TITLE 7. BANKING AND SECURITIES

PART 6. CREDIT UNION DEPARTMENT

CHAPTER 91. CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS

SUBCHAPTER A. GENERAL RULES

7 TAC §91.101

The Credit Union Commission (the Commission) proposes amendments to §91.101, concerning definitions and interpretations. The proposed amendments to §91.101 add one new definition, modify four definitions, and delete two definitions. Interactive teller machine is now defined in this section, while the definitions of catastrophic act and construction or development loan have been deleted as no longer necessary. The definitions of "improved residential property", "loan-to-value ratio", and "loan and extension of credit" have been expanded to enhance consistency with federal regulations. Finally, the definition of "office" was modified to include interactive teller machines.

In general, the purpose of the amendments to §91.101 is to implement changes resulting from the commission's review of Chapter 91 Subchapters A, B, J, L under Texas Government Code, Section 2001.039. The notice of intention to review Chapter 91, Subchapters A, B, J, and L was published in the Texas Register on April 21, 2017 (42 TexReg 2269), and the rules are proposed as a result of the Department's general rule review. The department did not receive any comments on the notice of intention to review.

Overall the proposed changes provide clarification, better readability and technical corrections.

Harold E. Feeney, Commissioner, has determined that for the first five year period the proposed amendments are in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the amended rule.

Mr. Feeney has also determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of enforcing the rule will be greater clarity of the rule. There will be no effect on small or micro businesses as a result of adopting the amended rule. There is no economic cost anticipated to the credit union system or to individuals for complying with the amended rule if adopted.

Written comments on the proposed amendments may be submitted in writing to Harold E. Feeney, Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699 or by email to CUDMail@cud.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. on the 31st day after the date the proposal is published in the Texas Register.

The amendments are proposed under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code.

The statutory provisions affected by the proposed amendments are contained in Texas Finance Code Chapter 15 and Title 3.

§91.101.Definitions and Interpretations.

(a) Words and terms used in this chapter that are defined in Finance Code §121.002, have the same meanings as defined in the Finance Code. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Act--the Texas Credit Union Act (Texas Finance Code, Subtitle D).

(2) Allowance for loan and lease losses (ALLL)--a general valuation allowance that has been established through charges against earnings to absorb losses on loans and lease financing receivables. An ALLL excludes the regular reserve and special reserves.

(3) Applicant--an individual or credit union that has submitted an application to the commissioner.

(4) Application--a written request filed by an applicant with the department seeking approval to engage in various credit union activities, transactions, and operations or to obtain other relief for which the commission is authorized by the act to issue a final decision or order subject to judicial review.

(5) Appraisal--a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of a specifically described asset as of a specific date, supported by the presentation and analysis of relevant market information.

(6) Automated teller machine (ATM)--an automated, unstaffed credit union facility owned by or operated exclusively for the credit union at which deposits are received, cash dispensed, or money lent.

[(7) Catastrophic act-any natural or man-made disaster such as a flood, tornado, earthquake, major fire or other disaster resulting in physical destruction or damage.]

(7) [(8)] Community of interest--a unifying factor among persons that by virtue of its existence, facilitates the successful organization of a new credit union or promotes economic viability of an existing credit union. The types of community of interest currently recognized are:

(A) Occupational--based on an employment relationship that may be established by:

(i) employment (or a long term contractual relationship equivalent to employment) by a single employer, affiliated employers or employers under common ownership with at least a 10% ownership interest;

(ii) employment or attendance at a school; or

(iii) employment in the same trade, industry or profession (TIP) with a close nexus and narrow commonality of interest, which is geographically limited.

(B) Associational--based on groups consisting primarily of natural persons whose members participate in activities developing common loyalties, mutual benefits, or mutual interests. In determining whether a group has an associational community of interest, the commissioner shall consider the totality of the circumstances, which include:

(i) whether the members pay dues,

(ii) whether the members participate in furtherance of the goals of the association,

(iii) whether the members have voting rights,

(iv) whether there is a membership list,

(v) whether the association sponsors activities,

(vi) what the association's membership eligibility requirements are, and

(vii) the frequency of meetings. Associations formed primarily to qualify for credit union membership and associations based on client or customer relationships, do not have a sufficient associational community of interest.

(C) Geographic--based on a clearly defined and specific geographic area where persons have common interests and/or interact. More than one credit union may share the same geographic community of interest. There are currently four types of affinity on which a geographic community of interest can be based: persons, who

(i) live in,

(ii) worship in,

(iii) attend school in, or

(iv) work in that community. The geographic community of interest requirements are met if the area to be served is in a recognized single political jurisdiction, e.g., a city or a county, or a portion thereof.

(D) Other--The commissioner may authorize other types of community of interest, if the commissioner determines that either a credit union or foreign credit union has sufficiently demonstrated that a proposed factor creates an identifiable affinity among the persons within the proposed group. Such a factor shall be well-defined, have a geographic definition, and may not circumvent any limitation or restriction imposed on one of the other enumerated types.

[(9) Construction or development loan--a financing arrangement for acquiring property or rights to property, including land or structures, with the intent of converting the property into income-producing property such as residential housing for rental or sale; commercial use; industrial use; or similar use. Construction or development loan includes a financing arrangement for the major renovation or development of property already owned by the borrower that will convert the property to income-producing property or convert the use of income-producing property to a different or expanded use from its former use. Construction or development loan does not include loans to finance maintenance, repairs, or improvements to an existing income-producing property that do not change its use.]

(8) [(10)] Day--whenever periods of time are specified in this title in days, calendar days are intended. When the day, or the last day fixed by statute or under this title for taking any action falls on Saturday, Sunday, or a state holiday, the action may be taken on the next succeeding day which is not a Saturday, Sunday, or a state holiday.

(9) [(11)] Department newsletter--the monthly publication that serves as an official notice of all applications, and by which procedures to protest applications are described.

(10) [(12)] Field of membership (FOM)--refers to the totality of persons a credit union may accept as members. The FOM may consist of one group, several groups with a related community of interest, or several unrelated groups with each having its own community of interest.

(11) [(13)] Finance Code or Texas Finance Code--the codification of the Texas statutes governing financial institutions, financial businesses, and related financial services, including the regulations and supervision of credit unions.

(12) [(14)] Imminent danger of insolvency--a circumstance or condition in which a credit union is unable or lacks the means to meet its current obligations as they come due in the regular and ordinary course of business, even if the value of its assets exceeds its liabilities; or the credit union has a positive net worth ratio equal to two percent or less of its assets.

(13) [(15)] Improved residential property--residential real estate containing on-site, offsite or other improvements sufficient to make the property ready for primarily [consisting of a] residential construction, and real estate in the process of being improved by a building or buildings to be constructed or in the process of construction for primarily residential use. [dwelling having one to four dwelling units, at least one of which is occupied by the owner of the property. This term shall also include a one to four unit dwelling occupied in whole or in part by the owner on a seasonal basis.]

