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NCCO 2024 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q
  • Preamble (to a rule) aka prefatory language
A

Found in the official proposed rule or final rule issued in the Federal Register. This language contains background information, summaries, explanations of the agency’s determinations and, in final rules, summaries of comments received by the agency.

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2
Q

Staff Commentary

A

Not every rule has staff commentary, but when a rule does have one it can be very helpful.
- Often found as an appendix or supplement to a rule, rather than in a numbered section.
- Tends to provide explanations and examples of the rules in plain English.
- Review this if you are unclear as to the application of a rule after reading it.

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3
Q

Final Rule

A

A rule that has undergone the public comment period and is in effect and codified

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4
Q

Interim Final Rule

A

A rule that is put into place pending comments when an agency “for good cause finds (and incorporates the finding and a brief statement of the reasons therefore in the rule issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest”

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5
Q

Self-effectuating law

A

Regulations are not needed to interpret the act or “bring it into effect.”

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6
Q

Where are federal regulations codified?

A

In the Code of Federal Regulations (CFR). Parts 700-799. Title 12 houses most (but not all)

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7
Q

Legal or Staff Opinion Letters

A

Form of guidance written by an agency that has authority to interpret the regulation at hand; often interpret the application of a regulation to a specific set of facts

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8
Q

NCUA Interpretive Rulings & Policy Statements (IRPS)

A

Form of guidance, official interpretation of the
Federal Credit Union Act (FCU Act) as it relates to a particular issue

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9
Q

NCUA Letters to Credit Unions/Letters to Federal Credit Unions

A

Form of guidance, address policy issues and are frequently used to clarify NCUA exam expectations or other operational issues for federally insured credit unions and federal credit unions, respectively

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10
Q

NCUA Regulatory Alerts

A

Form of guidance, notify credit unions of changes to regulations

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11
Q

What are the three major titles of the Federal Credit Union (FCU) Act

A
  • Title I - General Provisions
  • Title II - Share Insurance
  • Title III - Central Liquidity Facility
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12
Q

What is the purpose of the NCUA Board & what are some of its duties?

A

Approve rules and regulations governing federal credit unions; safeguard credit unions; administer a prompt corrective action regime to ensure capital soundness; conserve or liquidate a credit union to protect the share insurance fund; approve federal credit union charters, review field of membership changes for federal credit unions; evaluate merger applications from all federally insured credit unions; hear administrative actions

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13
Q

From where does NCUA get its authority

A

Directly from Congress

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14
Q

How many regional offices does NCUA have and what are their duties?

A
  • Maintains three regional offices throughout the country: Eastern, Southern, and Western
  • Each regional office is responsible for oversight, examination and supervision of the federally insured credit unions in its geographical region
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15
Q

How does the National Credit Union Share Insurance Fund (NCUSIF) remain funded?

A

Federally insured credit unions maintain 1% of the credit union’s shares in the NCUSIF

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16
Q

The Office of General Counsel

A

Office within the NCUA that has responsibility for all legal matters affecting NCUA, including:
o representing the agency in litigation;
o bringing enforcement actions against directors, managers and other parties affiliated with credit unions;
o providing interpretations of the FCU Act and NCUA rules and regulations to the agency and to outside parties;
o processing Freedom of Information Act requests and appeals;
o advising the NCUA Board and the agency on general legal matters;
o drafting regulations designed to implement statutes or ensure the safety and soundness of credit unions.

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17
Q

The Office of Consumer Financial Protection

A

Office within the NCUA that was established in 2010 and reflects NCUA’s heightened focus on consumer protection.

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18
Q

The Division of Consumer Affairs

A

Division within the Office of Consumer Financial Protection that is responsible for the agency’s consumer financial literacy efforts and manages the consumer websites, MyCreditUnion.gov and Consumer Assistance Center, which handle consumer inquiries, education, and complaints.

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19
Q

The Division of Consumer Compliance Policy and Outreach

A

Division within the Office of Consumer Financial Protection that is responsible for consumer protection compliance and rulemaking, fair lending examinations and interagency coordination and outreach.

