Chapter 95 Oregon Laws 2005

AN ACT

HB 2578

Relating to the regulation of credit union operations; creating new provisions; amending ORS 723.032, 723.152, 723.196, 723.262, 723.296, 723.326, 723.602, 723.631 and 723.636; repealing ORS 723.462; and declaring an emergency.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 723.032 is amended to read:

723.032. (1) A credit union may establish a place of business or change its place of business within this state upon written notice to the Director of the Department of Consumer and Business Services.

(2) A credit union may establish additional places of business upon written application to the director [of the Department of Consumer and Business Services]. The application shall be accompanied by a $500 fee. The fee shall be paid only with applications for the establishment of new places of business. Except as provided in subsection (3) of this section, mobile facilities described in subsection (3) of this section are considered new places of business. The fee is not required to be paid with applications relating to the acquisition or relocation of existing places of business. The director may approve or disapprove the application. If the director does not disapprove an application within 30 days after a completed application is received, the application shall be considered approved.

(3) A credit union may establish one or more mobile facilities to engage in credit union operations. Mobile facilities of a credit union having the membership described in ORS 723.172 (2)(a) may operate in this state or in other states. Mobile facilities of a credit union having the membership described in ORS 723.172 (2)(b) may operate only within the well-defined local community, neighborhood or rural district served by the credit union. An application and fee are not required under this section for mobile facilities that exercise permissible credit union powers or engage in permissible credit union activities but that do not accept deposits.

[(3)] (4) The director may limit or restrict the ability of a credit union to establish additional places of business upon written notice to the credit union if the director determines that the safety and soundness of the credit union would be adversely affected by any addition.

[(4)] (5) A credit union may share office space with one or more credit unions and contract with any person or corporation to provide facilities or personnel.

SECTION 2. Section 3 of this 2005 Act is added to and made a part of ORS chapter 723.

SECTION 3. (1) The Director of the Department of Consumer and Business Services shall receive and file in the Department of Consumer and Business Services all reports required under ORS chapter 723.

(2) Except as provided in subsection (3) of this section, the records of the department pertaining to the administration of ORS chapter 723 are available for public inspection unless the director determines in the particular instance that the public interest in disclosing the records is outweighed by the interests of the credit union or its directors, members, officers or employees in keeping the records confidential, or that the records are exempt from disclosure under ORS 192.501 to 192.505. A determination by the director under this subsection is subject to review under ORS 192.410 to 192.505.

(3) Except as provided in subsections (4) and (5) of this section, the following records of the department are exempt from disclosure or production and shall be treated as confidential as provided in ORS 705.137:

(a) Examination reports and work papers, directives, orders and correspondence that relate to examination reports.

(b) Investigatory information concerning persons subject to investigation by the director under ORS 723.014 or 723.132 and financial statements of those persons.

(c) Proprietary information.

(d) Reviews of financial statements submitted to the director.

(e) The name of a member or borrower and the amount of shares, deposits or debts of a member or borrower.

(4) Notwithstanding subsection (3) of this section and except as otherwise provided in this subsection, the director may disclose any record of the department specified in this subsection pertaining to a credit union that has been liquidated under ORS 723.676 if the director determines in the particular instance that the public interest in disclosing the record outweighs the interests of the credit union or its directors, members, officers or employees in keeping the record confidential. The director may not disclose any record or portion of a record that contains any proprietary information or any information relating to the individual financial activities or affairs of persons unless the director concludes that those activities or affairs were a direct and substantial contributing factor in the failure of the credit union. This subsection applies to the following records of the department:

(a) Examination reports and work papers, directives, orders and correspondence that relate to examination reports.

(b) Investigatory information concerning persons subject to investigation by the director under ORS 723.014 or 723.132.

(c) Reviews of financial statements.

(d) Reports filed under ORS 723.106.

(5) Notwithstanding ORS 40.270, an officer of the department may be examined concerning records that are exempt from disclosure under subsection (2) or (3) of this section and the records are subject to production if the court before which a civil or criminal action is pending finds that the examination and production is essential for establishing a claim or defense. In making a finding under this subsection, if the court views the records, the court shall do so in camera.

(6) All records of the department pertaining to the condition of credit unions may be furnished to:

(a) The National Credit Union Administration.

(b) The Federal Home Loan Bank of which the credit union is a member or to which the credit union has applied for membership.

(c) The State Treasurer if the credit union is a depository of public fund deposits.

