PRIOR PRINTER'S NO. 3261                      PRINTER'S NO. 3289



No. 2563 Session of 1994



                                     AN ACT

     1  Amending Title 17 (Credit Unions) of the Pennsylvania
     2     Consolidated Statutes, further providing for definitions, for
     3     bylaws, for powers, for regulation by Department of Banking,
     4     for loans, for reserves, for loan procedures and for
     5     conversion into Federal credit union UNIONS.                   <--

     6     The General Assembly of the Commonwealth of Pennsylvania
     7  hereby enacts as follows:
     8     Section 1.  Section 103 of Title 17 of the Pennsylvania
     9  Consolidated Statutes is amended by adding definitions to read:
    10  § 103.  Definitions.
    11     The following words and phrases when used in this title shall
    12  have the meanings given to them in this section unless the
    13  context clearly indicates otherwise:
    14     * * *
    15     "Retained earnings."  Undivided profits.
    16     * * *
    17     "Shares."  All savings including regular shares, share
    18  drafts, share certificates and other savings.
    19     "Total equity capital."  Regular reserve and undivided

     1  earnings.
     2     "Total equity capital and reserves."  Regular reserve,
     3  undivided earnings and all reserve accounts including the
     4  allowance for loans LOAN loss reserve.                            <--
     5     "Unimpaired capital."  Total shares.
     6     * * *
     7     Section 2.  Section 305 and 501(b)(7) and (10) of Title 17
     8  are amended to read:
     9  § 305.  Bylaws.
    10     (a)  General rule.--The original bylaws of a credit union
    11  shall be adopted by the incorporators of the credit union and
    12  copies [thereof] shall be transmitted to the Department of
    13  Banking along with the articles of incorporation as provided in
    14  this chapter.
    15     (b)  Amendments.--Thereafter, bylaws AMENDMENTS.--             <--
    16  [THEREAFTER, BYLAWS] BYLAWS may be amended or repealed either by
    17  two-thirds of the members present and voting or a majority of
    18  the board of directors at any regular, annual or special meeting
    19  of the credit union[, or of the board of directors, as the case
    20  may be, if notice thereof is given and a quorum is established
    21  in accordance with the bylaws].] Bylaws may alternatively be      <--
    22  amended or repealed by members through mail ballot if the bylaws
    23  provide for such a procedure and if two-thirds of the responding
    24  member ballots favor the proposed amendment or repeal.
    25     (c)  Restrictions on board of directors.--The board of
    26  directors shall not amend any bylaws fixing their
    27  qualifications, classification, term of office or compensation.
    28     (d)  Review by members.--Whenever the board of directors
    29  amends the bylaws, written notice thereof shall be given to the
    30  members prior to the next meeting of the members or within 90
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     1  days after such action by the board of directors, whichever is
     2  sooner. Any amendment to the bylaws adopted by the board of
     3  directors may be repealed or amended by the members at [a
     4  meeting] an annual or special meeting or by a mail ballot vote
     5  held at least ten days after the mailing of the notice
     6  [thereof].                                                        <--
     7     (e)  Appeal procedure.--In the event that a bylaw amendment
     8  approved by the board of directors is rejected or amended         <--
     9  CHANGED by the members at an annual or special meeting, the       <--
    10  board of directors may resubmit the original amendment to a vote
    11  of the entire membership through mail ballot procedures. The
    12  board of directors may take such action if the resubmittal
    13  motion is approved by a vote of at least a majority of the board
    14  of directors.
    15  § 501.  Powers.
    16     * * *
    17     (b)  Special powers.--Except as set forth in subsection (c),
    18  a credit union shall have the following special powers:
    19         * * *
    20         (7)  To invest its funds in the following investments:
    21             (i)  Securities, obligations or other instruments of
    22         or fully guaranteed as to principal and interest by the
    23         United States or any agency thereof or in any trust
    24         established for investing directly or collectively in the
    25         same.
    26             (ii)  Bonds or other interest-bearing obligations of
    27         the Commonwealth or any political subdivision thereof or
    28         an authority which has been created as a body corporate
    29         and politic under any law of this Commonwealth.
    30             (iii)  Shares of any savings and loan association or
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     1         credit union, organized under the laws of this
     2         Commonwealth, or of any Federal savings and loan
     3         association or Federal credit union, to the extent to
     4         which the withdrawal or repurchase value of such shares
     5         is insured by any agency of the United States or any
     6         other insurer approved by the Department of Banking.
     7             (iv)  Bonds and notes of the Pennsylvania Housing
     8         Agency created by the act of December 3, 1959 (P.L.1688,
     9         No.621), known as the Housing Finance Agency Law.
    10             (v)  Capital stock, obligations or other securities
    11         of any service corporation organized under the laws of
    12         this Commonwealth or under the laws of any other state
    13         and duly qualified to do business in this Commonwealth,
    14         if the entire capital stock of such corporation is
    15         available for purchase only by credit unions, organized
    16         and existing under the laws of this Commonwealth and by