(14) Interactive teller machine (ITM)-a video-based interactive technology which allows members to conduct transactions and credit union services driven by a centrally based teller, in a real time video or audio interaction.

(15) [(16)] Indirect financing--a program in which a credit union makes the credit decision in a transaction where the credit is extended by the vendor and assigned to the credit union or a loan transaction that generally involves substantial participation in and origination of the transaction by a vendor.

(16) [(17)] Loan-to-value ratio--the aggregate amount of all sums borrowed and secured by the collateral, including outstanding balances plus any unfunded commitment or line of credit from another lender that is senior to the credit union's lien [all sources on an item of collateral] divided by the current [market] value of the collateral [used to secure the loan].

(17) [(18)] Loan and extension of credit--a direct or indirect advance of funds to or on behalf of a member based on an obligation of the member to repay the funds or repayable from the application of the specific property pledged by or on behalf of the member. [, or on that member's behalf, that is conditioned upon the repayment of the funds by the member or the application of collateral.] The terminology also includes the purchase of a member's loan or other obligation, a lease financing transaction, a credit sale, a line of credit or loan commitment under which the credit union is contractually obligated to advance funds to or on behalf of a member, an advance of funds to honor a check or share draft drawn on the credit union by a member, or any other indebtedness not classified as an investment security.

(18) [(19)] Manufactured home--a HUD-code manufactured home as defined by the Texas Manufactured Housing Standards Act. The terminology may also include a mobile home, house trailer, or similar recreational vehicle if the unit will be used as the member's residence and the loan is secured by a first lien on the unit, and the unit meets the requirements for the home mortgage interest deduction under the Internal Revenue Code (26 U.S.C. Section 163(a), (h)(2)(D)).

(19) [(20)] Market Value--the most probable price which an asset should bring in a competitive and open market under an arm's-length sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of ownership from seller to buyer where:

(A) Buyer and seller are typically motivated;

(B) Both parties are well informed or well advised, and acting in their own best interests;

(C) A reasonable time is allowed for exposure in the open market;

(D) Payment is made in cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(E) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

(20) [(21)] Metropolitan Statistical Area (MSA)--a geographic area as defined by the director of the U. S. Office of Management and Budget.

(21) [(22)] Mobile office--a branch office that does not have a single, permanent site, including a vehicle that travels to various public locations to enable members to conduct their credit union business.

(22) [(23)] Office--includes any service facility or place of business established by a credit union at which deposits are received, checks or share drafts paid, or money lent. This definition includes a credit union owned branch, a mobile branch, an office operated on a regularly scheduled weekly basis, a credit union owned ATM, or a credit union owned ITM or other electronic facility that meets, at a minimum, these requirements; however, it does not include the credit union's Internet website. This definition also includes a shared branch or a shared branch network if either:

(A) the credit union has an ownership interest in the service facility either directly or through a CUSO or similar organization; or

(B) the service facility is local to the credit union and the credit union is an authorized participant in the service center.

(23) [(24)] Overlap--the situation which exists when a group of persons is eligible for membership in two or more state, foreign, or federal credit unions doing business in this state. Notwithstanding this provision, no overlap exists if eligibility for credit union membership results solely from a family relationship.

(24) [(25)] Pecuniary interest --the opportunity, directly or indirectly, to make money on or share in any profit or benefit derived from a transaction.

(25) [(26)] Person--an individual, partnership, corporation, association, government, governmental subdivision or agency, business trust, estate, trust, or any other public or private entity.

(26) [(27)] Principal office--the home office of a credit union.

(27) [(28)] Protestant--a credit union that opposes or objects to the relief requested by an applicant.

(28) [(29)] Real estate or real property--an identified parcel or tract of land. The term includes improvements, easements, rights of way, undivided or future interest and similar rights in a tract of land, but does not include mineral rights, timber rights, growing crops, water rights and similar interests severable from the land when the transaction does not involve the associated parcel or tract of land.

(29) [(30)] Remote service facility--an automated, unstaffed credit union facility owned or operated by, or operated for, the credit union, such as an automated teller machine, cash dispensing machine, point-of-sale terminal, or other remote electronic facility, at which deposits are received, cash dispensed, or money lent.

(30) [(31)] Reserves--allocations of retained earnings including regular and special reserves, except for any allowances for loan, lease or investment losses.

(31) [(32)] Resident of this state--a person physically located in, living in or employed in the state of Texas.

(32) [(33)] Respondent--a credit union or other person against whom a disciplinary proceeding is directed by the department.

(33) [(34)] Shared service center--a facility which is connected electronically with two or more credit unions so as to permit the facility, through personnel at the facility and the electronic connection, to provide a credit union member at the facility the same credit union services that the credit union member could lawfully obtain at the principal office of the member's credit union.

(34) [(35)] Secured credit--a loan made or extension of credit given upon an assignment of an interest in collateral pursuant to applicable state laws so as to make the enforcement or promise more certain than the mere personal obligation of the debtor or promisor. Any assignment may include an interest in personal property or real property or a combination thereof.

(35) [(36)] TAC--an acronym for the Texas Administrative Code, a compilation of all state agency rules in Texas.

(36) [(37)] Title or 7 TAC--Title 7, Part VI of the Texas Administrative Code [(TAC)], Banking and Securities, which contains all of the department's rules.

(37) [(38)] Underserved area--a geographic area, which could be described as one or more contiguous metropolitan statistical areas (MSA) or one or more contiguous political subdivisions, including counties, cities, and towns, that satisfy any one of the following criteria:

(A) A majority of the residents earn less than 80 percent of the average for all wage earners as established by the U. S. Bureau of Labor Statistics;

(B) The annual household income for a majority of the residents falls at or below 80 percent of the median household income for the State of Texas, or the nation, whichever is higher; or

(C) The commission makes a determination that the lack of available or adequate financial services has adversely effected economic development within the specified area.

(38) [(39)] Uninsured membership share--funds paid into a credit union by a member that constitute uninsured capital under conditions established by the credit union and agreed to by the member including possible reduction under §122.105 of the act, risk of loss through operations, or other forfeiture. Such funds shall be considered an interest in the capital of the credit union upon liquidation, merger, or conversion.

(39) [(40)] Unsecured credit--a loan or extension of credit based solely upon the general credit financial standing of the borrower. The term shall include loans or other extensions of credit supported by the signature of a co-maker, guarantor, or endorser.

(b) The same rules of construction that apply to interpretation of Texas statutes and codes, the definitions in the Act and in Government Code §2001.003, and the definitions in subsection (a) of this section govern the interpretation of this title. If any section of this title is found to conflict with an applicable and controlling provision of other state or federal law, the section involved shall be void to the extent of the conflict without affecting the validity of the rest of this title.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2017.