(d) The respective credit union.

(7) If the director is requested to disclose any record subject to this section and the record contains both material that is exempt from disclosure under this section or any other provision of law and material that is not exempt from disclosure, the director shall separate the exempt and nonexempt material and may disclose only the nonexempt material.

SECTION 4. ORS 723.152 is amended to read:

723.152. In addition to the powers conferred by the general corporation law a credit union may, subject to the restrictions and limitations contained in this chapter and its bylaws:

(1) Make contracts.

(2) Sue and be sued.

(3) Adopt and use a common seal and alter same.

(4) Acquire, lease, hold and dispose of property, either in whole or in part, necessary or incidental to its operations.

(5) At the discretion of the board of directors, require the payment of an entrance fee or annual membership fee, or both, of any person admitted to membership.

(6) Receive savings from its members in the form of various classes of shares, deposits or deposit certificates, deposit accounts or special-purpose thrift accounts.

(7) Receive from its members or from another credit union deposits or deposit certificates, deposit accounts or various classes of shares payable on nonnegotiable request.

(8) Lend its funds to its members and credit unions as provided in this chapter.

(9) Acquire and lease personal property at the request of a member who wishes to lease the property on terms requiring payment, during the term of the lease, of rents that exceed the total expenditures made by the credit union for the acquisition, ownership, financing and protection of the property. Rents may include residual value payments that are the obligation of a responsible third party.

(10) Borrow from any source in accordance with policy established by the board of directors and issue debentures pursuant to a plan approved by the Director of the Department of Consumer and Business Services. The debentures shall be subordinate to the shares and deposits of the credit union.

(11) Discount and sell any eligible obligations, subject to rules adopted by the Director of the Department of Consumer and Business Services.

(12) Sell all or substantially all of its assets or purchase all or substantially all of the assets of another credit union, subject to the approval of the director.

(13) Invest surplus funds as provided in this chapter.

(14) Make deposits in legally chartered banks, savings banks, savings and loan associations, trust companies and credit unions.

(15) Assess charges to members in accordance with the bylaws for failure to meet promptly their obligations to the credit union.

(16) Hold membership in other credit unions organized under this chapter or other state or federal laws, and in other associations and organizations composed of credit unions.

(17) Declare dividends, pay interest on deposit and deposit certificate accounts and pay interest refunds to borrowers as provided in this chapter.

(18) Offer products and services reasonably related to the purposes of a credit union as set forth in ORS 723.006.

(19) Receive deposits from the federal government or this state, or any agency or political subdivision thereof.

(20) Make donations or contributions to any civic, charitable, political or community organization as authorized by the board of directors, subject to any rules adopted by the director.

(21) Act as a custodian of qualified pension funds of members if permitted by federal law.

(22) Purchase or make available insurance for its directors, officers, agents, employees and members.

(23) Allow its members to use share accounts, deposit accounts or deposit certificate accounts as share draft accounts as provided in ORS 723.434.

(24) Provide digital signature verification or other electronic authentication services to its members.

(25) Act as trustee or custodian for members [of individual retirement accounts or other arrangements established pursuant to sections 408 and 530 of the Internal Revenue Code, deferred compensation accounts established pursuant to section 457 of the Internal Revenue Code, or any other qualified individual retirement account established pursuant to the provisions of the federal Employee Retirement Income Security Act of 1974] under any written trust instrument or custodial agreement in connection with a tax-advantaged savings plan authorized under the Internal Revenue Code, including but not limited to individual retirement, deferred compensation, education savings and health savings accounts, provided that the trust instrument or custodial agreement [establishing the arrangement] requires all funds subject to the [arrangement] instrument or agreement to be invested exclusively in share or deposit accounts in the credit union. The State of Oregon, or the applicable instrumentality or municipality, [shall be deemed] is considered to be a member with respect to such deposits, except that the state or other instrumentality or municipality [shall not be] is not entitled to vote, hold office or otherwise participate in the management or operation of the credit union.

(26) Indemnify its directors, officers, employees and committee members or other volunteers in accordance with the provisions of its articles, bylaws and the indemnification provisions of ORS chapter 60.

(27) Exercise other powers that are necessary to carry out the credit union’s purpose.

SECTION 5. ORS 723.196 is amended to read:

723.196. (1) The annual meeting and any special meetings of the members of the credit union shall be held at the time[,] and place[,] and in the manner indicated by the bylaws.

