TITLE 10. FINANCE AND FINANCIAL INSTITUTIONS
REGISTRAR'S NOTICE: The following amendments are exempt from the Virginia Administrative Process Act pursuant to § 2.2-4002 C of the Code of Virginia, which provides that minor changes to regulations published in the Virginia Administrative Code under the Virginia Register Act, Chapter 41 (§ 2.2-4100 et seq.) of Title 2.2 of the Code of Virginia, made by the Virginia Code Commission pursuant to § 30-150, shall be exempt from the provisions of the Virginia Administrative Process Act.
Titles of Regulations: 10VAC5-10. Delegation of Certain Authority to the Commissioner of the Bureau of Financial Institutions (amending 10VAC5-10-10).
10VAC5-20. Banking and Savings Institutions (amending 10VAC5-20-20, 10VAC5-20-30, 10VAC5-20-40, 10VAC5-20-50).
10VAC5-22. Trust Company Regulations (amending 10VAC5-22-10, 10VAC5-22-50, 10VAC5-22-140).
10VAC5-30. Savings Institution Holding Companies (amending 10VAC5-30-10, 10VAC5-30-20).
10VAC5-40. Credit Unions (amending 10VAC5-40-10, 10VAC5-40-20, 10VAC5-40-30, 10VAC5-40-40, 10VAC5-40-60).
Statutory Authority: § 12.1-13 of the Code of Virginia.
Effective Date: September 1, 2011.
Agency Contact: Todd Rose, Senior Counsel, Office of General Counsel, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone (804) 371-9107, FAX (804) 371-9211, or email todd.rose@scc.virginia.gov.
Summary:
Several chapters of Title 10 of the Virginia Administrative Code pertaining to Finance and Financial Institutions have been updated to replace references to Title 6.1 of the Code of Virginia with references to Title 6.2 of the Code of Virginia to reflect the recodification of Title 6.1 of the Code of Virginia in the fall of 2010.
10VAC5-10-10. Powers delegated to Commissioner of Financial Institutions.
A. The State Corporation Commission has delegated to the Commissioner of Financial Institutions the authority to exercise its powers and to act for it in the following matters:
1. To grant or deny petitions relating to service by an individual as a director of more than one financial institution. (§ 6.1-2.7 6.2-104 of the Code of Virginia.)
2. To grant a certificate of authority to a bank formed for the purpose of its being acquired under the provisions of Chapter 14 (§ 6.1-390 et seq.) of Title 6.1 of the Code of Virginia, or for the purpose of facilitating the consolidation of banks or the acquisition by merger of a bank pursuant to any provision of Title 6.1 6.2 of the Code of Virginia. (§§ 6.1-13 6.2-816 and 6.1-43 6.2-822 of the Code of Virginia.)
3. To grant or deny authority to a bank, or to a trust subsidiary, to engage in the trust business or exercise trust powers. (§§ 6.1-16 6.2-819, 6.2-1001, 6.2-1049, and 6.1-32.5 6.2-1054 of the Code of Virginia.)
4. To approve an office of a trust subsidiary; to authorize a trust company to establish an additional office; to authorize a state bank or trust company to establish or acquire a trust office in another state; and to deny an application by a state bank to establish a branch or relocate an authorized office in Virginia. (§§ 6.1-32.6, 6.1-32.21, 6.1-32.33 6.2-831, 6.2-1028, 6.2-1055, and 6.1-39.3 6.2-1066 of the Code of Virginia.) To approve the establishment, acquisition, maintenance, and operation of branches of state banks in states other than Virginia. (§§ 6.1-44.3 6.2-837 and 6.1-44.17 6.2-850 of the Code of Virginia.)
5. To permit a state bank to operate or advertise a branch office under a name that is not identical to the bank's own name. (§ 6.1-41 6.2-834 of the Code of Virginia.)
6. To object to an application or notice by an out-of-state trust institution or an out-of-state bank to establish or acquire a trust office or branch in Virginia, upon finding that the filing requirements and the conditions for approval prescribed by law are not fulfilled. (§§ 6.1-32.38 and 6.1-32.39; 6.1-44.6 and 6.1-44.7; 6.1-44.19 6.2-840, 6.2-841, 6.2-852, 6.2-853, 6.2-1069, and 6.1-44.20 6.2-1070 of the Code of Virginia.)
7. To grant approval for directors' meetings of a bank or trust company to be held less frequently than monthly. (§ 6.1-52 6.2-866 of the Code of Virginia; 10VAC5-22-20.)