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20
Q

The Division of Consumer Access

A

Division within the Office of Consumer Financial Protection that is responsible for chartering and field-of-membership matters, low-income designations, charter conversions and bylaw amendments.

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21
Q

The Office of Credit Union Resources and Expansion (CURE)

A

Division within the Office of Consumer Financial Protection that began operations on 1/7/2018, as part of NCUA’s strategic realignment and modernization of its offices. CURE’s mission is to support credit union growth and development, offering assistance to any credit union in the following areas:
o chartering;
o charter conversions;
o bylaw amendments;
o field of membership expansion requests;
o low income designations.
o CURE also provides online training, grants and loans through the Community Development Revolving Loan Fund and a program for minority institutions.

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22
Q

The Office of Examination and Insurance

A

Division within the Office of Consumer Financial Protection that provides national guidance for NCUA’s efforts to assure the safety and soundness of federally insured credit unions.

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23
Q

The Office of Inspector General (OIG)

A

Division within the Office of Consumer Financial Protection that promotes the economy, efficiency and effectiveness of NCUA programs and operations, and detects and deters fraud, waste and abuse, thereby supporting the agency’s mission of monitoring and promoting safe and sound federally insured credit unions. The OIG conducts independent audits, investigations and other activities, and keeps the NCUA Board and Congress fully and currently informed of its work. The reports from the OIG include Audit Reports, Material Loss Reviews, Performance and Strategic Plans, Semiannual Reports to Congress and Other Investigative Reports.

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24
Q
  1. Does the CFPB have examination authority over all credit unions? What determines whether the CFPB has supervisory and examination authority over a credit union?
A

No, they have authority over Credit Unions with more than 10 billion in assets

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25
Q

Are credit unions subject to the CFPB’s Regulation DD? If not, is there a similar regulation that credit unions may be subject to?

A

No, Reg DD does not cover credit unions. Truth in Savings Act must be followed instead.

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26
Q

How do the CFPB’s authority and objectives impact credit unions?

A
  • All credit unions, regardless of size, must comply with the bureau’s regulations
  • Not every CFPB regulation will apply to credit unions, or to all credit unions
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27
Q

How does NCUA’s examination program differ from an audit?

A
  • Generally, an audit will assess how a credit union is operating to date; a financial audit verifies the credit union’s financial statements.
  • The purpose of the examination is to determine areas of risk to the credit union’s operational and financial health.
  • Audits are generally assessments of the credit union that look to the past, whereas examinations have an eye on the credit union’s future.
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28
Q

Credit risk

A

One of the 7 types of risk that NCUA examines. The current and prospective risk to earnings or capital arising from a person’s failure to meet the terms of a contract with the credit union or otherwise fail to perform as agreed

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29
Q

Liquidity risk

A

One of the 7 types of risk for which the NCUA examines. The risk that the credit union cannot meet its obligations when they come due without incurring significant cost and/or unacceptable losses

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30
Q

Interest rate risk

A

One of the 7 types of risk for which the NCUA examines. The risk that changes in market rates will adversely affect a credit union’s capital and earnings.

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31
Q

Transaction/Fraud/Operating risk

A

One of the 7 types of risk for which the NCUA examines. The risk to capital and earnings arising from fraud or error that results in an inability to deliver products or services, maintain a competitive position, and manage information.

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32
Q

Compliance risk

A

One of the 7 types of risk for which the NCUA examines. The risk of fines, civil money penalties, damage awards, and/or termination of contracts due to violations of laws, rules, regulations, internal policies and procedures, and/or ethical standards.

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33
Q

Strategic risk

A

One of the 7 types of risk for which the NCUA examines. The risk of adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes.

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34
Q

Reputation risk

A

One of the 7 types of risk for which the NCUA examines. The risk to the credit union’s capital and earnings arising from negative public opinion or perception.