(2) At [all such meetings a member shall have but] meetings described in subsection (1) of this section, a member has one vote, irrespective of the amount of that member’s shareholdings. [No] A member may not vote by proxy, but a member may vote by [absentee] mail or electronic ballot if allowed by the bylaws of the credit union [so provide]. The board of directors shall establish procedures to safeguard the confidentiality and integrity of the voting process. As used in this subsection, “electronic” has the meaning given that term in ORS 84.004.

(3) The board [of directors] may establish a minimum age as a qualification of eligibility to vote at meetings of the members.

SECTION 6. ORS 723.262 is amended to read:

723.262. (1) Subject to subsection (2) of this section, the board of directors [shall] may fill any vacancies occurring in the board until successors elected at the next annual meeting have qualified.

(2) If a vacancy occurring in the board reduces the number of directors to five or fewer, the board shall fill the vacancy until a successor elected at the next annual meeting has qualified.

(3) The board shall also fill vacancies in the credit and supervisory committees or in the office of credit manager.

SECTION 7. ORS 723.296 is amended to read:

723.296. [It shall be the duty of the directors to:]

[(1) Act upon applications for membership or appoint one or more membership officers to approve applications for membership under such conditions as the board prescribes. A record of a membership officer’s approval or denial of membership shall be available to the board of directors for inspection. A person denied membership by a membership officer may appeal the denial to the board.]

[(2) Purchase a blanket fidelity bond, in accordance with ORS 723.122.]

[(3) Determine from time to time the interest rate or rates that shall be charged on loans and to authorize interest refunds, if any, to members from income earned and received in proportion to the interest paid by them on such classes of loans and under such conditions as the board prescribes.]

[(4) Fix from time to time the maximum amount that may be loaned to any one member.]

[(5) Establish different types or classes of shares.]

[(6) Declare dividends on shares and share certificates in the manner and form as provided in the bylaws and determine the interest rate or rates that will be paid on deposits and deposit certificates.]

[(7) Limit the number of shares and the amount of deposits that may be owned by a member. Limitations adopted under this subsection must apply alike to all members.]

[(8) Have charge of the investment of surplus funds, except that the board of directors may designate an investment committee or any qualified individual to have charge of making investments under controls established by the board of directors.]

[(9) Authorize the employment of such persons necessary to carry on the business of the credit union, fix the compensation, if any, of the treasurer or general manager, and provide for compensation for other employees within guidelines predetermined by the board of directors.]

[(10) Authorize the conveyance of property.]

[(11) Borrow or lend money to carry on the functions of the credit union.]

[(12) Designate a depository or depositories for the funds of the credit union.]

[(13) Suspend any or all members of the credit or supervisory committee for failure to perform their duties.]

[(14) Appoint any special committees deemed necessary.]

[(15) Perform such other duties as the members from time to time direct, and perform or authorize any action not inconsistent with this chapter and not specifically reserved by the bylaws for the members.]

(1) The board of directors shall manage the business and affairs of the credit union. The duties of the board include, but are not limited to, the duties listed in this section. The board may not delegate duties listed in subsection (2) of this section. The board may delegate the duties listed in subsection (3) of this section to a committee, officer or employee of the credit union, who shall provide appropriate information to the board regarding the exercise of the duties.

(2) The board shall:

(a) Establish the requirements for membership in the credit union, including the par value, if any, of a share;

(b) Declare dividends on shares and share certificates as provided by the bylaws;

(c) Authorize interest refunds, if any, to members from income earned and received in proportion to the interest paid by them on classes of loans and under conditions that the board prescribes;

(d) Authorize the employment of persons necessary to carry on the business of the credit union and fix the compensation of the manager or chief executive officer;

(e) Authorize the conveyance of property;

(f) Suspend members of the credit or supervisory committee for failure to perform their duties;

(g) Appoint any special committees the board considers necessary;

(h) Perform other duties as the members of the credit union from time to time direct, and perform or authorize any action not inconsistent with this chapter and not specifically reserved by the bylaws for the members;

(i) Limit the number of shares and the amount of deposits that may be owned by a member and ensure that limitations adopted under this subsection apply alike to all members; and

(j) Establish policies and controls regarding the investment of surplus funds.

(3) In addition to the duties listed in subsection (2) of this section, and subject to subsection (1) of this section, the board shall:

(a) Act upon applications for membership. If this duty is delegated, a record of an approval or denial of membership must be made available to the board. A person denied membership by a committee, officer or employee of the credit union may appeal the denial to the board.