    17         Federal credit unions or association of credit unions. A
    18         complete description of the service corporation and its
    19         activities must be furnished to the department and its
    20         approval obtained by the credit union before investing in
    21         such corporation. No credit union may make an investment
    22         in a service corporation if its then aggregate
    23         outstanding investments under this subparagraph would
    24         exceed 1% of its assets.
    25             (vi)  Obligations issued by banks for cooperatives,
    26         Federal land banks, Federal intermediate credit banks or
    27         any corporation designated in 31 U.S.C. § 9101(2) and (3)
    28         (relating to definitions) as a "[wholly owned] government  <--
    29         corporation."
    30             (vii)  Obligations, participations or other
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     1         instruments of or issued by, or fully guaranteed as to
     2         principal and interest by, the Federal National Mortgage
     3         Association or the Government National Mortgage
     4         Association.
     5             (viii)  Mortgages, obligations or other securities
     6         which are or ever have been sold by the Federal Home Loan
     7         Mortgage Corporation pursuant to 12 U.S.C. § 1454
     8         (relating to purchase and sale of mortgages; residential
     9         mortgages; conventional mortgages; terms and conditions
    10         of sale or other disposition; authority to enter into,
    11         perform, and carry out transactions) or 1455 (relating to
    12         obligations and securities of the corporation).
    13             (ix)  Obligations or other instruments or securities
    14         of the Student Loan Marketing Association.
    15             (x)  Participation certificates evidencing beneficial
    16         interests in obligations, or in the right to receive
    17         interest and principal collections therefrom, which
    18         obligations have been subjected by one or more government
    19         agencies to a trust or trusts for which any executive
    20         department, agency or instrumentality of the United
    21         States (or the head thereof) has been named to act as
    22         trustee.
    23             (xi)  Bankers' acceptances issued by State banks,
    24         bank and trust companies and savings banks, and national
    25         banking associations the accounts of which are Federally
    26         insured.
    27     Before making the investments described in subparagraphs (vi)
    28     through (xi), a credit union shall [obtain the prior written
    29     approval of the department] be in compliance with investment
    30     standards established by the department.
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     1         * * *
     2         (10)  To hold, purchase, mortgage, alter, improve and
     3     sell such real property, and furniture and fixtures to be
     4     used therein, as the purposes of the credit union require and
     5     which the credit union occupies or intends to occupy for the
     6     transaction of its business or partly so occupies and partly
     7     leases to others, except that, without the prior written
     8     approval of the department, the cost, at the time of
     9     acquisition, of such real property and furniture and fixtures
    10     therein shall not exceed [in the aggregate 50% of the
    11     unimpaired surplus and undivided earnings of the credit union
    12     or 5% of its unimpaired capital up to $1,000,000, plus 3% of
    13     its capital over $1,000,000, whichever is greater] 5% of
    14     shares and retained earnings.
    15         * * *
    16     Section 3.  Section 503(a) of Title 17 is amended and the
    17  section is amended by adding a subsection to read:
    18  § 503.  Regulation by Department of Banking.
    19     (a)  General rule.--Credit unions shall be under the
    20  supervision of the Department of Banking. The department is
    21  hereby authorized and empowered to issue general rules and
    22  regulations and specific orders for the protection of members of
    23  credit unions, for insuring the conduct of the business of
    24  credit unions on a safe and sound basis and for the effective
    25  enforcement of this title. Credit unions shall report to the
    26  department as often as may be required by it and at least
    27  annually on blanks supplied by the department for that purpose.
    28  Supplementary reports may be required by the department from
    29  time to time. Credit unions shall be examined as often as may be
    30  required by the department and at least annually, and the
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     1  department may use such other methods of assuring itself of the
     2  condition of the credit unions as it shall deem advisable. The
     3  cost of all such examinations and inspections shall be paid by
     4  the credit union. A credit union shall also pay annually its
     5  proportionate share of the overhead expense of the department
     6  determined by regulation of the department. THE DEPARTMENT SHALL  <--
    14  For failure to file reports when due, unless excused for cause,
    15  a credit union shall pay to the department [$5] $100 for each
    16  day of its delinquency.
    17     * * *
    18     (e)  Report.--A credit union shall furnish to the department
    19  copies of the report of financial condition, known as the "call
    20  report," that the credit union is required to provide to the
    21  National Credit Union Administration.
    22     Section 4.  Section 512 of Title 17 is amended to read:
    23  § 512.  Loans.
    24     Except as otherwise provided in this title, a credit union
    25  may make loans to its members only. Loans must be made subject
    26  to the conditions contained in the bylaws. A borrower may repay
    27  his loan, in whole or in part, any day the office of the credit