8. To grant approval for the investing of more than 50% of the aggregate amount of a bank's capital stock, surplus, and undivided profits in its bank building and premises; and to permit the payment of dividends while such investment exceeds 50% of capital, surplus, and undivided profits. (§ 6.1-57 6.2-870 of the Code of Virginia.)
9. To consent to a bank's investment in more than one service corporation. (§ 6.1-58 6.2-871 of the Code of Virginia.)
10. To give permission for the aggregate investment of more than 50% of a bank's capital stock and permanent surplus in the stock, securities, or obligations of controlled-subsidiary and bank service corporations. (§ 6.1-58.1 6.2-885 of the Code of Virginia.)
11. To give written consent and approval for a bank to hold the possession of certain real estate for a longer period than 10 years. (Subdivision 4 of § 6.1-59 6.2-872 of the Code of Virginia.)
12. To approve the issuance by a bank of capital notes and debentures, so that such notes and debentures may qualify as surplus for the purpose of calculating the legal lending limit of a bank. (§ 6.1-61 6.2-875 of the Code of Virginia.)
13. To give written approval in advance for a bank or trust company to pledge its assets as security for certain temporary purposes. (§ 6.1-80 6.2-890 of the Code of Virginia.)
14. To require any bank to prepare and submit such reports and material as he may deem necessary to protect and promote the public interest. (§ 6.1-93 6.2-907 of the Code of Virginia.)
15. To approve the issuance of stock in a savings institution in exchange for property or services valued at an amount not less than the aggregate value of the shares issued. (§§ 6.1-194.11 and 6.1-194.113 (§ 6.2-1117 of the Code of Virginia.)
16. To reduce temporarily the reserve requirements for a savings institution upon a finding that such reduction is in the best interest of the institution and its members. (§ 6.1-194.23 6.2-1130 of the Code of Virginia.)
17. To grant a certificate of authority to a savings institution formed solely for the purpose of facilitating the merger or acquisition of savings institutions pursuant to any provision of Title 6.1 6.2 of the Code of Virginia.
18. To grant or deny authority to a state association, a state savings bank or a foreign savings institution to establish a branch office, or other office or facility where deposits are accepted (§§ 6.1-194.26 and 6.1-194.119 (§ 6.2-1133 of the Code of Virginia), or to change the location of a main or branch office. (§§ 6.1-194.28 and 6.1-194.121 (§ 6.2-1135 of the Code of Virginia.)
19. To cause a special examination of a savings institution to be made. (§ 6.1-194.84:1 6.2-1201 of the Code of Virginia.)
20. To grant or deny authority to a savings institution to exercise fiduciary powers. (§§ 6.1-195.77 6.2-1081 et seq. and 6.1-194.138 6.2-1099 of the Code of Virginia.)
21. To grant or deny approval to a credit union to maintain a service facility or office (other than a main office). (§ 6.1-225.20 6.2-1326 of the Code of Virginia.)
22. To make such findings as are required by §§ 6.1-225.23 6.2-1327 and 6.1-225.23:1 6.2-1328 of the Code of Virginia relating to fields of membership of credit unions and the expansion of such fields of membership.
23. To approve the investment of credit union funds in certain stock, securities and other obligations. (Subdivision 8 of § 6.1-225.57 6.2-1376 of the Code of Virginia.)
24. To grant or deny authority to an industrial loan association to relocate its office. (§ 6.1-233 6.2-1408 of the Code of Virginia.)
25. To grant or deny licenses pursuant to Chapter 6 15 (§ 6.1-244 6.2-1500 et seq.) of Title 6.1 6.2 of the Code of Virginia. (§ 6.1-256.1 6.2-1507 of the Code of Virginia.)
26. To grant or deny licenses to engage in the business of selling money orders or the business of money transmission, or both, and approve or disapprove acquisitions of ownership interests in licensees. (§§ 6.1-371 6.2-1901, 6.2-1902, and 6.1-378.2 6.2-1914 of the Code of Virginia.)
27. To grant or deny licenses to operate credit counseling agencies. (§ 6.1-363.7 6.2-2005 of the Code of Virginia.)
28. To grant or deny permission to a credit counseling agency licensee to relocate an office or open an additional office and approve or disapprove acquisitions of ownership interests in licensees. (§§ 6.1-363.8 6.2-2006 and 6.1-363.9 6.2-2007 of the Code of Virginia.)