TRD-201702691

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: August 27, 2017

For further information, please call: (512) 837-9236


7 TAC §91.115

The Credit Union Commission (the Commission) proposes amendments to §91.115 concerning user safety at unmanned teller machines (UTM). The proposed amendments to §91.115 will reduce regulatory burden by authorizing delivery of notice by electronic means in certain circumstances. In addition, the proposed amendments would provide clarification, better readability, and technical corrections.

In general, the purpose of the amendments to §91.115 is to implement changes resulting from the commission's review of Chapter 91 Subchapters A, B, J, and L under Texas Government Code, §2001.039. The notice of intention to review Chapter 91, Subchapters A, B, J, and L was published in the Texas Register on April 21, 2017, (42 TexReg 2269) are proposed as a result of the Department's general rule review. The department did not receive any comments on the notice of intention to review.

Subsection (d) currently requires a credit union to furnish it members with a printed notice of basic safety precautions that a member should employ while using an unmanned teller machine. This requirement has not been altered since 1996, despite significant public experience gained in over twenty years of usage and the proliferation of electronic communications between consenting parties.

As proposed to be amended, §91.115(d) will require a credit union to provide notice of basic UTM safety precautions to its members whenever an access device is issued or renewed. Further, the amendment will permit the notice to be delivered to a member electronically if the member has agreed to conduct transactions by electronic means and will further clarify that in the event the credit union furnishes an access device to more than one member on the same account.

Harold E. Feeney, Commissioner, has determined that for the first five year period the proposed amendments are in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the amended rule.

Mr. Feeney has also determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of enforcing the rule will be greater clarity of the rule. There will be no effect on small or micro businesses as a result of adopting the amended rule. There is no economic cost anticipated to the credit union system or to individuals for complying with the amended rule if adopted.

Written comments on the proposed amendments may be submitted in writing to Harold E. Feeney, Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699, or by email to CUDMail@cud.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. on the 31st day after the date the proposal is published in the Texas Register.

The amendments are proposed under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §59.310, which provides that the commission shall adopt rules to implement Subchapter D of Finance Code, Chapter 59.

The statutory provisions affected by the proposed amendments are contained in Texas Finance Title 3, Subtitle A, Chapter 59, Subchapter D.

§91.115.Safety at Unmanned Teller Machines.

(a) Definitions. Words and terms used in this subchapter that are defined in the Finance Code §59.301, [§59.307 ] have the same meanings as defined in the Finance Code.

(b) Measurement of candle foot power. For the purposes of measuring compliance with the Finance Code §59.307, candle foot power should be determined under normal, dry weather conditions, without complicating factors such as fog, rain, snow, sand, or dust storm, or other similar condition.

(c) Safety evaluations.

(1) The credit union owner or operator of an unmanned teller machine shall evaluate the safety of each machine on a basis no less frequently than annually, unless the machine is exempted under the Finance Code §59.302.

(2) The safety evaluation shall consider at the least the factors identified in the Finance Code, §59.308.

(3) The credit union owner or operator of the unmanned teller machine may provide the landlord or owner of the property with a copy of the safety evaluation if an access area or defined parking area for an unmanned teller machine is not controlled by the credit union owner or operator of the machine.

(d) Notice. A credit union issuer of access devices shall furnish its members with a notice of basic safety precautions that each member should employ while using an unmanned teller machine. The notice must be personally delivered or sent to each member whose mailing address is in this state, according to records for the account to which the access device relates, and may be included with other disclosures related to the access device, including an initial or periodic disclosure statement furnished under the Electronic Fund Transfer Act (15 U.S.C. §1693 et seq.). The notice may be delivered electronically if permissible under Business & Commerce Code, §322.008.

(1) When notice is required. The credit union issuer must furnish the notice to its member whenever an access device is issued or renewed. If the credit union furnishes an access device to more than one member on the same account, the credit union is not required to furnish the notice to more than one of the members. [Access devices. The notice shall be delivered personally or mailed to each member, whose mailing address is in this state, when an access device is issued, renewed or replaced.]

(2) Content of notice. The notice of basic safety precautions required by this subsection [section must be provided in written form which can be retained by the member and] may include recommendations or advice regarding:

(A) security at walk-up or drive-up unmanned teller machines;

(B) protection of the member's code or personal identification numbers;

(C) procedures for reporting a lost or stolen access device;

(D) reaction to suspicious circumstances;

(E) safekeeping and secure disposition of unmanned teller machine receipts, such as the inadvisability of leaving an unmanned teller machine receipt near the unmanned teller machine;

(F) the inadvisability of surrendering information about the member's access device over the telephone or the Internet, unless to a trusted merchant in a call or transaction initiated by the member;

(G) safeguarding and protecting the member's access device, such as a recommendation that the member treat the access device as if it was cash;

(H) protection against unmanned teller machine fraud, such as a recommendation that the member promptly review the member's monthly statement and compare unmanned teller machine receipts against the [member's monthly] statement; and

(I) other recommendations that the credit union reasonably believes are appropriate to facilitate the security of its unmanned teller machine users.

(e) Leased premises.

(1) Noncompliance by landlord. Pursuant to the Finance Code, §59.306, the landlord or owner of property is required to comply with the safety procedures of the Finance Code, Chapter 59, Subchapter D, if an access area or defined parking area for an unmanned teller machine is not controlled by the owner or operator of the unmanned teller machine. If a credit union owner or operator of an unmanned teller machine on leased premises is unable to obtain compliance with safety procedures from the landlord or owner of the property, the credit union shall notify the landlord in writing of the requirements of the Finance Code, Chapter 59, Subchapter D, and of those provisions for which the landlord is in noncompliance.

(2) Enforcement. Noncompliance with safety procedures required by the Finance Code, Chapter 59, Subchapter D, by a landlord or owner of property after receipt of written notification from the owner or operator constitutes a violation of the Finance Code, Chapter 59, Subchapter D, which may be enforced by the Texas Attorney General.

(f) Video surveillance equipment. Video surveillance equipment is not required to be installed at all unmanned teller machines. The credit union owner or operator must determine whether video surveillance or unconnected video surveillance equipment should be installed at a particular unmanned teller machine site, based on the safety evaluation required under the Finance Code, §59.308. If a credit union owner or operator determines that video surveillance equipment should be installed, the credit union must provide for selecting, testing, operating, and maintaining appropriate equipment.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2017.

TRD-201702696

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: August 27, 2017

For further information, please call: (512) 837-9236


7 TAC §91.121

The Credit Union Commission (the Commission) proposes amendments to §91.121, concerning the form of consumer complaint notification. The proposed amendment will allow the required notice to be in a form that is substantially similar to the current required notice. In addition, the proposed changes will alter the content of the required notice to include the department's facsimile number and an email address as well as provide clarification and better readability.

