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ALEXANDRIA, Va.-NCUA recently issued several legal opinion letters on many issues important to credit unions ranging from the hot topic of member business loans to finder activities to board meeting governance. The following is a summary of those letters: * Credit unions may use the outstanding loan balance for a member business loan rather than the original loan amount to determine its business loan limits. However, if the loan is a line of credit, it may not be calculated in this manner, due to the member’s ability to draw on the line and easily alter the outstanding balance. The same standard applies to total business loans to one member, which cannot exceed 15% of the credit union’s net worth. Credit unions are restricted to member business loans in aggregate of 12.25% of the credit union’s assets. “Similarly, a CU may add the outstanding balance of a member’s aggregate MBLs to the original loan amount of any new, subsequent loan to determine if, when added together, they exceed the rule’s $50,000 threshold for qualifying as an MBL. 12 C.F.R. 723.1(b)(3). If the combination of all of these loans does not exceed $50,000, the subsequent loan is not an MBL and is not subject to our MBL rule,” NCUA Associate General Counsel Sheila Albin wrote. Additionally, Albin noted a previous letter stating when acquiring participation interests in multiple loans to one member, the participating credit union also uses the earlier loan’s outstanding balance to determine if compliance with the member business lending rule is necessary. *The fixed asset rule applies to data processing contract payments, which tie up credit union money even if equipment is leased and not owned, Albin said in a legal opinion letter. The rule, however, does not apply if the credit union has less than $1 million in assets or is covered by NCUA’s Regulatory Flexibility exemptions. “In our view, unless an FCU can separate fixed asset payments, including payments for the use of hardware and software, from payments made for non-fixed assets, it must count its entire financial commitment under a data processing contract towards the fixed asset rule’s 5% limitation,” the letter read. *A federal credit union may offer members another financial institution’s products as a `finder’ under the incidental powers rule. Albin reminded North Carolina Local Government Employees Federal Credit Union that inquired on the issue to be fully aware of the limited role a finder plays and consider legal and safety and soundness issues related to the activity, as well as the reputational and compliance risks. “As a finder, the FCU may provide information to members about a vendor’s products or services and perform administrative functions for the parties to the transaction.” Albin recommended disclosures clarifying that the credit union is merely a finder and not where the funds are actually deposited. If the other institution is another credit union, membership eligibility must be considered. *Credit union members may vote electronically on a proposal to convert from federal to nonfederal insurance. While NCUA’s rule says that members must be offered the choice of voting by mail as an alternative to voting in person, voting methods were not meant to be limited to just those two. Albin cautioned that the integrity of the voting process must be maintained. *Albin backtracked on a past opinion letter (to Conrad Schlund dated April 5) which said a federal credit union could pledge a security as collateral for deposits or shares over $100,000. They cannot. A federal credit union can only pledge its loans to secure obligations, not shares which are considered equity, except for the purpose of receiving public monies from federal, state, or local governments or political subdivisions. *Credit unions may have a policy requiring that board incumbents be included in the slate of candidates presented to members as long as the nominating committee is permitted to nominate additional candidates. Under the federal credit union bylaws, the board may “prescribe conditions and limitation for any committee which it appoints.” The board does not have authority to nominate candidates, but can have significant control over nominations through policy regarding qualifications, including age, length of membership, relevant experience, education, and others. *A recent legal opinion letter from NCUA also found that credit union boards may hold more than one regular meeting per month. Additionally, there is no limit on the number of special meetings that may be called as long as sufficient notice, as described by a board resolution, is provided. [email protected]

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