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35
Q

Document of Resolution (DOR)

A

Administrative tool available to NCUA. An agreement between NCUA and the credit union. It formally documents plans for the credit union to take in order to reduce areas of unacceptable risk. Credit union officials sign the document, binding the credit union to the agreement.

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36
Q

Letter of Understanding and Agreement (LUA)

A

Administrative tool available to NCUA. A LUA is issued when the credit union has not adequately responded to less severe actions, such as DORs. Like a DOR, a LUA is an agreement between the credit union and NCUA. The credit union agrees to take, or not to take, certain actions specified in the LUA. It is stronger than a DOR.

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37
Q

Cease and Desist Orders (CDOs)

A

Administrative tool available to NCUA. A CDO is similar to an injunction and is usually NCUA’s first step when it needs formal action. An examiner can recommend a CDO when the credit union has engaged or is about to engage in unsafe/unsound practices, violations of rule or law, or violation of any conditions imposed by NCUA in writing.

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38
Q

Capital Adequacy

A

Component of the CAMELS system.
The adequacy of the credit union’s key capital ratio (net worth/total assets); ideally this should be 7% or higher; examiners may also consider whether capital is sufficient to withstand the risk inherent in the credit union’s operations

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39
Q

Asset Quality

A

Component of the CAMELS system. For fixed assets, loans, and investments, examiners consider management’s control of credit risk, the credit union’s allowance for loan and lease losses policy, the quality of loan underwriting policies and procedures, internal controls in place to review new and existing loan programs, existence of significant loan concentrations, and the appropriateness of investment policies and practices

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40
Q

Management

A

Component of the CAMELS system. Assessment of whether management is operating under sound business practices, able to respond to changing business environments and to skillfully implement new products and services

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41
Q

Earnings

A

Component of the CAMELS system. Assessment of past and current earnings, as well as possible future earnings; credit unions must earn an adequate return on assets to fund their expenses and dividends, as well as to spark capital growth and fund the allowance for loan and lease losses

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42
Q

Liquidity Asset-Liability Management

A

Component of the CAMELS system. Assessment of the credit union’s ability to maintain sufficient liquidity to meet financial obligations, without going overboard

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43
Q

Sensitivity to Market Risk

A

Component of the CAMELS system. Considers the exposure of a credit union’s current and prospective earnings and capital based on changes in market prices and interest rates. Ratings are determined based on:
- sensitivity of a credit union’s current and future earnings
- economic value of capital to negative changes in market pricing and interest rates
- management’s ability to identify and control exposure to market risk and the nature and complexity of interest rate risk exposure.

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44
Q

In what format can credit unions file quarterly call reports and profile data with NCUA?

A

Electronically, using NCUA’s information management system or other electronic means specified by the agency

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45
Q

What is the difference between NCUA’s and the CFPB’s authority when it comes to examining credit unions?

A
  • NCUA maintains examination authority over all credit unions for safety and soundness purposes
  • CFPB has direct authority over credit unions with $10+ billion in assets for compliance with consumer regulations
  • NCUA maintains authority over credit unions with <$10 billion in assets for compliance with consumer regulations
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46
Q

What are the benefits of credit union membership?

A
  • One share, one vote
  • Democratic participation/control (owned by the members)
  • The right to inspect charter, bylaws, and other documents
  • Lower rates and fees
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47
Q

Can credit unions provide health insurance to directors during their time on the board?

A

Yes

48
Q

What is the basic structure of a federal credit union’s board of directors? How often must they meet?

A
  • Odd number between 5-15 the specific number of directors is outlined in the bylaws)
  • Terms are for 2-3 years
  • Positions: chair, one or more vice chairs, financial officer and secretary
  • Required at least once a month to meet and one regular meeting a year in person
49
Q

What are the main responsibilities of the Supervisory Committee?

A
  • The committee should review the performance of the federal credit union, its officials and employees, and make recommendations to the board for improvements that can be made.
  • The supervisory committee acts as an audit arm of the federal credit union.
  • Acts as a watchdog, conducts annual audits and verification of accounts.
50
Q

Which reasonable expenses can a director submit for reimbursement?