29. To grant or deny licenses to engage in business as a mortgage lender and/or mortgage broker, and prescribe conditions under which exclusive agents of licensees may act as mortgage brokers without a license and approve or disapprove individuals as qualified exclusive agents of licensees. (§§ 6.1-410 6.2-1601 and 6.1-415 6.2-1606 of the Code of Virginia.)
30. To grant or deny permission to a mortgage lender or mortgage broker licensee to relocate an office or open an additional office and approve or disapprove acquisitions of ownership interests in licensees. (§§ 6.1-416 6.2-1607 and 6.1-416.1 6.2-1608 of the Code of Virginia.)
31. To grant or deny licenses to engage in business as a mortgage loan originator, and set the amount of surety bond required for such licensure. (§§ 6.1-431.4 6.2-1703 and 6.1-431.7 6.2-1706 of the Code of Virginia.)
32. To enter into cooperative agreements with appropriate regulatory authorities for the examination of out-of-state bank holding companies and their subsidiaries and out-of-state savings institution holding companies and their subsidiaries and for the accomplishment of other duties imposed on the commission by Article 11 5 (§ 6.1-194.96 6.2-1148 et seq.) of Chapter 3.01 11 and by Chapter 15 7 (§ 6.1-398 6.2-700 et seq.) of Title 6.1 6.2 of the Code of Virginia.
33. To prescribe the form and content of all applications, documents, undertakings, papers, and information required to be submitted to the commission under Title 6.1 6.2 of the Code of Virginia.
34. To make all investigations and examinations, give all notices, and shorten, waive, or extend any time period within which any action of the commission must or may be taken or performed under Title 6.1 6.2 of the Code of Virginia.
B. In the performance of the duties hereby delegated to him, the commissioner shall have the power and authority to make all findings and determinations permitted or required by law.
C. The foregoing delegations of authority shall be effective until revoked by order of the commission. All actions taken by the Commissioner of Financial Institutions pursuant to the authority granted here are subject to review by the commission in accordance with the Rules of Practice and Procedure of the State Corporation Commission. Each delegation set forth in a numbered subdivision of subsection A of this section shall be severable from all others.
10VAC5-20-20. Reserves of Virginia banks.
The percentage of reserves to be maintained against deposits, as established in accordance with § 6.1-69 6.2-889 of the Code of Virginia, shall be: 0.0% against demand deposits, and 0.0% against time deposits.
This chapter shall not relieve any bank from complying with all applicable federal laws and with Regulation D, "Reserve Requirements of Depository Institutions," of the Board of Governors of the Federal Reserve System.
10VAC5-20-30. Schedule prescribing annual fees paid for examination, supervision, and regulation of state-chartered banks and savings institutions.
Pursuant to the provisions of §§ 6.1-94, 6.1-194.85 6.2-908 and 6.1-194.149 6.2-1202 of the Code of Virginia, the State Corporation Commission hereby sets the following schedule of annual fees to be paid by state-chartered banks, savings institutions, and savings banks for their examination, supervision, and regulation:
The fee assessed using the above schedule shall be rounded down to the nearest whole dollar. The assessment shall be based on the institution's total assets as shown by its Report of Condition as of the close of business for the preceding calendar year.
A bank or savings institution which opens for business January 1 through June 30 shall be assessed a fee of $6,900 for that year.
A bank or savings institution which opens for business on or after July 1 shall be assessed a fee of $5,175 for that year.
10VAC5-20-40. State savings banks; corporate name and investment requirement.
Pursuant to § 6.1-194.141 6.2-1192 of the Code of Virginia, a state savings bank shall not be required to have as a part of its corporate name the word "savings," regardless of §§ 6.1-112 6.2-939, 6.2-1040, and 6.1-194.112 6.2-1116 of the Code of Virginia. Further, a state savings bank shall be deemed in compliance with the investment in "real estate loans" requirement of § 6.1-194.62 6.2-1179 if it meets the "qualified thrift lender test" set forth in 12 USC § 1468a(m)(1)(B).
10VAC5-20-50. Conversion of mutual to stock association.
A. Conversion authorized. As authorized by § 6.1-194.32 6.2-1139 of the Code of Virginia, a state mutual savings and loan association may convert to a stock association in accordance with this section, the Virginia Non-Stock Corporation Act (§ 13.1-801 et seq. of the Code of Virginia), and regulations promulgated by the federal Office of Thrift Supervision (OTS) relating to mutual-to-stock conversions.
B. Application for conversion. Upon the affirmative vote of 2/3 of its board of directors, a state mutual association may file with the Bureau of Financial Institutions (bureau) an application to convert to a stock association. The application shall be accompanied by a filing fee of $1,000.00.
