CREDIT UNIONS (17 PA.C.S.) - OMNIBUS AMENDMENTS
                 Act of Dec. 12, 1994, P.L. 1067, No. 146             Cl. 17
                             Session of 1994
                               No. 1994-146

     HB 2563

                                  AN ACT

     Amending Title 17 (Credit Unions) of the Pennsylvania
        Consolidated Statutes, further providing for definitions, for
        bylaws, for powers, for regulation by Department of Banking,
        for loans, for reserves, for loan procedures and for
        conversion into Federal credit unions.

        The General Assembly of the Commonwealth of Pennsylvania
     hereby enacts as follows:

        Section 1.  Section 103 of Title 17 of the Pennsylvania
     Consolidated Statutes is amended by adding definitions to read:
      § 103.  Definitions.
        The following words and phrases when used in this title shall
     have the meanings given to them in this section unless the
     context clearly indicates otherwise:
        * * *
        "Retained earnings."  Undivided profits.
        * * *
        "Shares."  All savings including regular shares, share
     drafts, share certificates and other savings.
        "Total equity capital."  Regular reserve and undivided
     earnings.
        "Total equity capital and reserves."  Regular reserve,
     undivided earnings and all reserve accounts, including the
     allowance for loan loss reserve.
        "Unimpaired capital."  Total shares.
        * * *
        Section 2.  Section 305 and 501(b)(7) and (10) of Title 17
     are amended to read:
      § 305.  Bylaws.
        (a)  General rule.--The original bylaws of a credit union
     shall be adopted by the incorporators of the credit union and
     copies [thereof] shall be transmitted to the Department of
     Banking along with the articles of incorporation as provided in
     this chapter.
        (b)  Amendments.--[Thereafter, bylaws] Bylaws may be amended
     or repealed either by two-thirds of the members present and
     voting or a majority of the board of directors at any regular,
     annual or special meeting of the credit union[, or of the board
     of directors, as the case may be, if notice thereof is given and
     a quorum is established in accordance with the bylaws]. Bylaws
     may alternatively be amended or repealed by members through mail
     ballot if the bylaws provide for such a procedure and if two-
     thirds of the responding member ballots favor the proposed
     amendment or repeal.
        (c)  Restrictions on board of directors.--The board of
     directors shall not amend any bylaws fixing their
     qualifications, classification, term of office or compensation.
        (d)  Review by members.--Whenever the board of directors
     amends the bylaws, written notice thereof shall be given to the
     members prior to the next meeting of the members or within 90
     days after such action by the board of directors, whichever is
     sooner. Any amendment to the bylaws adopted by the board of
     directors may be repealed or amended by the members at [a
     meeting] an annual or special meeting or by a mail ballot vote
     held at least ten days after the mailing of the notice
     [thereof].
        (e)  Appeal procedure.--In the event that a bylaw amendment
     approved by the board of directors is rejected or changed by the
     members at an annual or special meeting, the board of directors
     may resubmit the original amendment to a vote of the entire
     membership through mail ballot procedures. The board of
     directors may take such action if the resubmittal motion is
     approved by a vote of at least a majority of the board of
     directors.
      § 501.  Powers.
        * * *
        (b)  Special powers.--Except as set forth in subsection (c),
     a credit union shall have the following special powers:
            * * *
            (7)  To invest its funds in the following investments:
                (i)  Securities, obligations or other instruments of
            or fully guaranteed as to principal and interest by the
            United States or any agency thereof or in any trust
            established for investing directly or collectively in the
            same.
                (ii)  Bonds or other interest-bearing obligations of
            the Commonwealth or any political subdivision thereof or
            an authority which has been created as a body corporate
            and politic under any law of this Commonwealth.
                (iii)  Shares of any savings and loan association or
            credit union, organized under the laws of this
            Commonwealth, or of any Federal savings and loan
            association or Federal credit union, to the extent to
            which the withdrawal or repurchase value of such shares
            is insured by any agency of the United States or any
            other insurer approved by the Department of Banking.
                (iv)  Bonds and notes of the Pennsylvania Housing
            Agency created by the act of December 3, 1959 (P.L.1688,
            No.621), known as the Housing Finance Agency Law.
                (v)  Capital stock, obligations or other securities
            of any service corporation organized under the laws of
            this Commonwealth or under the laws of any other state
            and duly qualified to do business in this Commonwealth,
            if the entire capital stock of such corporation is
            available for purchase only by credit unions, organized
            and existing under the laws of this Commonwealth and by
            Federal credit unions or association of credit unions. A
            complete description of the service corporation and its
            activities must be furnished to the department and its
            approval obtained by the credit union before investing in
            such corporation. No credit union may make an investment
            in a service corporation if its then aggregate
            outstanding investments under this subparagraph would
            exceed 1% of its assets.
                (vi)  Obligations issued by banks for cooperatives,
            Federal land banks, Federal intermediate credit banks or
            any corporation designated in 31 U.S.C. § 9101(2) and (3)