A

Directors may reimburse reasonable expenses incurred while performing their duties, including training and travel costs; which may include the travel cost of one guest

51
Q

Are credit unions required to fully adopt the standard bylaws each time NCUA provides updates?

A

NCUA issues standard bylaws but credit unions do not have to adopt new version, they are encouraged to adopt the new version but not required

52
Q

Can credit unions keep their own version of bylaws?

A

Yes

53
Q

What is the annual meeting process, including the notice requirements? How many members must be present to have a quorum?

A
  • The model bylaws require notice to membership 30-75 days prior to the meeting
  • The secretary sends notice
  • Notice is placed on the website (if maintained)
  • Notice of the annual meeting must be placed in a conspicuous place in the office
  • 15 members create a quorum
54
Q

What are the responsibilities of the board of directors?

A

The board of directors is responsible for the establishment and implementation of the credit union’s strategic plan and to adopt operating policies.
General direction and control of the federal credit union, plus specific duties:
o Directing the affairs of the federal credit union in accordance with laws and regulations, the bylaws, and sound business practices;
o Establishing programs to achieve the federal credit union’s purpose;
o Establishing lending policies and a loan collection and charge-off program;
o Requiring board and volunteer training to include ethics and fiduciary responsibility, regulatory compliance, and accounting; and
o Performing additional acts and exercising additional powers as may be required or authorized by law.

55
Q

What are the eligibility requirements to run for the board?

A
  • The individual must be a member
  • The individual cannot have been convicted of a crime of dishonesty or breach of trust
  • The individual must meet a minimum age requirement provided in the bylaws (if any), which cannot be greater than the age of majority under the applicable state law
56
Q

Study the various duties of the board officers. Who elects them? Who presides over board meetings?

A
  • Directing the credit union in accordance with laws, regulations, bylaws and sound business practice
  • Establish programs to achieve the credit union’s purpose
  • Establish loan collection and charge-off program
  • Require training for board and volunteers
  • Establish dividend periods and declare dividends
  • Perform other acts and exercise additional powers
  • Board members are elected by the credit union’s members
  • The chair presides over the board meetings
57
Q

What is the special meeting process, including who may call a special meeting and notice and quorum requirements?

A

A special meeting must be called either by the chair of the board, majority vote of the board, the supervisory board, or a member
* A member must have signatures from 25 members or 5 percent of the membership, whichever is larger, but not more than 750 signatures can be required
* Written notice of a special meeting must be provided at least 7 days prior to the meeting
* The notice must state the purpose of the meeting and no other business may be conducted at the meeting
* 15 members constitutes a quorum

58
Q

Can board members be compensated for their duties? How many directors can be compensated?

A

Yes, one – remaining directors and committee members must be volunteers and not compensated

59
Q

How do NCUA’s lending regulations interact with state law?

A
  • In certain situations, federal law overrides state laws that address the same issue
  • NCUA preempts state law in lending and deposit-taking activities, or where state laws are inconsistent (if a state law is more protective of the consumer, it will generally not be considered inconsistent)
60
Q

Understand the types of state laws that are preempted by NCUA’s regulations. State laws that cap which types of fees would be preempted?

A

Lending:
i. Laws regulating rates of interest and amounts of finance charges
ii. Laws regulating late charges
iii. Laws regulating closing costs, application, origination, or other fees
iv. Laws regulating terms of repayment
v. Laws establishing/regulating conditions related to the amount/purpose of a loan or line of credit, the type/amount of security required, eligible borrowers, imposition of liens
Deposit-taking activities:
i. Laws regulating dividends on escrow accounts
ii. Laws regulating dormant account fees and conditions
iii. Laws attempting to establish or regulate a specific type of account
iv. Statutes prohibiting fees for cashing a check drawn on that financial institution for non-accountholders

61
Q

Nonparticipation Policy

A

A policy that allows the credit union to expel members who fail to vote in elections or fail to purchase shares, obtain a loan, or lend to the credit union; membership must be notified of the policy within 30 days of the effective date

