Organization and Operations of Federal Credit Unions; Statutory Lien

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