The application shall conform to OTS requirements as to its form and content. (A copy of the conversion application submitted to the OTS may be submitted.) In addition, the application shall include:
1. A certified copy of the minutes of the meeting at which the board of directors authorized the association's officers to apply for conversion.
2. The proposed amended articles of incorporation and bylaws of the stock association to be formed.
3. The proposed form of notice to members of the meeting at which conversion will be formally considered and voted upon, which notice shall include a clear statement to account holders that the stock to which they may subscribe will not be an insured investment.
4. A statement of the time and manner in which such notice will be provided.
C. Plan of conversion. In addition to complying with the requirements of OTS regulations, a plan of conversion shall be filed with the bureau that provides:
1. A statement of the business purposes to be accomplished by the conversion.
2. That the word "mutual" will not be in the name of the association after its conversion to stock form of ownership.
3. That no reduction in the association's reserves or net worth will result from the conversion.
D. Preliminary approval. The Commissioner of Financial Institutions (commissioner) shall review the application and, if (i) the application, plan of conversion, and articles of amendment comply with the requirements of state law and regulations, (ii) the proposed plan of conversion appears to be fair and equitable to members of the association, and (iii) there is an intention to retain FDIC insurance of deposit accounts, the commissioner shall issue preliminary approval of the conversion. Such preliminary approval shall be given subject to a concurring shareholder vote and to continued compliance with all applicable laws and regulations.
Prior to granting preliminary approval, the commissioner may require the applicant to submit such additional information as may be necessary for making a determination of fairness and may require that changes in the application be made where necessary to protect the interests of the applicant's members.
E. Special meeting of members. When it has received the commissioner's preliminary approval, the board of directors may call a special meeting of the members of the association for the purpose of considering and voting upon the conversion and the proposed amendments to the association's articles of incorporation. Written notice of such meeting shall conform to the applicable provisions of law and shall be mailed to each member entitled to vote on the matters to be taken up. The plan of conversion, or a summary of it, shall accompany the notice. Notice of the meeting may not be waived.
Conduct of the special meeting and voting on the proposed amendments to the articles of incorporation shall be governed by the applicable provisions of the Non-Stock Corporation Act. Voting rights of members shall be determined in accordance with § 6.1-194.17 6.2-1124 of the Code of Virginia. The plan of conversion shall be approved in accordance with § 13.1-886 E D of the Code of Virginia, and a certified copy of the minutes of the special meeting shall be filed promptly with the bureau.
F. Formal approval; effective date of conversion. Upon receiving (i) evidence that the plan of conversion and the amended articles have been duly approved by the association's members, (ii) evidence that the accounts of the stock association will continue to be insured by the FDIC, and (iii) a copy of the amended articles of incorporation, as approved, the commissioner, when satisfied that all applicable laws and regulations have been complied with, shall issue formal approval authorizing the conversion. Thereafter, the effective date of the conversion shall be the date when the Clerk of the State Corporation Commission issues a certificate of amendment giving legal effect to the association's amended articles of incorporation.
G. Actions performed by the commissioner under this section shall be subject to review pursuant to the State Corporation Commission Rules of Practice and Procedure (5VAC5-20).
10VAC5-22-10. Definitions.
The following words and terms, when used in this chapter, shall have the following meanings unless the context clearly indicates otherwise:
"Affiliate" means generally a person that directly or indirectly controls, is controlled by, or is under common control with another person. In addition, for purposes of the Trust Company Act, Article 3.2 Article 1 (§ 6.2-1000 et seq.) and Article 2 (§ 6.1-32.11 6.2-1013 et seq.) of Chapter 2 10 of Title 6.1 6.2 of the Code of Virginia, a broker-dealer, investment advisor, or investment company is an affiliate of a trust company if a trust company holding company controls the trust company and owns, directly or indirectly, 5.0% or more of any class of the capital stock of the broker-dealer, investment advisor, or investment company.
"Affiliated trust company" means a trust company that is controlled by a trust company holding company. For purposes of the Act Articles 1 and 2 of Chapter 10 of Title 6.2 of the Code of Virginia, a trust company holding company or other person has control of a trust company or other legal entity if the person owns 25% or more of the voting stock of the trust company or entity; if, pursuant to the definition of control in the Bank Holding Company Act of 1956 (12 USC § 1841 et seq.), the person would be presumed to control the trust company or entity; or if the commission determines that the person exercises a controlling influence over the management and policies of the trust company or entity.
