[Federal Register Volume 64, Number 204 (Friday, October 22, 1999)]
[Rules and Regulations]
[Pages 56953-56957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26755]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions; Statutory 
Lien

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: Pursuant to its practice of periodically reviewing existing 
regulations and policy statements, NCUA proposed to update, clarify and 
convert to a regulation the provisions of an existing Interpretive 
Ruling and Policy Statement implementing the statutory lien authority 
granted by the Federal Credit Union Act. As revised to reflect comments 
on the proposed rule and to incorporate other improvements, the final 
rule implements the statutory right of federal credit unions to impress 
a lien against the shares and dividends of their members, and to 
enforce that lien to satisfy members' outstanding financial obligations 
due and payable to the credit union, even when such obligations are not 
secured by shares.

DATES: Effective November 22, 1999.

FOR FURTHER INFORMATION CONTACT: Steven W. Widerman, Trial Attorney, 
Division of Litigation & Liquidations, Office of General Counsel, at 
the above address or telephone: (703) 518-6557.

SUPPLEMENTARY INFORMATION:

I. Background

A. Prior Interpretations of Statutory Authority

    Section 107(11) of the Federal Credit Union Act, 12 U.S.C. 1757(11) 
(hereinafter ``Sec. 1757(11)''), provides that a federal credit union 
``shall have [the] power * * * to impress and enforce a lien upon the 
shares and dividends of any member to the extent of any loan made to 
him and any dues or charges payable by him.'' Beginning in 1979, NCUA 
took the position that a federal credit union could enforce the lien 
granted by Sec. 1757(11) only after it had obtained a court judgment on 
the debt, unless state law allowed enforcement of the lien without 
first obtaining such a judgment. NCUA, Manual of Laws Affecting Federal 
Credit Unions 1-17 (6/78 ed.); NCUA, Credit Manual for Federal Credit 
Unions 29 (12/79 ed.). Once the prerequisite judgment was obtained, the 
credit union could apply the member's shares to his or her outstanding 
loan balance.
    In 1982, NCUA reconsidered this interpretation of Sec. 1757(11) 
because experience indicated that it placed credit unions at a 
disadvantage compared to other financial institutions, which generally 
can offset a borrower's loan without first obtaining a court judgment. 
47 FR 44340 (October 7, 1982). As a result, NCUA issued Interpretive 
Ruling and Policy Statement No. 82-5 (``IRPS 82-5''), reinterpreting 
Sec. 1757(11) to authorize a credit union to enforce the lien on the 
shares and dividends of a member without first obtaining a court 
judgment against the member, state law to the contrary notwithstanding. 
47 FR 57483 (December 27, 1982). The NCUA Board concluded, and still 
maintains, that the reinterpretation of Sec. 1757(11) is more 
consistent with Congressional intent.

B. Proposed Rule

    In 1987, NCUA issued Interpretive Ruling and Policy Statement No. 
87-2 entitled ``Developing and Reviewing Government Regulations,'' 52 
FR 35231 (Sept. 18, 1987) (``IRPS 87-2''). IRPS 87-2 established the 
policy of reviewing all existing NCUA regulations every three years for 
the purpose of updating, clarifying and simplifying them, and 
eliminating redundant and unnecessary provisions. Id. at 35232.
    To fulfill the purpose of IRPS 87-2, NCUA issued a proposed rule 
updating, clarifying and converting to a regulation the provisions of 
IRPS 82-5. 63 FR 57943 (October 29, 1998). By the comment deadline of 
January 27, 1999, NCUA received 27 comments in response to the proposed 
rule. Comments were submitted by nine state credit union leagues, ten 
individual credit unions, four attorneys who represent credit unions, 
three national credit union trade associations, and one banking 
industry trade association.

C. Final Rule

    There are two principal differences between the proposed rule and 
the final rule. The first is that, consistent with the overwhelming 
consensus of comments, the final rule abandons the shift in policy 
since IRPS 82-5 toward limiting application of the statutory lien to 
loan-related indebtedness to the credit union, e.g., unpaid loan 
principal and interest and charges such as a late fee and collection 
expenses. The final rule reads Sec. 1757(11) expansively to apply the 
statutory lien to outstanding member financial obligations of any kind 
owed to the credit union. Sec. 701.39(a)(5). The second principal 
difference is that, instead of requiring separate disclosure at the 
time a lien is impressed, the final rule codifies credit unions' nearly 
uniform practice of putting members on notice in advance, in account 
opening and loan documentation, of the credit union's right to impress 
a lien and to enforce it without further notice. Sec. 701.39(a)(4).