    28  union is open for business. No director, officer or member of
    29  any committee may obtain or guarantee a loan from the credit
    30  union in which he holds office on terms, rates or conditions
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     1  more favorable than those granted to any other member [or         <--
     2  endorse a loan granted by the credit union in which he holds
     3  office].                                                          <--
     4     Section 5.  Section 513(a) of Title 17 is amended and the
     5  section is amended by adding subsections to read:
     6  § 513.  Reserves.
     7     (a)  General rule.--At the end of each accounting period, the
     8  gross income shall be determined. From this amount, there shall
     9  be set aside[, as a regular reserve against losses on loans and
    10  against such other losses as may be specified by the Department
    11  of Banking, sums in accordance with the following schedule] a
    12  sum in accordance with the following schedule as a regular
    13  reserve:
    14         (1)  A credit union in operation for more than four years
    15     and having assets of $500,000 or more shall set aside:
    16             (i)  10% of gross income until the regular reserve
    17         shall equal 4% of the total of outstanding loans and risk
    18         assets; then
    19             (ii)  5% of gross income until the regular reserve
    20         shall equal 6% of the total of outstanding loans and risk
    21         assets.
    22         (2)  A credit union in operation less than four years or
    23     having assets of less than $500,000 shall set aside:
    24             (i)  10% of gross income until the regular reserve
    25         shall equal 7.5% of the total of the outstanding loans
    26         and risk assets; then
    27             (ii)  5% of gross income until the regular reserve
    28         shall equal 10% of the total of outstanding loans and
    29         risk assets.
    30         (3)  Whenever the regular reserve falls below the stated
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     1     percentage of the total of outstanding loans and risk assets,
     2     it shall be replenished by regular contributions in such
     3     amounts as may be needed to maintain the stated reserve
     4     goals.
     5         (4)  All entrance fees collected shall be set aside in
     6     the regular reserve fund.
     7         (5)  The regular reserve fund thus established shall not
     8     be loaned out to members and shall be deposited as authorized
     9     in section 501(b)(6) (relating to powers) or invested in such
    10     investments as are authorized by section 501(b)(7). The
    11     regular reserve fund shall belong to the credit union and
    12     shall not be distributed except in case of liquidation. [The
    13     board of directors shall decide the loans which are to be
    14     charged off against the regular reserve fund, except that the
    15     Department of Banking may, at the time of examination of a
    16     credit union, recommend for charge-off such loans which in
    17     its opinion are unsound, which loans shall be charged against
    18     the regular reserve fund within 60 days of the receipt of
    19     such recommendation from the department. Any amount received
    20     from the repayment of a loan after it has been charged off
    21     against the regular reserve fund shall be credited back to
    22     the fund.]
    23         (6)  The directors are authorized, after the required
    24     reserve has been provided for, to make additional transfers
    25     from undivided earnings to a contingent reserve for other
    26     anticipated losses and expenses, but the members at the
    27     annual meeting may retransfer any part or all of such
    28     contingent reserve to the undivided earnings account.
    29     * * *
    30     (c)  Allowance for loan loss.--Each credit union, in addition
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     1  to maintaining a regular reserve, shall establish an allowance
     2  for loan loss. The allowance for loan loss reserve shall be
     3  funded in the manner and used for the purposes as designated
     4  from time to time by the Department of Banking. The board of
     5  directors shall decide the loans which are to be charged off
     6  against the allowance for loan losses LOSS, except that the       <--
     7  Department of Banking may at the time of examination of a credit
     8  union recommend for charge-off such loans which in its opinion
     9  are unsound, which loans shall be charged against the allowance
    10  for loan loss account within 60 days of the receipt of such
    11  recommendation from the department. Any amount received from the
    12  repayment of a loan after it has been charged off against the
    13  allowance for loan loss account shall be credited back to the
    14  account.
    15     (d)  Allowance for Investment loans LOSS.--Each credit union,  <--
    16  in  addition, to maintaining a regular reserve, shall establish
    17  an Allowance for Investment Loss in compliance with Federal or
    18  State laws or regulations as well as generally accepted           <--
    19  accounting principles GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.   <--
    20  The Allowance for Investment Loss reserve shall be funded in
    21  conformity with such laws, regulations or generally accepted      <--
    22  accounting principles GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.   <--
    23     Section 6.  Sections 713(b) and (h) and 1101(a)(1) of Title
    24  17 are amended to read:
    25  § 713.  Loan procedures.
    26     * * *
    27     (b)  Conflict of interest.--No credit committee member, loan
    28  officer or director of a credit union shall vote on the granting
    29  of any loan in which such official [or] has guaranteed the
    30  repayment of the loan or where a member of his or her immediate
    19940H2563B3289                 - 10 -