(b) Purchase a blanket fidelity bond, in accordance with ORS 723.122.

(c) Determine from time to time the interest rate or rates that shall be charged on loans.

(d) Determine the prospective dividend rate to be paid on shares and share certificates and the interest rate or rates that will be paid on deposits and deposit certificates.

(e) Designate a depository or depositories for the funds of the credit union.

(f) Borrow or lend money to carry out the functions of the credit union.

SECTION 8. ORS 723.326 is amended to read:

723.326. (1) The supervisory committee by a unanimous vote may suspend any member of the credit committee and shall report such action to the board of directors for appropriate action.

(2) The supervisory committee by a unanimous vote may suspend any officer or member of the board [of directors] until the next members’ meeting[, which shall]. The next members’ meeting must be held not less than [seven] 14 nor more than [21] 45 days after the suspension. At [such] the meeting the members shall decide whether to remove the suspended officer or board member.

(3) Any member of the supervisory committee may be removed by the board [of directors] for failure to perform duties prescribed in this chapter or in the credit union’s articles of incorporation, bylaws or policies.

(4) A person may not serve as a director if the person has defaulted on payment of a voluntary obligation to the credit union or has otherwise caused the credit union to incur a financial loss.

SECTION 9. ORS 723.602 is amended to read:

723.602. Funds not used in loans to members may be invested:

(1) In securities, obligations or other instruments of or issued by or fully guaranteed as to principal and interest by the United States or any agency thereof or in any trust or trusts established directly or collectively in the same.

(2) In obligations of any state of the United States, the agencies or instrumentalities of the federal government, the District of Columbia, the Commonwealth of Puerto Rico and the several territories organized by Congress, or any political subdivision thereof.

(3) In certificates of deposit or passbook type accounts issued by a state or national bank, mutual savings bank or savings and loan association.

(4) In loans to or in shares or deposits of other credit unions.

(5) In [the shares,] stocks, membership units or other ownership interests [or obligations of] in a corporation, limited liability company or mutual association[, provided that] in an amount not to exceed one percent of assets if:

(a) The ownership or membership, as applicable, is primarily confined to credit unions or organizations of credit unions[,];and [provided]

(b) The purposes for which [such] the agency or association is organized are designed primarily to service or otherwise assist credit union operations[, not to exceed one percent of assets].

(6) In addition to the limit specified in subsection (5) of this section, in loans to a corporation, limited liability company or mutual association, in an amount not to exceed one percent of assets, if:

(a) The ownership or membership, as applicable, is primarily confined to credit unions or organizations of credit unions; and

(b) The purposes for which the agency or association is organized are designed primarily to service or otherwise assist credit union operations.

[(6)] (7) In shares of a credit union cooperative society organized under the laws of this state or of the laws of the United States in the total amount not exceeding one percent of the shares, deposits, and surplus of the credit union.

[(7)] (8) In loans to any credit union association or corporation, national or state, of which the credit union is a member, except that such investments shall be limited to two percent of the assets of the credit union.

[(8)] (9) In such other investments as approved by the Director of the Department of Consumer and Business Services by rule or order.

SECTION 10. ORS 723.631 is amended to read:

723.631. [(1) At the end of each accounting period, the gross earnings of the credit union shall be determined. From this amount the credit union shall set aside as a regular reserve for contingencies an amount in accordance with the following schedule:]

[(a) A credit union in operation for more than four years and having assets of $500,000 or more shall set aside 10 percent of gross earnings until the regular reserve equals four percent of the total outstanding loans and risk assets. The credit union shall then set aside five percent of gross earnings until the regular reserve equals six percent of the total outstanding loans and risk assets; and]

[(b) A credit union in operation for four years or less or having assets of less than $500,000 shall set aside 10 percent of gross earnings until the regular reserve equals seven and one-half percent of the total of outstanding loans and risk assets. The credit union shall then set aside five percent of gross earnings until the regular reserve equals 10 percent of the total outstanding loans and risk assets.]

[(2) Whenever the regular reserve falls below the applicable amount described in subsection (1) of this section, it shall be replenished by regular contributions in amounts as are necessary to maintain the stated reserve goals. The Director of the Department of Consumer and Business Services may decrease the reserve requirements set forth in this section when necessary or desirable.]