62
Q

Limitation of Services Policy (Member in Good Standing Policy)

A

A policy that establishes certain behaviors exhibited by members that will lead to a limitation of certain services; cannot limit the two basic rights of members (voting and share account), but can restrict other services that have a rational connection to the member’s behavior; for example:
i. Abusive members can be denied access to services that involve contact with credit union staff
ii. Members that have caused the credit union a loss can be denied loan services
iii. Members that have abused ATM privileges can be denied ATM card services

63
Q

How does a credit union impress its statutory lien?

A
  • Notice may be given to a member by way of the account opening documentation
  • For loans, by giving notice of the lien through the loan documentation that is signed or otherwise acknowledged by the member; or
  • Through a bylaw amendment or policy, of which the member is given notice
64
Q

How does a credit union enforce its statutory lien? How is this different for credit cards?

A
  • Federal credit union enforces the lien by debiting funds in the account and applying the funds to any “outstanding financial obligation due and payable to the credit union.” See, 12 CFR § 701.39(d).
  • Credit unions may not use statutory lien power against a member’s shares and dividends to satisfy a credit card debt; the member needs to give a consensual security interest in the account before the credit union could offset such funds to satisfy a credit card debt
65
Q

Certification Services

A

Incidental power which includes notary services, signature guarantees, certification of electronic signatures, share draft certifications

66
Q

Charitable Donation Accounts

A

Incidental power which includes donations to community groups, nonprofit organizations, other credit unions or credit unions affiliated causes, political donations, and donations to create charitable foundations.

67
Q

Correspondent Services

A

Incidental power which includes cashing and selling money orders, receiving share and loan payments, cashing share drafts, processing loans, and other back-office operations or member services.

68
Q

Electronic Financial Services

A

Incidental power which includes electronic funds transfers, online transaction processing, account aggregation services, and website hosting services.

69
Q

Excess Capacity

A

Incidental power which includes the sale or lease of excess capacity remaining facilities, equipment, or services.

70
Q

Financial Counseling Services

A

Incidental power which includes estate planning, income tax preparation and filing, investment, and retirement counseling.

71
Q

Finder Activities

A

Incidental power which includes identifying outside parties in which the credit union believes its members would be interested, such as negotiating group discounts on behalf of members or placing vendor advertisements in newsletters and as statement stuffers; can include vendors of financial products as well as non-financial products and other financial institutions

72
Q

Loan-Related Products

A

Incidental power which includes debt suspension agreements, debt cancellation agreements, leases, letters of credit.

73
Q

Marketing Activities

A

Incidental power which includes raffles, membership referral drives, advertisements.

74
Q

Monetary Instrument Services

A

Incidental power which enables members to purchase, sell or exchange various currencies and may include the sale and exchange of foreign currency and U.S. commemorative coins. Federal credit unions may maintain accounts in foreign financial institutions to facilitate member transactions.

75
Q

Operational Programs

A

Incidental power which includes remote tellers, debit cards, payroll deduction and services, direct deposit, lock box accounting services, savings bond purchases and redemptions.

76
Q

Stored Value Products

A

Incidental power which includes prepaid cards, tickets, postage stamps, gift certificates.

77
Q

Trustee or Custodial Services

A

Incidental power which includes powers granted by the Internal Revenue Code to act as a trustee or custodian for member retirement, education, and health savings accounts.

78
Q

Impermissible Activities

A

Types of activities federal credit unions may not engage in (e.g., insurance). Insurance involves additional risks rather than risks similar to the business of banking that federal credit unions have already assumed. They can, however, bring together outside insurance vendors with their members as a finder activity

79
Q

What is the three-prong test for incidental powers?

A

Whether the activity:
* is convenient or useful in carrying out the mission or business of federal credit unions consistent with the FCU Act;
* is the functional equivalent or logical outgrowth of activities that are part of the mission or business of federal credit unions; and
* involves risks similar in nature to those already assumed as part of the business of federal credit unions

80
Q

What is the process for expelling a member (before NCUA’s implementation of CUGMA)?