In general, the purpose of the amendments to §91.121 is to implement changes resulting from the commission's review of Chapter 91, Subchapters A, B, J and L, under Texas Government Code, §2001.039. The notice of intention to review Chapter 91, Subchapters A, B, J, and L, was published in the Texas Register on April 21, 2017, (42 TexReg 2269) are proposed as a result of the Department's general rule review. The department did not receive any comments on the notice of intention to review.

Currently, §91.121(b) provides a form consumer complaint notice that must be duplicated exactly when the notice is required to be communicated to credit union members. Proposed amended §91.121(b) would state that this consumer complaint must only substantially conform to the form complaint notice that is currently provided by §91.121(b). This will allow a credit union to make non-substantive changes to the notice, as might be necessary by the context or formatting in which it is being provided.

Harold E. Feeney, Commissioner, has determined that for the first five year period the proposed amendments are in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the amended rule.

Mr. Feeney has also determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of enforcing the rule will be greater clarity of the rule. There will be no effect on small or micro businesses as a result of adopting the amended rule. There is no economic cost anticipated to the credit union system or to individuals for complying with the amended rule if adopted.

Written comments on the proposed amendments may be submitted in writing to Harold E. Feeney, Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699 or by email to CUDMail@cud.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. on the 31st day after the date the proposal is published in the Texas Register.

The amendments are proposed under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §15.409 which requires the Commission to adopt rules for directing complaints to the Department.

The specific section affected by the proposed amendments is Texas Finance Code, §15.409.

§91.121.Complaint Notification.

(a) Definition [Definitions]. For purposes of this section "required notice" means a notice in the form set forth or provided for in subsection (b)(1) of this section.

[(1) "Privacy notice" means any notice which a credit union gives regarding a member's right to privacy, as required by a state or federal law].

[(2) For purposes of subsection (b) of this section and unless the context reads otherwise, "notice" means a complaint notification in the form set forth in subsection (b)(1) of this section.]

(b) Required Notice.

(1) Credit unions must provide their members with a [the following] notice [describing the process for filing complaints:] that substantially conforms to the language and form of the following notice in order to let its members know how to file complaints: "If you have a problem with the services provided by this credit union, please contact us at: (Your Name) Credit Union; Mailing Address;Telephone Number or e-mail address. The credit union is incorporated under the laws of the State of Texas and under state law is subject to regulatory oversight by the Texas Credit Union Department. If any dispute is not resolved to your satisfaction, you may also file a complaint against the credit union by contacting the Texas Credit Union Department through one of the means indicated below: In Person or U.S. Mail: [at] 914 East Anderson Lane, Austin, Texas 78752-1699, Telephone Number: (512) 837-9236, Facsimile Number: (512) 832-0278; email: complaints@cud.texas.gov, Website: www.cud.texas.gov."

(2) The title of this notice shall be "COMPLAINT NOTICE" and must be in all capital letters and boldface type.

(3) The credit union must provide the notice as follows:

(A) In each area [office] where a credit union typically conducts business on a face-to-face basis, the required notice[, in the form specified in paragraph (1) of this subsection] must be conspicuously posted. A notice is deemed to be conspicuously posted if a member with 20/20 vision can read it from the place where he or she would typically conduct business or if it is included in plain view on a bulletin board on which required communications to the membership (such as equal housing posters) are posted.

(B) If a credit union maintains a website, [it must include] the required notice or a link to the required notice must be conspicuously posted [in a reasonably conspicuous place] on the homepage of the website.

(C) If a credit union distributes a newsletter, it must include the notice on approximately the same date at least once each year in any newsletter distributed to its members.

(D) If a credit union does not [have an Internet website or does not] distribute a newsletter, the notice must be included with any privacy notice the credit union is required to give or send its members.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2017.

TRD-201702695

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: August 27, 2017

For further information, please call: (512) 837-9236


SUBCHAPTER B. ORGANIZATION PROCEDURES

7 TAC §91.205

The Credit Union Commission (the Commission) proposes amendments to §91.205 concerning the name of a credit union. The proposed amendment further expounds on the point that credit unions are solely responsible for any unauthorized use or infringement on a business trade name. In addition, the proposed changes will emphasize the need for a credit union to use appropriate due diligence in selecting a credit union name.

In general, the purpose of the amendments to §91.205 is to implement changes resulting from the commission's review of Chapter 91 Subchapters A, B, J, L under Texas Government Code, §2001.039. The notice of intention to review Chapter 91, Subchapters A, B, J, and L was published in the Texas Register on April 21, 2017, (42 TexReg 2269). The department did not receive any comments on the notice of intention to review.

Choosing a credit union name is more than the relatively narrow exercise of deciding what "fits" and creating an identity for itself. Instead, credit unions need to include a broad search on where their proposed name fits with other business trade names to reduce the risk that a proposed name will infringe upon or cause confusion with an existing trade name.

Harold E. Feeney, Commissioner, has determined that for the first five year period the proposed amendments are in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the amended rule.

Mr. Feeney has also determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of enforcing the rule will be greater clarity of the rule and less chance of public confusion regarding the name under which a credit union operates. There will be no effect on small or micro businesses as a result of adopting the amended rule. There is no economic cost anticipated to the credit union system or to individuals for complying with the amended rule if adopted.

Written comments on the proposed amendments may be submitted in writing to Harold E. Feeney, Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699 or by email to CUDMail@cud.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. on the 31st day after the date the proposal is published in the Texas Register.

The amendments are proposed under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §122.003 which sets out requirements for a credit union name.

The specific section affected by the proposed amendments is Texas Finance Code, §122.003.

§91.205.Credit Union Name.

(a) Unless a name change or assumed name has been approved by the commissioner in accordance with the Act and these rules, a credit union shall do business under the name in which its certificate of incorporation was issued.

(b) Subject to the requirements of this rule, a credit union may adopt an assumed name. The credit union's official name, however, must be used in all official or legal communications or documents, which includes account and membership agreements, loan contracts, title documents (except for vehicle titles, which may also be under the credit union's assumed name), account statements, checks, drafts, and correspondence with the Department or the National Credit Union Administration. The assumed name may also be used in those materials so long as it is identified as such (e.g. Generic Credit Union dba GCU). Further, a credit union using an assumed name shall clearly disclose the credit union's official name when the assumed name is used on any signs, advertising, mailings, or similar materials.

(c) A credit union shall not use any name other than its official name until it has received a certificate of authority to use an assumed business name from the commissioner and has registered the designation with the Secretary of State and the appropriate county clerk.

(d) The commissioner shall not issue a certificate of authority to use an assumed business name if the designation might confuse or mislead the public, or if it is not readily distinguishable from, or is deceptively similar to, a name of another credit union lawfully doing business with an office in this state.