II. Section-by-Section Analysis of Comments

    Six commenters favored retaining the statutory lien authority in an 
IRPS instead of converting it to a rule, one favored the rule over an 
IRPS, and one wished to eliminate both the IRPS and the rule in favor 
of the language of Sec. 1757(11) itself. Converting IRPS 82-5 to a 
regulation is consistent with NCUA's preference for using regulations

[[Page 56954]]

to implement statutory mandates and using IRPSs to offer guidance and 
articulate policy.
    Those who oppose conversion to a rule generally contend that credit 
unions may be misled to believe that the rule comprehensively addresses 
the statutory lien when in fact its operation may in certain respects 
rely on state laws which the rule neither expressly preempts nor 
expressly incorporates by reference. As described below, the final rule 
addresses this problem by itemizing preempted state law prerequisites 
in one case, Sec. 701.39(d)(3), and elsewhere by inserting the proviso 
``except as otherwise provided by law,'' which the rule defines. 
Sec. 701.39(a)(1).
    Two commenters requested that NCUA republish a proposed rule on 
statutory liens for a second round of public comments. This suggestion 
is premature, having been made before NCUA had even had an opportunity 
to react to the comments it received in response to the proposed rule. 
Furthermore, now that NCUA has reviewed those comments, a substantial 
number of suggested revisions have been adopted in the final rule. As a 
result, the final rule is quite different from the proposed rule, yet 
for the most part does not depart from the substance of IRPS 82-5. 
Thus, NCUA has concluded that a further round of comments is 
unwarranted.\1\
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    \1\ Two commenters requested that NCUA delay the effective date 
of the final rule to allow them to amend by-laws, policies and 
account and loan documentaiton to accommodate the proposed separate 
notice requirement. Because the final rule abandons that proposal, 
the request is declined.
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A. Section 701.39(a)--Definitions