            (relating to definitions) as a "[wholly owned] government
            corporation."
                (vii)  Obligations, participations or other
            instruments of or issued by, or fully guaranteed as to
            principal and interest by, the Federal National Mortgage
            Association or the Government National Mortgage
            Association.
                (viii)  Mortgages, obligations or other securities
            which are or ever have been sold by the Federal Home Loan
            Mortgage Corporation pursuant to 12 U.S.C. § 1454
            (relating to purchase and sale of mortgages; residential
            mortgages; conventional mortgages; terms and conditions
            of sale or other disposition; authority to enter into,
            perform, and carry out transactions) or 1455 (relating to
            obligations and securities of the corporation).
                (ix)  Obligations or other instruments or securities
            of the Student Loan Marketing Association.
                (x)  Participation certificates evidencing beneficial
            interests in obligations, or in the right to receive
            interest and principal collections therefrom, which
            obligations have been subjected by one or more government
            agencies to a trust or trusts for which any executive
            department, agency or instrumentality of the United
            States (or the head thereof) has been named to act as
            trustee.
                (xi)  Bankers' acceptances issued by State banks,
            bank and trust companies and savings banks, and national
            banking associations the accounts of which are Federally
            insured.
        Before making the investments described in subparagraphs (vi)
        through (xi), a credit union shall [obtain the prior written
        approval of the department] be in compliance with investment
        standards established by the department.
            * * *
            (10)  To hold, purchase, mortgage, alter, improve and
        sell such real property, and furniture and fixtures to be
        used therein, as the purposes of the credit union require and
        which the credit union occupies or intends to occupy for the
        transaction of its business or partly so occupies and partly
        leases to others, except that, without the prior written
        approval of the department, the cost, at the time of
        acquisition, of such real property and furniture and fixtures
        therein shall not exceed [in the aggregate 50% of the
        unimpaired surplus and undivided earnings of the credit union
        or 5% of its unimpaired capital up to $1,000,000, plus 3% of
        its capital over $1,000,000, whichever is greater] 5% of
        shares and retained earnings.
            * * *
        Section 3.  Section 503(a) of Title 17 is amended and the
     section is amended by adding a subsection to read:
      § 503.  Regulation by Department of Banking.
        (a)  General rule.--Credit unions shall be under the
     supervision of the Department of Banking. The department is
     hereby authorized and empowered to issue general rules and
     regulations and specific orders for the protection of members of
     credit unions, for insuring the conduct of the business of
     credit unions on a safe and sound basis and for the effective
     enforcement of this title. Credit unions shall report to the
     department as often as may be required by it and at least
     annually on blanks supplied by the department for that purpose.
     Supplementary reports may be required by the department from
     time to time. Credit unions shall be examined as often as may be
     required by the department and at least annually, and the
     department may use such other methods of assuring itself of the
     condition of the credit unions as it shall deem advisable. The
     cost of all such examinations and inspections shall be paid by
     the credit union. A credit union shall also pay annually its
     proportionate share of the overhead expense of the department
     determined by regulation of the department. The department shall
     give written notice to each credit union of the costs of
     examinations, investigations and the credit union's
     proportionate share of the overhead expenses of the department.
     The credit union shall pay the amount of such costs within 30
     days of the notice. If payment is not made within 30 days of the
     notice, the department may assess a penalty fee of $150 for that
     30-day period and each successive 30-day period of delinquency.
     For failure to file reports when due, unless excused for cause,
     a credit union shall pay to the department [$5] $100 for each
     day of its delinquency.
        * * *
        (e)  Report.--A credit union shall furnish to the department
     copies of the report of financial condition, known as the call
     report, that the credit union is required to provide to the
     National Credit Union Administration.
        Section 4.  Section 512 of Title 17 is amended to read:
      § 512.  Loans.
        Except as otherwise provided in this title, a credit union
     may make loans to its members only. Loans must be made subject
     to the conditions contained in the bylaws. A borrower may repay
     his loan, in whole or in part, any day the office of the credit
     union is open for business. No director, officer or member of
     any committee may obtain or guarantee a loan from the credit
     union in which he holds office on terms, rates or conditions
     more favorable than those granted to any other member [or
     endorse a loan granted by the credit union in which he holds
     office].
        Section 5.  Section 513(a) of Title 17 is amended and the
     section is amended by adding subsections to read:
      § 513.  Reserves.
        (a)  General rule.--At the end of each accounting period, the
     gross income shall be determined. From this amount, there shall
     be set aside[, as a regular reserve against losses on loans and
     against such other losses as may be specified by the Department
     of Banking, sums in accordance with the following schedule] a
     sum in accordance with the following schedule as a regular
     reserve:
            (1)  A credit union in operation for more than four years
        and having assets of $500,000 or more shall set aside:
                (i)  10% of gross income until the regular reserve
            shall equal 4% of the total of outstanding loans and risk
            assets; then
                (ii)  5% of gross income until the regular reserve
            shall equal 6% of the total of outstanding loans and risk
            assets.
            (2)  A credit union in operation less than four years or
        having assets of less than $500,000 shall set aside:
                (i)  10% of gross income until the regular reserve
            shall equal 7.5% of the total of the outstanding loans
            and risk assets; then
                (ii)  5% of gross income until the regular reserve
            shall equal 10% of the total of outstanding loans and
            risk assets.
            (3)  Whenever the regular reserve falls below the stated
        percentage of the total of outstanding loans and risk assets,
        it shall be replenished by regular contributions in such
        amounts as may be needed to maintain the stated reserve
        goals.
            (4)  All entrance fees collected shall be set aside in
        the regular reserve fund.
            (5)  The regular reserve fund thus established shall not
        be loaned out to members and shall be deposited as authorized
        in section 501(b)(6) (relating to powers) or invested in such
        investments as are authorized by section 501(b)(7). The
        regular reserve fund shall belong to the credit union and
        shall not be distributed except in case of liquidation. [The
        board of directors shall decide the loans which are to be
        charged off against the regular reserve fund, except that the
        Department of Banking may, at the time of examination of a
        credit union, recommend for charge-off such loans which in
        its opinion are unsound, which loans shall be charged against
        the regular reserve fund within 60 days of the receipt of
        such recommendation from the department. Any amount received
        from the repayment of a loan after it has been charged off
        against the regular reserve fund shall be credited back to
        the fund.]
            (6)  The directors are authorized, after the required
        reserve has been provided for, to make additional transfers
        from undivided earnings to a contingent reserve for other
        anticipated losses and expenses, but the members at the
        annual meeting may retransfer any part or all of such
        contingent reserve to the undivided earnings account.
        * * *
        (c)  Allowance for loan loss.--Each credit union, in addition
     to maintaining a regular reserve, shall establish an allowance
     for loan loss. The allowance for loan loss reserve shall be
     funded in the manner and used for the purposes as designated
     from time to time by the Department of Banking. The board of
     directors shall decide the loans which are to be charged off
     against the allowance for loan loss, except that the Department
     of Banking may, at the time of examination of a credit union,
     recommend for charge-off such loans which in its opinion are
     unsound, which loans shall be charged against the allowance for
     loan loss account within 60 days of the receipt of such
     recommendation from the department. Any amount received from the
     repayment of a loan after it has been charged off against the
     allowance for loan loss account shall be credited back to the
     account.
        (d)  Allowance for Investment Loss.--Each credit union, in
     addition to maintaining a regular reserve, shall establish an
     Allowance for Investment Loss in compliance with Federal or
     State laws or regulations as well as Generally Accepted
     Accounting Principles. The Allowance for Investment Loss reserve
     shall be funded in conformity with such laws, regulations or
     Generally Accepted Accounting Principles.
        Section 6.  Sections 713(b) and (h) and 1101(a)(1) of Title
     17 are amended to read:
      § 713.  Loan procedures.
        * * *
        (b)  Conflict of interest.--No credit committee member, loan
     officer or director of a credit union shall vote on the granting
     of any loan in which such official [or] has guaranteed the
     repayment of the loan or where a member of his or her immediate
     family has a beneficial interest.
        * * *
        (h)  Restrictions.--No individual shall have authority to
     disburse funds of the credit union for any loan which has been
     approved by such individual in his or her capacity as loan
     officer. [Not more than one member of the credit committee may
     be appointed as loan officer.]
      § 1101.  Conversion into Federal credit union.
        (a)  General rule.--A credit union may be converted into a
     Federal credit union by complying with the following
     requirements:
            (1)  The proposition for such conversion shall first be
        approved by a majority vote of the directors of the credit
        union who shall also set a date for the vote thereon by the
        members. The vote of the members shall be conducted at a
        meeting held on such date or by written ballot to be filed on
        or before such date. Written notice of the proposition and of
        the date set for the vote shall be given each member not more
        than 30 nor less than ten days prior to such date. Approval
        of the proposition shall be by the affirmative vote of a
        majority of the members voting, in person or in writing,
        either at a meeting of the credit union or through a mail
        ballot vote. In order for a vote to be considered valid,
        there must be a quorum established. In the case of a meeting
        of the credit union, a quorum shall be established by the
        presence of at least 10% of the credit union's membership. In
        the case of a mail ballot vote, a quorum shall be established
        by the written response of at least 10% of the credit union's
        membership.
        * * *
        Section 7.  This act shall take effect in 60 days.

     APPROVED--The 12th day of December, A. D. 1994.

     ROBERT P. CASEY