(e) Credit union officials are responsible for complying with state and federal law applicable to corporate and assumed names. The Department does not have the power to determine or settle competing claims to a name under other statutes or under common law. Even though the Department may have issued a certificate of authority (based on the above criteria), a credit union could still be infringing on the naming rights of other parties. In particular, if the name a credit union selects is similar to a name already protected by state or federal trademark, a credit union could be forced to stop using the name. This can also be the case if another entity is already using a similar name in a related field, even if the entity does not own a state or federal registration.

(f) Before using an assumed name, a credit union shall take reasonable steps to ensure that use of the name will not cause a reasonable person to believe the credit union's different facilities are different credit unions or to believe that shares or deposits in one facility are separately insured from those of another of its facilities. [facility.]

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2017.

TRD-201702694

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: August 27, 2017

For further information, please call: (512) 837-9236


7 TAC §91.209

The Credit Union Commission (the Commission) proposes amendments to §91.209, concerning the submission of call reports and other information requests. The proposed amendment would eliminate the specific due date for submission of call reports to avoid any conflict or confusion should the National Credit Union Administration (NCUA) establish a different due date for submitting Form 5300.

In general, the purpose of the amendments to §91.209 is to implement changes resulting from the commission's review of Chapter 91, Subchapters A, B, J, and L under Texas Government Code, §2001.039. The notice of intention to review Chapter 91, Subchapters A, B, J, and L was published in the Texas Register on April 21, 2017, (42 TexReg 2269). The Department did not receive any comments on the notice of intention to review.

NCUA has established, in recent years, various deadlines for the submission of its Form 5300, which have been inconsistent with the Department's existing deadline. To avoid the need to amend §91.209 each time NCUA institutes a new due date, the proposed change would prescribe that a timely filed Form 5300 with the NCUA will comply with the reporting requirements of this rule, unless the commission orders otherwise. Therefore, a duplicate copy of Form 5300 with the Department would not be required.

Harold E. Feeney, Commissioner, has determined that for the first five year period the proposed amendments are in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the amended rule.

Mr. Feeney has also determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of enforcing the rule will be greater ease of use of the rule and the lessening of regulatory burden on credit unions by avoiding duplicative information reporting on different dates. There will be no effect on small or micro businesses as a result of adopting the amended rule. There is no economic cost anticipated to the credit union system or to individuals for complying with the amended rule if adopted.

Written comments on the proposed amendments may be submitted in writing to Harold E. Feeney, Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699, or by email to CUDMail@cud.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. on the 31st day after the date the proposal is published in the Texas Register.

The amendments are proposed under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15, and Title 3, Subchapter D, of the Texas Finance Code, and under Texas Finance Code §122.101, which directs credit unions to submit call report to the commissioner.

The specific section affected by the proposed amendments is Texas Finance Code, §122.101.

§91.209.Call Reports and Other Information Requests.

(a) Each credit union shall prepare and submit file, in a manner prescribed by the commissioner, [file] a quarterly financial and statistical report [with the Department no later than 22 days after the end of each calendar quarter] with the Department no later than 22 days after the end of each calendar quarter. Unless the commissioner orders otherwise, call reports (Form 5300) timely filed with the National Credit Union Administration will comply with the reporting requirements of this subsection. If a credit union fails to file the quarterly report on time, the commissioner may charge the credit union a penalty of $100 for each day or fraction of a day the report is in arrears.

(b) Any credit union that makes, files, or submits a false or misleading financial and statistical report required by subsection (a) of this section, is subject to an enforcement action pursuant to the Finance Code, Chapter 122, Subchapter F.

(c) A credit union shall prepare and forward to the Department any supplemental report or other document that the Commissioner may, from time to time require, and must comply with all instructions relating to completing and submitting the supplemental report or document. For the purposes of this section, the Commissioner's request may be directed to all credit unions or to a group of credit unions affected by the same or similar issue, shall be in writing, and must specifically advise the credit union that the provisions of this section apply to the request. If a credit union fails to file a supplemental report or provide a requested document within the timeframe specified in the instruction, after notice of non-receipt, the commissioner may levy a penalty $50 for each day or fraction of a day such report or document is in arrears.

(d) If a credit union fails to file any report or provide the requested information within the specified time, the commissioner, or any person designated by the commissioner, may examine the books, accounts, and records of the credit union, prepare the report or gather the information, and charge the credit union a supplemental examination fee as prescribed in §97.113 of this title (relating to Fees and Charges). The credit union shall pay the fee to the department within thirty days of the assessment.

(e) Any penalty levied under this section shall be paid within 30 days of the levy. Penalties received after the due date will be subject to a monthly 10% fee unless waived by the commissioner for good cause shown.

(f) The Department may, in lieu of imposing the penalty authorized by subsection (a) of this section, order a credit union to pay an amount, fixed by the Commissioner, that is minimally sufficient to cause the NCUA to reduce or negate its own penalty assessment against the credit union [being assessed a civil money penalty] under Section 202 of the Federal Credit Union Act (12 U.S.C. §1782) for late or false/misleading filing of a quarterly call report (Form 5300). The Department shall abate the penalty, [This penalty shall be abated] in part[,] if the National Credit Union Administration exercises its authority to impose a civil money penalty for the same late or false/misleading filing. The penalty, assessed by the Department, however, shall not be decreased below the amount authorized to be assessed [levied] under subsection (a) of this section.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2017.

TRD-201702693

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: August 27, 2017

For further information, please call: (512) 837-9236


SUBCHAPTER J. CHANGES IN CORPORATE STATUS

7 TAC §91.1003

The Credit Union Commission (the Commission) proposes amendments to §91.1003, concerning voluntary mergers and consolidations. The proposed amendment would require credit unions to include in their merger plan a description of any arrangements providing a material increase in compensation or benefits, of any sort, to a board member or senior management employee in connection with the merger/consolidation. The proposed change will ensure the credit unions have more complete information about financial arrangements that would not otherwise be received if the merger/consolidation is not completed.

In general, the purpose of the amendments to §91.1003 is to implement changes resulting from the commission's review of Chapter 91 Subchapters A, B, J, L under Texas Government Code, §2001.039. The notice of intention to review Chapter 91, Subchapters A, B, J, and L was published in the Texas Register on April 21, 2017, (42 TexReg 2269). The department did not receive any comments on the notice of intention to review.

As proposed, amended §91.1003 would require that financial arrangements, which might have the potential to undermine the impartiality of an individual, are disclosed before a credit union considers whether to approve a merger/consolidation proposal. The proposed disclosure of financial arrangements is intended to be broad in scope, applying to any material increase in compensation or benefits that would not be provided but for the merger/consolidation, regardless of whether the increase is made before or after the completion of the merger/consolidation.

With the proposed amendment the Department does not intend to substitute its business judgment for that of the boards of the credit unions on marketplace demands and reasonable compensation arrangements. The proposed rule change simply focuses on transparency and the principle that full disclosure usually results in more informed and better credit union decisions.

Harold E. Feeney, Commissioner, has determined that for the first five year period the proposed amendments are in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the amended rule.