    The proposed rule had no separate section devoted to definitions 
used in the rule, although several terms were defined in the text of 
the rule, e.g., ``statutory lien'' and ``member.'' NCUA concurs with 
commenters who suggested improving the rule by defining certain terms 
used frequently throughout. Thus, the final rule combines the existing 
and the new definitions in Sec. 701.39(a).
    1. ``Except as otherwise provided by law'' or ``except as otherwise 
provided by federal law.'' The proposed rule expressly provided that 
``A statutory lien pursuant to section 107(11) of the Act, 12 U.S.C. 
1757(11), preempts state laws governing the right of a creditor to 
impress and enforce a lien, as well as the common law right of set-
off.'' The purpose of this ``preemption'' provision was to put credit 
unions in parity with other federally-insured financial institutions by 
exempting them from state laws requiring a creditor to obtain a court 
judgment on the debt before enforcing a lien.
    Two commenters complained that the language of the provision as 
proposed is overbroad, sweeping within its ambit state laws that may 
benefit credit unions and on which they should be free to rely. Both 
commenters suggest that the final rule enumerate which state laws it 
preempts and which ones it does not preempt. One commenter advocates 
not preempting the common law right of set-off, so it will remain 
available to credit unions which prefer that over the statutory lien.
    To eliminate ambiguity caused by the proposed rule's blanket 
preemption provision, the final rule deletes that provision. In its 
place, NCUA has inserted the qualifying language ``except as otherwise 
provided by law'' or ``by federal law'' as a preface to several 
provisions of the rule.\2\ See Secs. 701.39(b), (c) and (d)(1). This 
proviso is defined as ``a federal and/or state law, as the case may be, 
which supersedes a requirement of [the rule.]'' ``Except as otherwise 
provided by law'' refers to both state and federal laws; ``except as 
otherwise provided by federal law'' refers to federal laws only. 
(emphasis added.) Section 701.39(a)(1) not only signals the possible 
existence of superseding federal and/or state law requirements, but 
alerts credit unions of their responsibility to ``ascertain whether 
such statutory or case law exists and is applicable.''
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    \2\ In one provision Sec. 701.39(d)(3), the final rule 
enumerates two specific prerequisites of state law from which the 
rule exempts federal credit unions when enforcing a statutory lien.
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    2. ``Impress.'' NCUA recognizes that ``impress'' is a term of art 
which may be unfamiliar. Therefore, the final rule defines it as the 
act of attaching a lien to a member's account, which makes the lien 
enforceable against the funds in that account. Sec. 701.39(a)(2).
    3. ``Member.'' The proposed rule defined a ``member'' for statutory 
lien purposes to include not only the maker of a note or equivalent 
instrument establishing indebtedness to the credit union, but also co-
makers and guarantors. Four commenters supported the effort to extend 
the reach of the statutory lien to accommodation parties, but suggested 
expanding the definition to encompass any member who is responsible for 
repayment of an obligation to the credit union. This would address the 
practice by credit unions of using various different terms to refer to 
different levels of responsibility for repayment, such as maker, co-
maker, guarantor, co-signer, endorser, surety, accommodation party. To 
that end, the final rule expands the definition of ``member'' to 
include ``any member who is primarily or secondarily responsible for an 
outstanding financial obligation to the credit union, including without 
limitation an obligor, maker, co-maker, guarantor, co-signer, endorser, 
surety or accommodation party.'' Sec. 701.39(a)(3).
    4. ``Notice.'' In response to comments about the vagueness and 
timing of the ``notice'' credit unions must give when impressing a 
statutory lien, see Sec. 701.39(c), the final rule defines the term 
``notice'' as written notice disclosing that the credit union has the 
right to impress and enforce a statutory lien in the event of failure 
to satisfy a financial obligation, and may do so without further notice 
to the member. Sec. 701.39(a)(4). In a significant departure from the 
proposed rule, the definition now provides that notice may be given at 
the time, or at any time before, the member incurs the financial 
obligation. In recognition of the increasing use of paperless 
electronic transactions, NCUA interprets ``written notice'' to include 
a notice conveyed in writing electronically, e.g., ``on-line'' or via 
e-mail, unless otherwise required by federal law or regulation. The 
rule contemplates a notice disclosing in plain language the practical 
effect of a statutory lien, rather than a technical definition of that 
term.
    5. ``Statutory lien.'' The proposed rule defined a statutory lien 
under Sec. 1757(11) as a security interest in a member's shares and 
dividends. Seven commenters insisted that this definition is 
technically incorrect and inappropriate for three reasons. First, 
because the statutory lien is a right conferred by statute, whereas a 
security interest is given voluntarily or consensually. Compare 11 
U.S.C. 101(51) with 11 U.S.C. 101(53). Second, because a security 
interest is by definition an interest generally limited to tangible 
property or fixtures. See Black's Law Dictionary 1357, 1413 (6th ed. 
1990) (``security interest'' and ``statutory lien''); UCC Sec. 1-
201(37); 26 U.S.C. 6323(h). Third, because ``security interest'' is a 
term of art associated with the Uniform Commercial Code (UCC), the 
statutory lien authority may be subject to interpretations under UCC 
Article 9 affecting attachment and enforceability.\3\ These criticisms 
are well taken. Therefore, the final rule redefines the term 
``statutory lien'' as ``a right in or claim to a member's shares and 
dividends equal to the amount of

[[Page 56955]]

that member's outstanding financial obligations to the credit union, as 
that amount varies from time to time.'' Sec. 701.39(a)(5).\4\
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    \3\ The UCC expressly provides that Article 9 ``does not apply * 
* * to a lien given by statute or other rule of law * * *.'' UCC 
Secs. 9-102(2), 9-104(c).
    \4\ A statutory lien is a ``floating'' lien, meaning it 
``floats'' as the outstanding balance of the obligation varies from 
time to time, and as the member's account balance is reduced by 
withdrawals or increased by deposits or dividend payments. When the 
statutory lien is enforced, it applies to all funds in the account 
at that point, which may be less than the outstanding balance of the 
obligation.
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    The proposed rule limited application of the statutory lien to 
outstanding indebtedness to the credit union consisting of ``loan 
principal and interest and other charges'' owed by a member as either 
maker, co-maker or guarantor of the indebtedness. This provision 
reflected a policy shift, articulated since IRPS 82-5, toward narrowing 
the scope of the statutory lien to loan-related indebtedness. NCUA 
received 23 comments overwhelmingly challenging this interpretation of 
Sec. 1757(11). As the commenters uniformly insisted, the statutory 
language of Sec. 1757(11) imposes no such limitation and, as noted in 
the preamble of the proposed rule, ``can be read to apply to member 
financial obligations beyond [loan-related] indebtedness to the credit 
union.'' 63 FR 57994. The comments caused NCUA to reconsider and to 
abandon its interpretation limiting the scope of Sec. 1757(11) to loan-
related indebtedness. Accordingly, the final rule expands the 
definition of ``statutory lien'' to encompass any ``outstanding 
financial obligation to the credit union,'' not just loan-related 
indebtedness. Sec. 701.39(a)(5).

