case of the July filing).
    (b) Insured credit unions shall, upon written notice from the NCUA 
Board or Regional Director, file such financial or other reports in 
accordance with instructions contained in such notice.


Sec. 741.7  Conversion to a state-chartered credit union.

    Any federal credit union that petitions to convert to a state-
chartered federally insured credit union is required to apply to the 
Regional Director for continued insurance of its accounts and meet the 
requirements as stated in the Act and this part. If the application for 
continued insurance is not approved, such insurance will terminate 
subject to the conditions set forth in section 206(d) of the Act. 

[[Page 58507]]



Sec. 741.8  Purchase of assets and assumption of liabilities.

    (a) Any credit union insured pursuant to Title II of the Act must 
apply for and receive approval from the NCUA Board before either 
purchasing or acquiring loans or assuming or receiving an assignment of 
deposits, shares, or liabilities from:
    (1) Any credit union that is not insured pursuant to Title II of 
the Act;
    (2) Any other financial-type institution (including depository 
institutions, mortgage banks, consumer finance companies, insurance 
companies, loan brokers, and other loan sellers or liability traders); 
or
    (3) Any successor in interest to any institution identified in 
paragraph (a)(1) or (a)(2) of this section.
    (b) Approval is not required for:
    (1) Purchases of student loans or real estate secured loans to 
facilitate the packaging of a pool of loans to be sold or pledged on 
the secondary market under Sec. 701.23(b)(1) (iii) or (iv) of this 
chapter or comparable state law for state-chartered credit unions, or 
purchases of member loans under Sec. 701.23(b)(1)(i) of this chapter or 
comparable state law for state-chartered credit unions; or
    (2) Assumptions or receipt of deposits, shares or liabilities as 
rollovers or transfers of member retirement accounts or in which an 
NCUSIF-insured credit union perfects a security interest in connection 
with an extension of credit to any member.


Sec. 741.9  Uninsured membership shares.

    Any credit union that is insured pursuant to Title II of the Act 
may not offer membership shares that, due to the terms and conditions 
of the account, are not eligible for insurance coverage. This 
prohibition does not apply to shares that are uninsured solely because 
the amount is in excess of the maximum insurance coverage provided 
pursuant to part 745 of this chapter.


Sec. 741.10  Disclosure of share insurance.

    Any credit union which is insured pursuant to Title II of the Act 
and is permitted by state law to accept nonmember shares or deposits 
from sources other than other credit unions and public units (or, for 
low-income designated credit unions, any nonmembers), shall identify 
such nonmember accounts as nonmember shares or deposits on any 
statement or report required by the NCUA Board for insurance purposes. 
Immediately after a state-chartered credit union receives notice from 
NCUA that its member accounts are federally insured, the credit union 
shall advise any present nonmember share and deposit holders by letter 
that their accounts are not insured by the NCUSIF. Also, future 
nonmember share and deposit fund holders will be so advised by letter 
as they open accounts.

Subpart B--Regulations Codified Elsewhere in NCUA's Regulations as 
Applying to Federal Credit Unions That Also Apply to Federally 
Insured State-Chartered Credit Unions


Sec. 741.201  Minimum fidelity bond requirements.

    (a) Any credit union which makes application for insurance of its 
accounts pursuant to Title II of the Act must possess the minimum 
fidelity bond coverage stated in Sec. 701.20 of this chapter in order 
for its application for such insurance to be approved and for such 
insurance coverage to continue. A federally insured credit union whose 
fidelity bond coverage is terminated shall mail notice of such 
termination to the Regional Director not less than 35 days prior to the 
effective date of such termination.
    (b) Corporate credit unions must comply with Sec. 704.17 of this 
chapter in lieu of Sec. 701.20 of this chapter.


Sec. 741.202  Audit and verification requirements.

    (a) The supervisory committee of each credit union insured pursuant 
to Title II of the Act shall make or cause to be made an audit of the 
credit union at least once every calendar year covering the period 
elapsed since the last audit. The audit must fully meet the 
requirements set forth in Secs. 701.12 and 701.13 of this chapter.
    (b) Each credit union which is insured pursuant to Title II of the 
Act shall verify or cause to be verified, under controlled conditions, 
all passbooks and accounts with the records of the financial officer 
not less frequently than once every 2 years. The verification must 
fully meet the requirements set forth in Secs. 701.12(e) and 701.13 of 
this chapter.


Sec. 741.203  Minimum loan policy requirements.

    Any credit union which is insured pursuant to Title II of the Act 
must:
    (a) Adhere to the requirements stated in Sec. 701.21(h) of this 
chapter concerning member business loans, Sec. 701.21(c)(8) of this 
chapter concerning prohibited fees, and Sec. 701.21(d)(5) of this 
chapter concerning nonpreferential loans. State-chartered, NCUSIF-
insured credit unions in a given state are exempt from these 
requirements if the state regulatory authority for that state adopts 
substantially equivalent regulations as determined by the NCUA Board. 
In nonexempt states, all required NCUA reviews and approvals will be 
handled in coordination with the state credit union supervisory 
authority; and
    (b) Adhere to the requirements stated in part 722 of this chapter 
concerning appraisals.


Sec. 741.204  Maximum public unit and nonmember accounts, and low-
income designation.