A

Federal credit unions may expel a member through a special meeting of the members or through a nonparticipation policy.

81
Q

Special Meeting

A

A method of expelling a member.
- Must be called in accordance with the bylaws.
- Notice of the meeting must state meeting is to expel a member and no other business may be conducted at the meeting. - The member up for expulsion must have the opportunity to be heard at the meeting.
- A two-thirds vote of the members present at the meeting is needed to expel a member.
- The requirements for expelling a member are spelled out in Article XIV of the model bylaws, and the procedures for holding a special meeting are spelled out in Article IV.

82
Q

What are the two fundamental rights for credit union members?

A
  • The right to vote at elections
  • The right to hold par value in a share account
83
Q

Can a nonmember be a co-borrower? Guarantor? Cosigner?

A
  • Nonmembers can be cosigners or guarantors
  • Nonmembers cannot be co-applicants or co-borrowers
  • Can also be an auth user on a cc
84
Q

Where is the best place to look for the credit union’s field of membership?

A

A federal credit union’s distinct field of membership is specified in Section 5 of its charter.

85
Q

How can a business or organization qualify for membership?

A
  • It is located within the credit union’s geographic boundaries (only for community-chartered federal credit unions)
  • It is specifically listed in the credit union’s charter; or
  • The charter language includes the phrase “organizations of such persons” and the business or organization is composed exclusively of persons within the field of membership (stockholders or owners) – NOTE: it requires they be within the field of membership, but does not require the individuals to already be members
86
Q

What does the “once a member, always a member” credo mean?

A

Even if a person exits the field of membership, they may continue on as a member until their membership is voluntarily terminated or they are expelled from membership.

87
Q

When may a federal credit union accept nonmember deposit?

A

When the nonmember is a public unit (such as a state or county), political subdivision thereof (such as school districts or port authorities), or a nonmember credit union
* Nonmember shares may not exceed 50% of the credit union’s net amount of paid-in and unimpaired capital and surplus less any public unit and nonmember shares or $3 million, whichever is greater.

88
Q

Can federal credit unions use advertisements that indicate membership in a federal credit union is “open to anyone?”

A

No – it violates the accuracy requirements, NCUA considers it inaccurate or deceptive

89
Q

What does the phrase “organization of such persons” mean? Do all the individuals need to be within the field of membership or only a majority?

A

Means the business or organization is comprised exclusively of persons within the field of membership
i. A corporation could qualify if all the stockholders or owners are within the field of membership
ii. A partnership could qualify if all the partners are within the field of membership
iii. A social group could qualify is all members are within the field of membership

90
Q

Must a joint owner on a share account be a member?

A

No – nonmembers may be a joint owner on an account with a member, but they may not vote or receive other member benefits

91
Q

Which “other persons” may be eligible for membership and join the credit union?

A
  • Employees of the credit union;
  • Retired credit union employees;
  • Volunteers, such as volunteers that work at a sponsor group;
  • Spouses of person who die while within the field of membership;
  • Business and other legal entities in the charter, such as the sponsor corporation;
  • Honorably discharged veterans of the U.S. Armed Forces;
  • Members of the immediate family or household; or
  • Organizations of such persons
92
Q

When can federal credit unions cash checks for nonmembers?

A

Credit unions can cash checks and offer funds transfer services to nonmembers who are within the credit union’s field of membership

93
Q

What is the current standard maximum share insurance amount (SMSIA) level?

A

$250,000

94
Q

What are the different types of accounts for share insurance coverage purposes? Can an account be more than one type of account?

A

Single ownership, joint ownership, revocable trust, joint revocable trust, irrevocable trust, retirement, business, executor or administrator, funds held by a guardian or custodian
* An account can only be one ownership type at a time

95
Q

Informal revocable trusts include:

A
  • payable-on-death accounts
  • in-trust-for accounts
  • Totten Trust accounts
96
Q

Formal revocable trusts include:

A
  • living trusts
  • family trusts
97
Q

What are the main aspects of a joint account? How does each joint owner receive share insurance coverage?

