Requirements for Insurance and Technical Amendments

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