B. Section 701.39(b)--Superior Claim

    1. Subordination. The proposed rule provided that a statutory lien 
``gives the federal credit union priority over all other creditors when 
claims are asserted against members' account(s).'' Five commenters 
contend that this is an overstatement because the credit union's lien 
remains subordinate to certain limited types of claims, e.g., an IRS 
levy and a perfected security interest in a share certificate. NCUA 
agrees. Instead of attempting to enumerate all possible instances where 
a statutory lien does not have priority, NCUA has revised the final 
rule to read: ``Except as otherwise provided by law, a statutory lien 
gives the federal credit union priority over other creditors when 
claims are asserted against a member's account(s).'' Sec. 701.39.
    2. Exemptions. Similarly, the proposed rule contained an 
``exemptions'' provision enumerating three instances in which federal 
law bars resort to a statutory lien to offset an outstanding financial 
obligation.\5\ Nine commenters raised two principal objections to this 
provision. First, that an itemized list of exemptions which is less 
than complete--as they contend was the case in the proposed rule--is 
``a trap for the unwary'', who may be misled to rely on it as the sole, 
comprehensive source of interpretation of federal law exemptions. These 
commenters advocate either eliminating the proposed ``exemption'' 
provision altogether from the final rule, or making it truly 
comprehensive by completely enumerating all federal law exemptions. 
Second, that the final rule should not attempt to itemize specific 
statutory lien exemptions because, far from being uniformly settled, 
the applicability of each is subject to evolving interpretation of the 
law based on the facts of each case. Taking account of these comments, 
NCUA has decided to omit an ``exemptions'' provision from the final 
rule and, instead, to put credit unions on notice by prefacing the 
sections on impressing and enforcing a statutory lien (Secs. 701.39(b) 
and (c)) with the qualifying language ``except as otherwise provided by 
federal law''--a proviso which the rule defines. Sec. 701.39(a)(1).\6\
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    \5\ Impressing a lien upon an Individual Retirement Account, 26 
U.S.C. 408(a)(4); enforcing a lien to offset credit card debt, 12 
CFR 226.12(d); and enforcing a lien on a member's account which is 
the subject of an ``automatic stay'' in bankruptcy. 11 U.S.C. 
362(a)(7).
    \6\ Four commenters criticized guidance in the preamble (but not 
in the proposed rule itself) for failing to take account of the 
impact of state law definitions of ownership interests in a credit 
union account e.g., partnerships, trusts, tenants by the entirety. 
To prevent unequal treatment of federal credit unions and state-
chartered credit unions, the final rule does not preempt these 
definitions. Thus, the definition of an ownership interest may 
restrain a credit union from enforcing a lien on the account of a 
member who falls outside the definition of the member who has failed 
to satisfy a financial obligation to the credit union. For example, 
if an individual member fails to repay a loan to the credit union, 
the credit union may impress and enforce a lien on that member's 
other personal accounts at the credit union; however, the credit 
union may not enforce a lien on an account owned by that member as 
tenant by the entirety with his or her spouse.
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C. Section 701.39(c)--Impressing a Statutory Lien