    Any credit union that is insured, or that makes application for 
insurance, pursuant to Title II of the Act must:
    (a) Adhere to the requirements of Sec. 701.32 of this chapter 
regarding public unit and nonmember accounts, provided it has the 
authority to accept such accounts. Requests by federally insured state-
chartered credit unions for an exemption from the limitation of 
Sec. 701.32 of this chapter will be made and reviewed on the same basis 
as that provided in Sec. 701.32 of this chapter for federal credit 
unions, provided, however that NCUA will not grant an exemption without 
the concurrence of the appropriate state regulator.
    (b) Obtain a low-income designation in order to accept nonmember 
accounts, other than from public units or other credit unions, provided 
it has the authority to accept such accounts under state law. The state 
regulator shall make the low-income designation with the concurrence of 
the appropriate regional director. The designation will be made and 
reviewed by the state regulator on the same basis as that provided in 
Sec. 701.32(d) of this chapter for federal credit unions. Removal of 
the designation by the state regulator for such credit unions shall be 
with the concurrence of NCUA.


Sec. 741.205  Reporting requirements for credit unions that are newly 
chartered or in troubled condition.

    Any federally insured credit union chartered for less than 2 years 
or any credit union defined to be in troubled condition as set forth in 
Sec. 701.14(b)(3) of this chapter must adhere to the requirements 
stated in Sec. 701.14(c) of this chapter concerning the prior notice 
and NCUA review. Federally insured state-chartered credit unions must 
submit required information to both the appropriate NCUA Regional 
Director and their state supervisor. NCUA will consult with the state 
supervisor before making its determination pursuant to Sec. 701.14 
(d)(2) and (f) of this chapter. NCUA will notify the state supervisor 
of its approval/disapproval no later than the time that it notifies the 
affected individual pursuant to Sec. 701.14(d)(1) of this chapter. 

[[Page 58508]]



Sec. 741.206  Corporate credit unions.

    Any corporate credit union insured pursuant to Title II of the Act 
shall adhere to the requirements of part 704 of this chapter.


Sec. 741.207  Community development revolving loan program for credit 
unions.

    Any credit union which is insured pursuant to Title II of the Act 
and is a ``participating credit union,'' as defined in Sec. 705.3 of 
this chapter, shall adhere to the requirements stated in part 705 of 
this chapter.


Sec. 741.208  Mergers of federally insured credit unions: voluntary 
termination or conversion of insured status.

    Any credit union which is insured pursuant to Title II of the Act 
and which merges with another credit union or non-credit union 
institution, and any state-chartered credit union which voluntarily 
terminates its status as a federally-insured credit union, or converts 
from federal insurance to other insurance from a government or private 
source authorized to insure member accounts, shall adhere to the 
applicable requirements stated in section 206 of the Act and parts 708a 
and 708b of this chapter concerning mergers and voluntary termination 
or conversion of insured status.


Sec. 741.209  Management official interlocks.

    Any credit union which is insured pursuant to Title II of the Act 
shall adhere to the requirements stated in part 711 of this chapter 
concerning management official interlocks, issued under the provisions 
of the Depository Institution Management Interlocks Act (12 U.S.C. 3201 
et seq.).


Sec. 741.210  Central liquidity facility.

    Any credit union which is insured pursuant to Title II of the Act 
and is a member of the Central Liquidity Facility, shall adhere to the 
requirements stated in part 725 of this chapter.


Sec. 741.211  Advertising.

    Any credit union which is insured pursuant to Title II of the Act 
shall adhere to the requirements prescribed by part 740 of this 
chapter.


Sec. 741.212  Share insurance.

    (a) Member share accounts received by any credit union which is 
insured pursuant to Title II of the Act in its usual course of 
business, including regular shares, share certificates, and share draft 
accounts, are insured subject to the limitations and rules in subpart A 
of part 745 of this chapter.
    (b) The payment of share insurance and the appeal process 
applicable to any credit union which is insured pursuant to Title II of 
the Act are addressed in subpart B of part 745 of this chapter.


Sec. 741.213  Administrative actions, adjudicative hearings, rules of 
practice and procedure.

    Any credit union which is insured pursuant to Title II of the Act 
shall adhere to the applicable rules of practice and procedures for 
administrative actions and adjudicative hearings prescribed by part 747 
of this chapter. Subpart E of part 747 of this chapter applies only to 
federal credit unions.


Sec. 741.214  Report of crime or catastrophic act and Bank Secrecy Act 
compliance.

    Any credit union which is insured pursuant to Title II of the Act 
shall adhere to the requirements stated in part 748 of this chapter.


Sec. 741.215  Records preservation program.

    Any credit union which is insured pursuant to Title II of the Act 
shall maintain a records preservation program as prescribed by part 749 
of this chapter.


Sec. 741.216  Flood insurance.

    Any credit union which is insured pursuant to Title II of the Act 
shall adhere to the requirements stated in part 760 of this chapter.


Sec. 741.217  Truth in savings.

    Any credit union which is insured pursuant to Title II of the Act 
shall adhere to the requirements stated in part 707 of this chapter.


Sec. 741.218  Involuntary liquidation and creditor claims.

    Any credit union which is insured pursuant to Title II of the Act 
shall adhere to the applicable provisions in part 709 of this chapter. 
Section 709.3 of this chapter applies only to federal credit unions.

[FR Doc. 95-28703 Filed 11-27-95; 8:45 am]
BILLING CODE 7535-01-U