[(3) In addition to the regular reserve required in subsection (1) of this section, a credit union shall establish a reserve for loan losses. The credit union shall allocate sufficient funds each month to the reserve for loan losses in an amount at least equal to the credit union’s best estimate of the losses the credit union expects to sustain in the liquidation of currently outstanding loans.]

[(4) As used in this section, “risk assets” has the meaning given that term in regulations adopted by the National Credit Union Administration.]

(1) A credit union shall establish and maintain a regular reserve for contingencies. The Director of the Department of Consumer and Business Services may adopt rules prescribing:

(a) Minimum net worth requirements for credit unions; and

(b) Actions to be taken by a credit union when the net worth of the credit union falls below the applicable minimum net worth requirement.

(2) In addition to the regular reserve required in subsection (1) of this section, a credit union shall establish a reserve for loan losses. The credit union shall allocate sufficient funds each month to the reserve for loan losses to maintain the reserve for loan losses in an amount at least equal to the credit union’s best estimate of the losses the credit union expects to sustain in the liquidation of currently outstanding loans.

SECTION 11. ORS 723.636 is amended to read:

723.636. [The regular reserve established under ORS 723.631 (1) shall belong to the credit union, shall be used to meet losses and shall not be distributed except on liquidation of the credit union, or in accordance with a plan approved by the Director of the Department of Consumer and Business Services.] (1) Subject to subsection (2) of this section, the board of directors of a credit union may authorize losses to be charged to the regular reserve after first depleting the balance of the undivided earnings account and other appropriations of undivided earnings designated by the management of the credit union or by the regulatory authorities.

(2) An authorization may be made under subsection (1) of this section only if the charge will not cause the net worth of the credit union to fall below any minimum net worth requirement prescribed by the Director of the Department of Consumer and Business Services under ORS 723.631. The authorization must state the amount charged to the regular reserve and include an explanation of the need for the charge.

(3) Upon application of a credit union, the director may approve a charge to the regular reserve that will cause the net worth of the credit union to fall below any minimum net worth requirement prescribed by the director under ORS 723.631.

SECTION 12. ORS 723.462 is repealed.

SECTION 13. (1) Section 3 of this 2005 Act applies to all records supplied to or obtained by the Director of the Department of Consumer and Business Services on or after January 1, 2006.

(2) The amendments to ORS 723.196 by section 5 of this 2005 Act apply to meetings held on or after January 1, 2006.

(3) The amendments to ORS 723.262 by section 6 of this 2005 Act apply to vacancies occurring on or after January 1, 2006.

(4) The amendments to ORS 723.296 by section 7 of this 2005 Act apply to activities occurring on or after January 1, 2006.

(5) The amendments to ORS 723.326 by section 8 of this 2005 Act apply to suspensions made on or after January 1, 2006.

(6) The amendments to ORS 723.602 by section 9 of this 2005 Act apply to investments made on or after January 1, 2006.

(7) The amendments to ORS 723.631 by section 10 of this 2005 Act apply to regular reserves maintained on or after January 1, 2006.

(8) The amendments to ORS 723.636 by section 11 of this 2005 Act apply to charges made on or after January 1, 2006.

(9) The repeal of ORS 723.462 by section 12 of this 2005 Act applies to changes or decreases made on or after January 1, 2006.

SECTION 14. Sections 2 and 3 of this 2005 Act, the amendments to ORS 723.032, 723.152, 723.196, 723.262, 723.296, 723.326, 723.602, 723.631 and 723.636 by sections 1 and 4 to 11 of this 2005 Act and the repeal of ORS 723.462 by section 12 of this 2005 Act become operative January 1, 2006.

SECTION 15. The Director of the Department of Consumer and Business Services may take any action before the operative date specified in section 14 of this 2005 Act that is necessary to enable the director to exercise, on and after the operative date specified in section 14 of this 2005 Act, all the duties, functions and powers conferred upon the director by sections 2 and 3 of this 2005 Act, the amendments to ORS 723.032, 723.152, 723.196, 723.262, 723.296, 723.326, 723.602, 723.631 and 723.636 by sections 1 and 4 to 11 of this 2005 Act and the repeal of ORS 723.462 by section 12 of this 2005 Act.

SECTION 16. This 2005 Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this 2005 Act takes effect on its passage.

Approved by the Governor May 25, 2005

Filed in the office of Secretary of State May 25, 2005

Effective date May 25, 2005

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