La. Admin. Code tit. 10 § IX-303

Current through Register Vol. 50, No. 11, November 20, 2024

Section IX-303 - Investments in and Loans to Credit Union Service Organizations

A. Scope. Sections 644(B)(3)(d) of Title 6 of the Louisiana Revised Statutes authorize state-chartered credit unions to invest in and make loans to credit union service organizations. This rule implements that statute by addressing various issues, including monetary limits on loans and investments, the structure of credit union service organizations, their customer base, and the range of services and activities that they may provide. The rule also establishes prudent standards for a state-chartered credit union's involvement with credit union service organizations, through provisions concerning conflicts of interest, accounting practices, and access by the Office of Financial Institutions to books and records. The rule applies only in cases where one or more state-chartered credit unions have invested in or made loans to an organization pursuant to Section 644(B)(3)(d) The rule does not regulate credit union service organizations directly; instead, it establishes conditions of state-chartered credit union investments in and loans to such organizations.

B. Limits Imposed by R.S. 6:644(B)(4)(d) and R.S. 6:656(A)(4). The provisions of Chapter 8, Title 6, Louisiana Revised Statutes, Credit Unions:

1. authorize a state-chartered credit union to invest in shares, stocks, loans, or other obligations of credit union service organizations in amounts not exceeding, in the aggregate, 1 percent of the credit union's paid-in and unimpaired capital and surplus;

2. authorize a state-chartered credit union to make loans to credit union service organizations in amounts not exceeding, in the aggregate, one percent of the credit union's paid-in and unimpaired capital and surplus;

3. require that a credit union service organization's activities be confined or restricted to credit unions and exist primarily to meet the needs of their member credit unions, and whose business relates to the daily operations of the credit unions they serve; and

4. require that a state-chartered credit union's investment in or loan to a credit union service organization must receive the prior approval of the board of directors and documented in its official minutes.

C. Definitions

Affiliated Credit Union- a credit union which has either invested in or made loans to a credit union service organization.

Immediate Family Member- a spouse or other family member living in the same household.

Official- any director or committee member.

Paid-in and Unimpaired Capital and Surplus-shares and undivided earnings.

Senior Management Employee- the credit union's president, vice president, secretary, treasurer, chief executive officer, any assistant chief executive officers, the chief financial officer, or any other elected officer of an affiliated credit union.

D. Regulatory Provisions

1. Limits on Funding. A state-chartered credit union, either alone or with other credit unions and/or with non-credit-union parties, may invest in and/or lend to a credit union service organization. A state credit union's investment in paid-in and unimpaired capital and surplus of a credit union service organization may not exceed, in the aggregate, one percent of the credit union's capital and surplus as of its last calendar year-end financial report. In addition, a state-chartered credit union's loans to credit union service organizations may not exceed, in the aggregate, one percent of the credit union's paid-in and unimpaired capital and surplus as of its last calendar year-end financial report.

2. Structure. A state-chartered credit union may invest in or lend to a credit union service organization only if the organization is structured as a corporation or a limited partnership.

a. Corporation. A credit union service organization chartered as a corporation or limited liability company must be adequately capitalized and operated as a separate entity. A state-chartered credit union investing in or lending to such a corporation must take all steps necessary to ensure that it will not be held liable for obligations of the corporation.

b. Limited Partnership. A state-chartered credit union may participate only as a limited partner in a credit union service organization structured as a limited partnership or registered limited liability partnership. As a limited partner, the credit union must not engage in those activities (e.g., control, management, decision making), which, under state law, would cause the credit union to lose its status as a limited partner, and, correspondingly, its limited liability, and be treated as a general partner.

3. Legal Opinion. A state-chartered credit union making an investment in or loan to a credit union service organization must obtain written legal advice as to whether the credit union service organization is established in a manner that will limit the credit union's potential exposure to no more than the loss of funds invested in or lent to the credit union service organization.

4. Customer Base. A state-chartered credit union may invest in or loan to a credit union service organization only if the organization primarily serves credit unions and/or the membership of affiliated credit unions, as defined in Subsection C of this Section.

5. Permissible Services and Activities

a. A state-chartered credit union may invest in and/or loan to those credit union service organizations which provide only one or more of the following services and activities.

i. Operational Services. Credit card and debit card services; check cashing and wire transfers; internal audits for credit unions; ATM services; EFT services; data processing; shared credit union branch (service center) operations; sale of repossessed collateral; management, development, sale or lease of fixed assets; sale, lease or servicing of computer hardware or software; management and personnel training and support; payment item processing; locator services; marketing services; research services; record retention and storage; microfilm, microfiche, and optical disk services; alarm monitoring and other security services; debt collection services; credit analysis; consumer mortgage loan origination; loan processing, servicing and sales; coin and currency services; provision for forms and supplies.

ii. Financial Services. Financial services are limited to those activities as enumerated in 12 CFR §701.27 (d)(5)(ii), and approved for federally-chartered credit unions operating in the state.

b. Additional services or activities must be approved by the Commissioner of Financial Institutions before a state-chartered credit union may invest in or loan to the credit union service organization that offers the service or activity.

6. Conflict of Interest

a. Individuals who serve as officials of, or senior management employees of an affiliated state-chartered credit union, as defined in Subsection C of this Section, and immediate family members of such individuals, may not receive any salary, commission, investment income, or other income or compensation from a credit union service organization, either directly or indirectly, or from any person being served through the credit union service organization. This provision does not prohibit an official or senior management employee of a state-chartered credit union from serving on the board of directors of a credit union service organization, provided the individual is not compensated by the credit union service organization.

b. The prohibition contained in Subparagraph D.6.a of this Section also applies to any affiliated state-chartered credit union employee not otherwise covered if that employee is directly involved in dealing with the credit union service organization, unless the board of directors determines that the employee's position does not present a conflict of interest.

c. All transactions with business associates or family members not specifically prohibited by Subparagraphs D.6.a-c must be conducted at arm's length and in the interest of the credit union.

7. Accounting Procedures; Access to Information

a. Credit Union Accounting. A state-chartered credit union must follow Generally Accepted Accounting Principles (GAAP) in its involvement with credit union service organizations.

b. Credit Union Service Organization Accounting; Audits and Financial Statements; OFI Access to Books and Records. An affiliated state-chartered credit union must obtain written agreements from a credit union service organization, prior to investing in or lending to the organization, that the organization will:

i. follow GAAP;

ii. render financial statements (balance sheet and income statement) at least quarterly and obtain a certified public accountant audit annually and provide copies of such to the affiliated state-chartered credit union; and

iii. provide the Commissioner of Financial Institutions, or his designated representatives, with complete access to any books and records of the credit union service organization, as deemed necessary in carrying out his responsibilities under the Louisiana Credit Union Law;

iv. notwithstanding the examinations fees, authorized by R.S. 6:646(B)(4), the commissioner may charge a fee of $50 per hour per examiner for the purpose of determining whether an affiliated state-chartered credit union and the credit union service organization are in compliance with the Louisiana Credit Union Law and this rule. The cost of any such compliance review shall be billed directly to the credit union service organization.

E. Other Laws. A credit union service organization must comply with applicable state, federal and local laws.

F. Effective Date. This rule shall become effective on October 20, 1994.

La. Admin. Code tit. 10, § IX-303

Promulgated by the Department of Economic Development, Office of Financial Institutions, LR 20:1093 (October 1994).

AUTHORITY NOTE: Promulgated in accordance with R.S. 6:121(B)(1).