A
  • Joint accounts have multiple account owners
  • Each joint owner is insured up to $250,000 (i.e., if there are 2 owners then the account is covered up to $500,000)
98
Q

How is insurance coverage determined for a revocable trust?

A

The account will be insured for up to the total number of beneficiaries (not owners) multiplied by $250,000

99
Q

How is insurance coverage determined for a joint revocable trust?

A

Both owners receive share insurance coverage for any named beneficiaries; the account will be insured for up to the number of owners multiplied by the number of beneficiaries multiplied by $250,000

100
Q

If a member has an IRA and a Roth IRA at your credit union, is the member’s insurance coverage a combined $250,000, or $250,000 for each account ($500,000 total)?

A

Combined $250,000 – IRAs and Roth IRAs are combined for insurance coverage purposes

101
Q

What are the share insurance coverage rules for business accounts?

A

Coverage applies to corporations, partnerships, and unincorporated associations.
Business accounts are insured up to $250,000 total as long as the business is engaged in “independent activity” – an activity other than one directed solely at increasing insurance coverage
- If activity does not meet this definition, the business account is considered as owned by the person as an individual.
- Sole proprietorship accounts, including “doing business as” (DBA) accounts, are insured as individual accounts rather than business accounts.

102
Q

How is share insurance coverage determined in the event of a merger?

A
  • If a member has accounts at both credit unions involved, the member’s share insurance coverage remains separate for up to six months
  • “The insured status of the credit unions whose member account liability has been assumed terminates on the date of receipt by NCUA of satisfactory evidence of the assumption. The separate insurance of member accounts assumed continues for six months from the date the assumption takes effect or, possibly longer in the case of share certificates.”
103
Q

How long does share insurance coverage apply after the death of a member?

A

Up to 6 months after the member’s death

104
Q

What are the various maturity limitations found in NCUA’s lending regulations?

A
  • 15 years (general maturity limit)
  • 20 years (permissible only for purchase of a mobile home, 2nd mortgage, or to finance repair, alteration, or improvement of a residential dwelling)
  • Up to 40 years (permissible only for residential real estate loans with certain characteristics)
    i. Must be made on a 1- to 4-family dwelling that is or will be the principal residence of the member-borrower
    ii. Must be secured by a “perfected first lien” in favor of the credit union on the dwelling supported by a properly executed and recorded security instrument
    iii. Loan application, security instrument, and note must be on standard FHA, VA, or FHLMA/FNMA forms
    iv. May not be secured by a residence located outside the USA
105
Q

Do NCUA’s lending regulations address loan incentive programs? If so, what are the limitations of such programs?

A

Yes – payment, by a federal credit union, of an incentive or bonus to an employee, other than a senior management employee, in connection with a loan (or loans) made by the credit union are not prohibited, as long as the federal credit union’s board of directors establishes written policies and internal controls in connection with the incentive/bonus program and monitors compliance with those controls at least annually

106
Q

Must FCU staff, management and officials receive the same loan rates, terms and conditions as all other members?

A

The rates, terms, and conditions on any loan or line of credit either made to, endorsed, or guaranteed by an official may not be more favorable than those for comparable loans or lines of credit to other credit union members

107
Q

Can FCUs offer preferential loan terms to employees like the Chief Operating Officer?

A

Unclear on whether the limitation against preferential terms applies to all employees, or to only officials, their immediate family members, and those with a common ownership, investment, or other financial interest in a business enterprise with an official or immediate family member thereof.
* Regular employees are not officials and can receive favorable terms

108
Q

Describe how federal credit unions may interact with nonmembers in the lending context?

A

Federal credit unions may serve nonmembers in the lending context “as long as their involvement does not distort the relationship between the federal credit union and the member; nonmembers can, for example, be a cosigner or guarantor on member loans, or be an authorized user on a member’s credit card.
* Nonmembers cannot be co-applicants, co-makers, or co-borrowers

109
Q

What is a member business loan?