     1  family has a beneficial interest.
     2     * * *
     3     (h)  Restrictions.--No individual shall have authority to
     4  disburse funds of the credit union for any loan which has been
     5  approved by such individual in his or her capacity as loan
     6  officer. [Not more than one member of the credit committee may
     7  be appointed as loan officer.]
     8  § 1101.  Conversion into Federal credit union.
     9     (a)  General rule.--A credit union may be converted into a
    10  Federal credit union by complying with the following
    11  requirements:
    12         (1)  The proposition for such conversion shall first be
    13     approved by a majority vote of the directors of the credit
    14     union who shall also set a date for the vote thereon by the
    15     members. The vote of the members shall be conducted at a
    16     meeting held on such date or by written ballot to be filed on
    17     or before such date. Written notice of the proposition and of
    18     the date set for the vote shall be given each member not more
    19     than 30 nor less than ten days prior to such date. Approval
    20     of the proposition shall be by the affirmative vote of a
    21     majority of the members voting, in person or in writing,
    22     either at a meeting of the credit union or through a mail
    23     ballot vote. In order for a vote to be considered valid,
    24     there must be a quorum established. In the case of a meeting
    25     of the credit union, a quorum shall be established by the
    26     presence of at least 10% of the credit union's membership. In
    27     the case of a mail ballot vote, a quorum shall be established
    28     by the written response of at least 10% of the credit union's
    29     membership.
    30     * * *
    19940H2563B3289                 - 11 -

     1     Section 7.  This act shall take effect in 60 days.

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