Mr. Feeney has also determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of enforcing the rule will be greater transparency of financial arrangements that might create conflicts of interest for certain individuals involved in a merger/consolidation. There will be no effect on small or micro businesses as a result of adopting the amended rule. There is no economic cost anticipated to the credit union system or to individuals for complying with the amended rule if adopted.

Written comments on the proposed amendments may be submitted in writing to Harold E. Feeney, Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699 or by email to CUDMail@cud.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. on the 31st day after the date the proposal is published in the Texas Register.

The amendments are proposed under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code, §122.156, which sets out the requirements for rules adopted for mergers or consolidations.

The specific section affected by the proposed amended rule is Texas Finance Code, §122.156.

§91.1003.Mergers/Consolidations.

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Acquirer credit union--The credit union that will continue in operation after the merger/consolidation.

(2) Acquiree credit union-- The credit union that will cease to exist as an operating credit union at the time of the merger/consolidation.

(3) Merger inducement--A promise by a credit union to pay to the members of another credit union a sum of money or other material benefit upon the successful completion of a merger of the two credit unions.

(4) Substantial--An amount that is large in size, value, or importance. For purposes of this section, an amount is substantial if it exceeds $1,000.00 in total.

(b) Two or more credit unions organized under the laws of this state, another state, or the United States, may merge/consolidate, in whole or in part, with each other, or into a newly incorporated credit union to the extent permitted by applicable law, subject to the requirements of this rule. A credit union may not offer a merger inducement to another credit union's members as a means of promoting a merger of the two credit unions.

(c) Notice of Intent to Merge/Consolidate. The credit unions shall notify the commissioner in writing of their intent to merge/consolidate within ten days after the credit unions' boards of directors formally agree in principle to merge/consolidate.

(d) Plan for Merger/Consolidation. Upon approval of a proposition for merger/consolidation by the boards of directors, the credit unions must prepare a plan for the proposed merger/consolidation. The plan shall include:

(1) The terms and conditions of the merger/consolidation including a detailed description of any substantial remuneration, such as bonuses, deferred compensation, early payout of retirement benefits, severance packages, retainers, services agreements, or other substantial financial rewards or benefits that any board member or senior management employee of the acquiree credit union may receive in connection with the merger/consolidation;

(2) [(1)] the current financial reports of each credit union;

(3) [(2)] the combined financial reports of the two or more credit unions;

(4) [(3)] an analysis of the adequacy of the combined Allowance for Loan and Lease Losses account;

(5) [(4)] an explanation of any proposed adjustments to the members' shares, or provisions for reserves, dividends, or undivided profits;

(6) [(5)] a summary of the products and services proposed to be available to the members of the acquirer credit union, with an explanation of any changes from the current products and services provided to the members;

(7) [(6)] a summary of the advantages and disadvantages of the merger/consolidation;

(8) [(7)] the projected location of the main office and any branch location(s) after the merger/consolidation and whether any existing office locations will be permanently closed; and

(9) [(8)] any other items deemed critical to the merger/consolidation agreement by the boards of directors.

(e) Submission of an Application to Merge/Consolidate to Department.

(1) An application for approval of the merger/consolidation will be complete when the following information is submitted to the commissioner:

(A) the merger/consolidation plan, as described in this rule;

(B) a copy of the corporate resolution of each board of directors approving the merger/consolidation plan;

(C) the proposed Notice of Special Meeting of the members;

(D) a copy of the ballot form to be sent to the members;

(E) the current delinquent loan summaries for each credit union;

(F) if the acquiree credit union has $65.2 million or more in assets on its latest call report, a statement as to whether the transaction is subject to the Hart-Scott Rodino Act premerger notification filing requirements; and

(G) a request for a waiver of the requirement that the plan be approved by the members of any of the affected credit unions, in the event the board(s) seek such a waiver, together with a statement of the reason(s) for the waiver(s).

(2) If the acquirer credit union is organized under the laws of another state or of the United States, the commissioner may accept an application to merge or consolidate that is prescribed by the state or federal supervisory authority of the acquirer credit union, provided that the commissioner may require additional information to determine whether to deny or approve the merger/consolidation. The application will be deemed complete upon receipt of all information requested by the commissioner.

(3) Notice of the proposed merger must be published in the Texas Register and Department Newsletter as prescribed in §91.104 (relating to Notice of Applications).

(f) Commissioner Action on the Application.

(1) The commissioner may grant preliminary approval of an application for merger/consolidation conditioned upon specific requirements being met, but final approval shall not be granted unless such conditions have been met within the time specified in the preliminary approval.

(2) The commissioner shall deny an application for merger/consolidation if the commissioner finds any of the following:

(A) the financial condition of the acquirer credit union before the merger/consolidation is such that it will likely jeopardize the financial stability of the merging credit union or prejudice the financial interests of the members, beneficiaries or creditors of either credit union;

(B) the plan includes a change in the products or services available to members of the acquiree credit union that substantially harms the financial interests of the members, beneficiaries or creditors of the acquiree credit union;

(C) the merger/consolidation would probably substantially lessen the ability of the acquirer credit union to meet the reasonable needs and convenience of members to be served;

(D) the credit unions do not furnish to the commissioner all information requested by the commissioner which is material to the application;

(E) the credit unions fail to obtain any approval required from a federal or state supervisory authority; or

(F) the merger/consolidation would be contrary to law.

(3) For applications to merge/consolidate in which the products and services of the acquirer credit union after merger/consolidation are proposed to be substantially the same as those of the acquiree and acquirer credit unions, the commissioner will presume that the merger/consolidation will not significantly change or affect the availability and adequacy of financial services in the local community.

(g) Procedures for Approval of Merger/Consolidation Plan by the Members of Each Credit Union.

(1) The credit unions have the option of allowing their members to vote on the plan in person at a meeting of the members, by mail ballot, or both. With prior approval of the commissioner, a credit union may accept member votes by an alternative method that is reasonably calculated to ensure each member has an opportunity to vote.

(2) Members shall be given advance notice of the meeting in accordance with the credit union's bylaws. The notice of the meeting shall:

(A) specify the purpose of the meeting and state the date, time, and place of the special meeting;

(B) state the reasons for the proposed merger/consolidation;

(C) contain a summary of the merger plan and state that any interested person may obtain more detailed information about the merger from the credit union at its principal place of business, or by any method approved in advance by the commissioner;

(D) provide the name and location of the acquirer credit union;

(E) specify the methods permitted for casting votes; and

(F) if applicable, be accompanied by a mail ballot.

(h) Completion of Merger/Consolidation.

(1) Upon approval of the merger/consolidation plan by the membership, if applicable, the Certificate of Merger/Consolidation shall be completed, signed and submitted to the commissioner for final authority to combine the records. Necessary amendments to the acquirer credit union's articles of incorporation or bylaws shall also be submitted at this time.