    Following IRPS 82-5, the proposed rule authorized credit unions to 
impress a statutory lien in either of three ways: (1) By noting the 
existence of the lien in the credit union's records of the member's 
account(s); (2) by reciting in a loan document signed by the member 
that shares and dividends are subject to the lien; or (3) by duly 
adopting a by-law or policy of the board of directors establishing a 
statutory lien to satisfy its members' delinquent indebtedness. See, 
e.g., Federal Credit Union Bylaws, Art. III, Sec. 5(d) (12/87 ed.). In 
contrast to IRPS 82-5, the proposed rule required written disclosure to 
the member at the time a statutory lien is impressed by notation on a 
member's account record, or through a duly adopted by-law or policy. 
Under the definition of ``member,'' this also would require notice to 
accommodation parties. See Sec. 701.39(a)(2). The final rule modifies 
the proposed options as follows.
    1. Separate notice proposal. Eight commenters oppose the new so-
called ``separate notice'' requirement altogether, and three prefer it 
in modified form, despite acknowledging its purpose--to ensure that 
members are aware when their credit union exercises its right to 
impress a lien on their accounts. The commenters object that the 
separate notice requirement imposes an undue regulatory burden because: 
(1) It is redundant if a credit union already has included such notice 
in the member's account opening documentation; (2) it could be 
interpreted as demanding an explanation of the literal term ``statutory 
lien,'' instead of or in addition to disclosure of its effect on a 
member's account, thereby forcing credit unions to modify and reprint 
account and loan forms; and (3) there is no apparent record of 
disclosure problems justifying additional notice to members. One 
commenter condemned the entire provision on impressing a lien as a 
regulatory burden at odds with the Regulatory Flexibility Act; 
compliance with that statute is addressed below in section III of the 
preamble.
    NCUA has determined that its disclosure objective still can be 
accomplished by a notice requirement that is consistent with credit 
unions' nearly uniform practice of disclosing the right to impress and 
enforce a statutory lien in advance in account opening and loan 
documentation. The final rule's definition of ``notice'' codifies this 
practice. Sec. 701.39(a)(4). Moreover, the definition abandons the 
proposal to require separate notice at the time a loan is granted or a 
financial obligation is incurred even when such notice already was 
given by a method prescribed in the rule. This relaxation of the 
original separate notice proposal should minimize, if not completely 
eliminate, any additional regulatory burden.
    2. Account documentation. The language from IRPS 82-5 allowing a 
lien to be impressed ``by noting the existence of the lien of the on 
the credit union's records of the member's account(s)'' is archaic. The 
modern equivalent of ``noting the existence of the lien'' is to give 
members advance notice of the right to impress and enforce it, and the

[[Page 56956]]

modern equivalent of a ``credit union's record(s) of the member's 
account(s)'' in which that disclosure is made is an account agreement 
or other account opening documentation. To reflect this reality, the 
final rule permits credit unions to impress a statutory lien ``by 
giving notice thereof in the member's account agreement(s) or other 
account opening documentation.'' Sec. 701.39(c)(1).
    3. Signature requirement. Two commenters questioned the signature 
requirement for a loan document reciting that shares and dividends are 
subject to a lien, pointing out that loan documents such as credit card 
agreements do not require the borrower's signature, and that loans 
increasingly are contracted for through paperless electronic 
transactions in which a signature is anachronistic. To account for 
these developments, the final rule provides that a loan document must 
be ``signed or otherwise acknowledged by the member(s).'' 
Sec. 701.39(c)(2).
    4. Board policy. Seven commenters who advocated permitting a 
statutory lien to be impressed by means of a duly-adopted policy of the 
board of directors apparently overlooked the proposed rule's provision 
exactly to that effect. It is retained without modification in the 
final rule. Sec. 701.39(b)(3).

D. Section 701.39(d)--Enforcing a Statutory Lien

    1. Application of funds. Under proposed rule, a statutory lien is 
enforced on a member's account ``by debiting the balance of funds in 
the account and applying it to offset the member's outstanding 
indebtedness * * *.'' Although no comment addressed this subsection, 
the following conforming and technical revisions have been made. First, 
the proviso ``Except as otherwise provided by federal law'' now 
precedes the text of the subsection. Sec. 701.39(d)(2). Second, the 
words ``applying [the balance] to offset the member's indebtedness, 
including unpaid loan principal and interest, and fees and charges 
attributable to the indebtedness'' have been replaced by the words 
``applying [funds] to the extent of any of the member's outstanding 
financial obligations due and payable to the credit union.'' Id.
    2. Default required. The proposed rule required that a member be in 
default on his or her indebtedness to the credit union before it can 
enforce its statutory lien.\7\ The one comment addressing this 
provision suggested defining ``default'' for enforcement purposes as 
``the failure to satisfy a financial obligation.'' The final rule 
adopts this suggestion, but also inserts the word ``outstanding'' 
preceding ``financial obligation.'' Sec. 701.39(d)(2). NCUA interprets 
the words ``financial obligation'' to encompass not only a repayment 
obligation, but related nonmonetary obligations such as a restriction 
on the sale of collateral securing a loan.
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    \7\ Default as a prerequisite for enforcement distinguishes a 
statutory lien from a loan secured by the member's pledge of his or 
her shares (commonly known as a ``share secured loan''). Until a 
statutory lien is enforced following a member's default, the member 
is permitted to make withdrawals from the impressed account(s) even 
to a level below that of the outstanding obligation. In the case of 
a share secured loan, however, the member never can make withdrawals 
below the level of the outstanding obligation.
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    3. Neither judgment nor set-off required. The proposed rule 
provides that a court judgment on the member's debt is not a 
prerequisite to enforcement of a statutory lien. This provision 
expressly preempts state laws to the contrary. No comment addressed 
this subsection. However, to indicate that credit unions also need not 
exercise the equitable right of set-off as a prerequisite to enforcing 
a statutory lien, a clause to that effect has been inserted within this 
subsection. Sec. 701.39(d)(3).