A

Commercial loan: any loan, line of credit, or letter of credit, and any interest a credit union obtains in such loans made by another lender, to individuals, sole proprietorships, partnership, corporations, or other business enterprises for the following purposes:
i. Commercial,
ii. Industrial,
iii. Agricultural, or
iv. Professional (but not for personal expenditure purposes)
*Excluding:
i. Any loan in which a federal or state agency (or its political subdivision) fully insures repayment, fully guarantees repayment, or provides an advance commitment to purchase the loan in full; and
ii. Any non-member commercial loan or non-member participation interest in a commercial loan made by another lender, unless one or more credit unions are trading member business loans to circumvent the aggregate limit

110
Q

Loans that are exempted from the definition of commercial loan are:

A

i. Loans made by a corporate credit union
ii. Loans made by a federally-insured credit union (FICU) to another FICU
iii. Loans made by a FICU to a credit union service organization (CUSO)
iv. Loans secured by a 1- to 4-family residential property
v. Loans secured by a vehicle manufactured for household use (i.e., passenger vehicle)
vi. Loans secured by shares in the credit union or deposits at another financial institution
vii. Loans which, when the aggregate outstanding balances plus unfunded commitments less any portion secured by shares in the credit union to a borrower or an associated borrower, are equal to or less than $50,000

111
Q

Not all commercial loans are considered MBLs, and not all MBLs are considered commercial loans

A

For example, any loan secured by a vehicle manufactured for household use that will be used for a commercial, corporate, or other business investment property or venture, or agricultural purpose if the outstanding aggregate net member business loan balance is $50,000 or greater is considered an MBL but is not a commercial loan

112
Q

What are the “concentration limits” in NCUA’s lending rules?

A

No loan or line of credit advance may be made to any member if the loan or advance would cause that member to owe the federal credit union an aggregate amount exceeding 10% of the credit union’s total unimpaired capital and surplus

113
Q

Who is considered an official under NCUA’s rule?

A

An official is a member of the board of directors, supervisory committee, or credit committee

114
Q

How do the NCUA lending regulations limit loans and loan-related compensation to a credit union’s board of directors and other officials?

A
  • Generally, no federal credit union official or employee may receive any commission, fee, or other compensation in connection with any loan made by the credit union; the 4 exceptions are:
    i. Payment, by a federal credit union, of salary to employees;
    ii. Payment, by a federal credit union, of an incentive or bonus to an employee based on the credit union’s overall financial performance;
    iii. Payment, by a federal credit union, of an incentive or bonus to an employee, other than a senior management employee, in connection with a loan (or loans) made by the credit union, as long as the credit union’s board of directors establishes written policies and internal controls in connection with the incentive/bonus program and monitors compliance with those policies and controls at least annually; and
    iv. Receipt of compensation from a person outside a federal credit union by a volunteer official or not-senior-management employee of the credit union, or an immediate family member of a volunteer official or employee of the credit union, for a service or activity performed outside the credit union, as long as no referral has been made by the credit union or the official, employee, or family member
115
Q

What measures must a credit union take when making loans to credit union officials (directors, supervisory committee member, etc.)?

A
  • The board of directors must review and approve (or deny) an application on which an official is a direct obligor, endorser, cosigner, or guarantor if the following formula produces a total more than $20,000:
    i. Add the following:
    1. The amount of the current application;
    2. The outstanding balances of loans, including the used portion of an approved line of credit, extended to or endorsed, cosigned, or guaranteed by the official; and
    3. The total unused portion of approved lines of credit extended to or endorsed, cosigned, or guaranteed by the official.
    ii. Then, from that total, subtract the following:
    1. The amount of shares pledged by the official on loans or lines of credit extended to or endorsed, cosigned, or guaranteed by the official
    2. The amount of shares to be pledged by the official on the loan or line of credit applied for by the official

NCCO 2024 (4 decks)

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