(2) Upon receipt of the commissioner's written authorization, the records of the credit unions shall be combined as of the effective date of the merger/consolidation. The board of the directors of the acquirer credit union shall certify the completion of the merger/consolidation to the commissioner within 30 days after the effective date of the merger/consolidation.

(3) Upon receipt by the commissioner of the completion of the merger/consolidation certification, any article of incorporation or bylaw amendments will be approved and the charter of the acquiree credit union will be canceled.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2017.

TRD-201702697

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: August 27, 2017

For further information, please call: (512) 837-9236


7 TAC §91.1010

The Credit Union Commission (the Commission) proposes new §91.1010, concerning voluntary liquidations. The proposed new rule will provide guidance to credit unions when they are considering a voluntary liquidation of the institution. The guidelines contained in this proposed new rule will enable the board of directors or liquidating agent to conduct the liquidation of the credit union in a more orderly and expeditious manner and to arrange distribution of the assets to the members without undue delay.

In general, the proposed new §91.1010 is resulting from the commission's review of Chapter 91, Subchapter J, under Texas Government Code, §2001.039. The notice of intention to review Chapter 91, Subchapter J, was published in the Texas Register on April 21, 2017, (42 TexReg 2269). The department did not receive any comments on the notice of intention to review, however, the Department has previously received inquiries seeking information regarding voluntary liquidations.

A voluntary liquidation is the dissolution of a solvent credit union with the assets being sold or collected, liabilities paid, and shares and deposits distributed under the direction of the board of directors or a duly appointed liquidating agent. Voluntary liquidation is an option only if the credit union is solvent. Texas Finance Code §126.101 prescribes that the commissioner shall issue a conservatorship order and appoint a conservator to manage a credit union if the commissioner finds the credit union is insolvent or in imminent danger of insolvency.

Overall, the proposed new rule will serve as a guide for conducting the voluntary liquidation of a credit union. The purpose for each new subsection is provided in the following paragraphs.

Subsection (a) Definitions, defines the terms, "voluntary liquidation," "liquidation date," and "liquidating agent."

Subsection (b) Initiating voluntary liquidation process, describes the timeframes and the required processes, once it is determined that liquidation is advisable and other alternatives are not acceptable, and the board of directors has voted to present the question of liquidation to the credit union's membership.

Subsection (c) Notice of liquidation, explains the initial requirements upon an affirmative vote by the membership to liquidate, including notifying the Department, members, and creditors, and the publishing of a public notice, if so directed by the Department.

Subsection (d) Transaction of business during liquidation, delineates the activities that must be suspended, discontinued, or require prior approval after affirmative vote by the membership to liquidate. The subsection also prescribes that members must receive specific notice to discontinue the use of share and credit cards by a specified date.

Subsection (e) Liquidation plan, imposes a requirement that the board of directors develop a formal written plan for liquidation of the credit union's assets and the payment of shares/deposits. The plan must address prescribed areas and provide for the liquidation of the credit union within one year of the liquidation date.

Subsection (f) Approval of the liquidation proposal by membership, specifies that if the membership does not approve the recommendation, the board of directors may only seek the Department's consent to resume business, resubmit the question to the membership, or request the appointment of a conservator.

Subsection (g) Distribution of assets, stipulates the order upon which all legitimate creditor claims shall be paid. The subsection also specifies the action necessary after all assets have been converted to cash and the books are closed.

Subsection (h) Continued supervision of voluntary liquidation, reaffirms that a liquidating credit union continues to be subject to the regulation and supervision of the Department. The Department may require the liquidating credit union to submit reports and the Department may conduct examination of the credit union as necessary or appropriate.

Subsection (i) Retention of records, provides that certain records of the liquidating credit union must be retained for a period of five years. The board of directors must designate a person to be responsible for the retained records.

Subsection (j) Certificate of dissolution and liquidation, establishes a deadline of 120 days after final distribution for the board of directors to provide certification to the Department that the credit union has been successfully dissolved and liquidated.

Subsection (k) Inquiries after liquidation, prescribes that the person designated by the board of directors to retain the records of the liquidating credit union is also responsible for the timely response to any inquires received after the liquidation has been completed.

Before action is taken to voluntarily liquidate a credit union, the board of directors is encouraged to determine whether liquidation is advisable by carefully considering all factors leading to the proposal and carefully considering all available options. Generally, voluntary liquidation should only be considered in extreme cases because voluntary liquidation may cause at least a portion of members' shares/deposits to not be available during the liquidation. This inability of members to access their funds would likely impose significant personal hardships on the members. An example of an extreme case that may possibly justify a voluntary liquidation is a situation in which the credit union has determined that failure to voluntary terminate the credit union within the next 24 months will most likely result in insolvency or involuntary liquidation.

Harold E. Feeney, Commissioner, has determined that for the first five year period the proposed new rule is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the new rule.

Mr. Feeney has also determined that for each year of the first five years the proposed new rule is in effect, the public benefits anticipated as a result of enforcing the rule will be greater clarity as to what is expected of a credit union that elects to voluntarily liquidate. There will be no effect on small or micro businesses as a result of adopting the new rule. There is no economic cost anticipated to the credit union system or to individuals for complying with the new rule if adopted.

Written comments on the proposed new rule may be submitted in writing to Harold E. Feeney, Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699, or by email to CUDMail@cud.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. on the 31st day after the date the proposal is published in the Texas Register.

The new rule is proposed under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §§126.451, 126.452, 125.453, 126.454, 126.455, 126.456, 126.457, and 126.458, which sets out the requirements for voluntary liquidations.

The specific section affected by the proposed new rule is Texas Finance Code, §§126.451, 126.452, 125.453, 126.454, 126.455, 126.456, 126.457, and 126.458.

§91.1010.Voluntary Liquidation.

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Voluntary liquidation means the dissolution of a credit union with the assets being sold or collected, liabilities paid, and shares/deposits distributed under the direction of the board of directors.

(2) Liquidation date means the date the membership votes to approve liquidation.

(3) Liquidating agent means the person or persons appointed by the board of directors to take possession of, manage, and liquidate the credit union.

(b) Initiating voluntary liquidation process.

(1) Unless the commissioner has issued a liquidation order, the board of directors may, by resolution, recommend the voluntary dissolution of the credit union and direct submission of the question to the members of the credit union.

(2) Within five days after the date the resolution is adopted, the chairman of the board shall notify the commissioner, in writing, of the reasons for the proposed liquidation including a balance sheet and income statement as of the previous month-end.

(3) The board shall act promptly to obtain the membership's approval in accordance with subsection (e) of this section.

(4) Not later than the 10th day before the date of the meeting to request the membership's approval, notice of the meeting shall be mailed by first-class mail to each member of the credit union and the commissioner. The notice shall inform members that they have the right to vote on the liquidation proposal in person at the membership meeting called for that purpose or by written ballot, included with the notice. Written ballots must be received no later than the time and date stated on the notice.