E. Withdrawal of Current Interpretive Ruling and Policy Statement

    Concurrent with the effective date of the final rule implementing 
the statutory lien, the NCUA Board withdraws the current IRPS 82-5, 47 
FR 57483 (December 27, 1982).

III. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any proposed regulation may 
have on a substantial number of small entities (primarily those under 
$1 million in assets). The final rule on the statutory lien would 
reduce existing regulatory burdens. Therefore, the NCUA Board has 
determined and certifies that the final rule will not have a 
significant economic impact on a substantial number of small credit 
unions. Accordingly, a Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

    The final rule has no information collection requirements. 
Therefore, no Paperwork Reduction Act analysis is required.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. The final rule does not apply to State-
chartered credit unions and, thus, would not effect State interests. 
Therefore, no analysis is required.

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Insurance, Liens, Mortgages, Reporting and 
recordkeeping requirements, Surety bonds, Statutory liens

    By the National Credit Union Administration Board on October 6, 
1999.
Becky Baker,
Secretary of the Board.

    Accordingly, 12 CFR chapter VII is amended 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, and 1789. Section 701.6 is also 
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C 4311-4312.

    2. Part 701 is amended to add Sec. 701.39, which reads as follows:


Sec. 701.39  Statutory lien.

    (a) Definitions. Within this section, each of the following terms 
has the meaning prescribed below:
    (1) Except as otherwise provided by law or except as otherwise 
provided by federal law is a qualifying phrase referring to a federal 
and/or state law, as the case may be, which supersedes a requirement of 
this section. It is the responsibility of the credit union to ascertain 
whether such statutory or case law exists and is applicable;
    (2) Impress means to attach to a member's account and is the act 
which makes the lien enforceable against that account;
    (3) Member means any member who is primarily, secondarily or 
otherwise responsible for an outstanding financial obligation to the 
credit union, including without limitation an obligor, maker, co-maker, 
guarantor, co-signer, endorser, surety or accommodation party;
    (4) Notice means written notice to a member disclosing, in plain 
language, that the credit union has the right to impress and enforce a 
statutory lien against the member's shares and dividends in the event 
of failure to satisfy a financial obligation, and may enforce the right 
without further notice to the member. Such notice must be given at the 
time, or at any time before,

[[Page 56957]]

the member incurs the financial obligation;
    (5) Statutory lien means the right granted by section 107(11) of 
the Federal Credit Union Act, 12 U.S.C. 1757(11), to a federal credit 
union to establish a right in or claim to a member's shares and 
dividends equal to the amount of that member's outstanding financial 
obligation to the credit union, as that amount varies from time to 
time.
    (b) Superior claim. Except as otherwise provided by law, a 
statutory lien gives the federal credit union priority over other 
creditors when claims are asserted against a member's account(s).
    (c) Impressing a statutory lien. Except as otherwise provided by 
federal law, a credit union can impress a statutory lien on a member's 
account(s)--
    (1) Account records. By giving notice thereof in the member's 
account agreement(s) or other account opening documentation; or
    (2) Loan documents. In the case of a loan, by giving notice thereof 
in a loan document signed or otherwise acknowledged by the member(s); 
or
    (3) By-Law or policy. Through a duly adopted credit union by-law or 
policy of the board of directors, of which the member is given notice.
    (d) Enforcing a statutory lien. (1) Application of funds. Except as 
otherwise provided by federal law, a federal credit union may enforce 
its statutory lien against a member's account(s) by debiting funds in 
the account and applying them to the extent of any of the member's 
outstanding financial obligations to the credit union.
    (2) Default required. A federal credit union may enforce its 
statutory lien against a member's account(s) only when the member fails 
to satisfy an outstanding financial obligation due and payable to the 
credit union.
    (3) Neither judgment nor set-off required. A federal credit union 
need not obtain a court judgment on the member's debt, nor exercise the 
equitable right of set-off, prior to enforcing its statutory lien 
against the member's account.

[FR Doc. 99-26755 Filed 10-21-99; 8:45 am]
BILLING CODE 7535-01-P