(5) A majority of the members casting votes at the meeting or by mail may vote to approve the board's recommendation and dissolve and liquidate the credit union. If less than a majority vote to approve, the credit union may, subject to the commissioner's approval, resume normal business, resubmit the question of liquidation to the membership or request the appointment of a conservator under the Act and the rules adopted under it.

(6) After an affirmative vote by the members to dissolve and liquidate the credit union, the board of directors shall be responsible for conserving the assets, for expediting the liquidation, and for fair and equitable distribution of the assets to the members.

(7) Within 5 days of an affirmative vote to dissolve and liquidate the credit union the chairman, or president, and the secretary shall notify the commissioner of the intention to liquidate together with a list of the officers and directors.

(c) Notice of liquidation.

(1) If the vote to dissolve and liquidate the credit union is affirmative, the credit union shall:

(A) File a notice with the Department within five days of the liquidation date; and

(B) Mail a copy of the notice of liquidation shareholders/depositors, other known creditors, and know claimants of the credit union within ten days of the liquidation date.

(2) A credit union shall publish public notice of liquidation, if so directed by the Department.

(3) Creditors shall be provided at least 30 days from the liquidation date to submit their claims.

(d) Transaction of business during liquidation.

(1) Immediately after notice of the special meeting to consider voluntary liquidation is mailed to the membership, admission of new members shall be suspended. No new extensions of credit shall be funded during the period between the board of directors' adoption of the resolution recommending voluntary liquidation and the membership meeting called to consider voluntary liquidation, except for the issuance of loans fully secured by a pledge of shares and the funding of outstanding loan commitments approved before adoption of the board resolution. Collection of loans and interest, payments of necessary expenses, clearing of share drafts and credit card charges shall continue.

(2) If the vote to dissolve and liquidate the credit union is affirmative, payments on shares/deposits, withdrawal of shares/deposits (except for transfer of shares/deposits to loans and interest), transfer of shares/deposits to another share/deposit account, granting of loans, and making of investments other than short-term investments shall be discontinued. Collection of loans and interest and payment of necessary expenses will continue during the period of liquidation. Members shall be notified to discontinue the use of share drafts and credit cards, and items will not be cleared 15 days from the liquidation date.

(3) Approval of the Department must be obtained prior to consummating any sale of assets which would not provide sufficient funds to pay shareholders/depositors dollar-for-dollar, principal plus any interest accrued or due to the shareholder/depositor, through the liquidation date.

(e) Liquidation Plan. The board of directors shall develop and approve a written plan for the liquidation of the assets and payment of shares/deposits. The liquidation plan should provide for the liquidation of the credit union within one year of the liquidation date. At a minimum, credit union's liquidation plan should address the following areas:

(1) Qualifications and experience of the proposed liquidating agent and the compensation and expenses attributable to the service of such person or persons;

(2) Income and expense items must be projected to determine that sufficient funds will be available to finance the liquidation of the credit union;

(3) Payment of all debts and liabilities owed by the credit union should be scheduled;

(4) Partial distributions of shares/deposits should be considered as funds become available from the liquidation of assets;

(5) Distribution of the credit union's assets that remain after settlement of debts and liabilities to all persons entitled to them;

(6) Disposition or maintenance of any remaining or unclaimed funds, real or personal property, or other assets;

(7) Surety bond coverage of all person who will handle or have access to funds of the credit union and the proposed discovery period after final distribution of assets; and

(8) Retention of the credit union's records after liquidation.

(f) Approval of the liquidation proposal by membership.

(1) A majority of the members casting votes at the meeting or by mail may vote to approve the board's recommendation and dissolve and liquidate the credit union. If less than a majority vote to approve, the credit union may, subject to the commissioner's approval, resume normal business, resubmit the question of liquidation to the membership or request the appointment of a conservator under the Act and the regulations adopted under it.

(2) Within 5 days of an affirmative vote to dissolve and liquidate the credit union the chairman or president, and the secretary shall notify the commissioner of the intention to liquidate together with a list of the officers and directors.

(g) Distribution of assets.

(1) The liquidating agent shall use the credit union's assets to pay, in the following order:

(A) Secured creditors to the extent of the value of their collateral;

(B) Liquidation expenses, including a surety bond;

(C) Depositors;

(D) General creditors, including secured creditors to the extent that their claims exceed the value of their collateral; and

(E) Distributions to members in proportion to the shares/deposits held by each member.

(2) After all assets of the credit union have been converted to cash or found to be worthless and all loans and debts owing to it have been collected or found to be uncollectible and all obligations of the credit union have been paid/settled, except for shares/deposits due its members, the books shall be closed and the pro rata distribution to the members shall be computed. The computation shall be based on the total amount in each share/deposit account as of the liquidation date or the date on which all share drafts have cleared, whichever is later.

(3) Payments must be made to members promptly after the pro rata distribution has been computed. The credit union may mail a check to his or her last known address, deliver the check personally to the member, or make the payment by wire or any other electronic means authorized by a member.

(4) Unclaimed share/deposit accounts, unpaid claims, and unpaid claims of members or creditors who failed to cash their final distribution checks shall be escheated in accordance with Texas laws.

(5) The Department shall be notified in writing within five days when the final distribution of assets to the members is started.

(h) Continued supervision of voluntary liquidation.

(1) A voluntary liquidation of a credit union shall be conducted only with the continued supervision of the Department. The commissioner may conduct any examinations of the credit union the commissioner considers necessary or appropriate.

(2) The credit union shall submit a report to the Department at the start of liquidation showing the credit union's balance sheet as of the start of liquidation. The liquidating credit union shall submit a report of progress as requested by the Department.

(3) If the commissioner has reason to conclude the voluntary liquidation of a credit union is not being safely or expeditiously conducted, the commissioner may take possession of the business and property of the credit union in the same manner, with the same effect, and subject to the same rights accorded the credit union as if the commissioner had issued a liquidation order. The commissioner may appoint a new liquidating agent and proceed to liquidate the affairs of the credit union as provided in the Finance Code, Title 3, Subtitle D, Subchapter E.

(i) Retention of records.

(1) The board of directors shall appoint a custodian for the credit union's records which are to be retained after the final distribution of assets.

(2) All records of the liquidating credit union necessary to establish that creditors were paid and that assets were fair and equitably distributed to the members shall be retained by the custodian for a period of five years following the date of charter cancellation.

(j) Certificate of dissolution and liquidation. Within 120 days after the final distribution of assets to members is started, a duly executed Certificate of Dissolution and Liquidation shall be filed with the Department.

(k) Inquiries after liquidation. It will be the responsibility of the custodian for the credit union's records to respond timely to inquiries after liquidation.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 14, 2017.

TRD-201702698

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: August 27, 2017

For further information, please call: (512) 837-9236