"Broker-dealer" means any person selling any type of security other than an interest or unit in a condominium as defined in subdivision (c) of § 55-79.2 of the Code of Virginia or cooperative housing corporation for the account of others or for his own account otherwise than with or through a broker-dealer or agent, but does not include a bank, a trust subsidiary formed under Article 3.1 3 (§ 6.1-32.1 6.2-1047 et seq.) of Chapter 2 10 of Title 6.1 6.2 of the Code of Virginia, an issuer or an agent.
"Bureau" means the Bureau of Financial Institutions of the State Corporation Commission.
"Commission" means the State Corporation Commission.
"Trust company" means a corporation, including an affiliated trust company, authorized to engage in the trust business under Article 3.2 Article 1 (§ 6.2-1000 et seq.) and Article 2 (§ 6.1-32.11 6.2-1013 et seq.) of Chapter 2 10 of Title 6.1 6.2 of the Code of Virginia with powers expressly restricted to the conduct of general trust business.
"Trust company holding company" means a corporation which owns, directly or indirectly, 5.0% or more of any class of capital stock of a broker-dealer, investment advisor, or investment company and which also controls a trust company.
10VAC5-22-50. Insurance required.
In addition to the surety bond required by § 6.1-32.17 6.2-1016 of the Code of Virginia, a trust company shall maintain insurance coverage that, in kind and amount, provides adequate protection against the risks of the business. The coverage may be provided through the holding company of an affiliated trust company.
10VAC5-22-140. Purchases from affiliate prohibited; exceptions; terms.
Section 6.1-32.14:2 6.2-1020 of the Code of Virginia provides that an affiliated trust company may not, during the underwriting period, purchase from an affiliated broker-dealer any security that is being underwritten by that broker-dealer.
Outside the scope of § 6.1-32.14:2 6.2-1020 of the Code of Virginia, an affiliated trust company may not purchase any security or other property from an affiliate, except as authorized by a provision of a governing trust instrument or other controlling document, by a court, or in accordance with specific permission given by law (e.g., § 26-44.1 of the Code of Virginia). Any such purchase from an affiliate shall be made at arm's length and on terms no less stringent than those that would apply in a transaction with an unrelated third party.
10VAC5-30-10. Definitions.
The following words and terms, when used in this chapter, shall have the following meanings unless the context clearly indicates otherwise:
"Company" means any corporation, partnership, trust, joint stock company, or similar organization.
"Control" means the ownership, control, or power to vote 25% percent or more of the voting shares of a state savings institution or other company, the ability to elect a majority of the directors of such an institution or company, or, as determined by the Commission on the basis of evidence, actual control of the management or policies of such an institution or company.
"Financial institution" means any bank, trust company, savings and loan association, industrial loan association, consumer finance company, or credit union. (§ 6.1-2.1 6.2-100 of the Code of Virginia.)
"Person" means a company, association, joint venture, pool, syndicate, sole proprietorship, unincorporated association, individual or any other entity not specifically listed.
"Savings institution" means a savings and loan association, building and loan association, building association, or savings bank, whether organized as a capital stock corporation or a nonstock corporation, which is authorized by law to accept deposits and to hold itself out to the public as engaged in the savings institution business.
"Savings institution holding company" means any person that directly or indirectly, or acting in concert with one or more other companies or persons (including one or more subsidiaries or affiliates) controls one or more stock savings institutions, or that controls in any manner the election of a majority of the directors of such an institution.
"State savings institution" means a savings institution granted a certificate of authority pursuant to the laws of the Commonwealth. (The term is identical to "state association " as defined in § 6.1-194.2 6.2-1100 of the Code of Virginia.)
"State savings institution holding company" means a savings institution holding company that controls one or more state savings institutions, but that is not a "regional savings institution holding company" as defined in § 6.1-194.96 6.2-1148 of the Code of Virginia.
10VAC5-30-20. Scope.
This chapter governs acquisitions intra-state of control of state savings institutions and of state savings institution holding companies, and acquisitions by such holding companies. It governs the examination, supervision and regulation of state savings institution holding companies. This chapter does not apply to any inter-state acquisition authorized by Article 11 5 (§ 6.1-194.96 6.2-1148 et seq. of the Code of Virginia) of Chapter 3.01 11 of Title 6.1 6.2, or to the reporting, examination, supervision, and regulation of any regional savings institution holding company resulting from such an inter-state transaction; such matters are governed entirely by Article 11 5 and by any regulation adopted pursuant thereto.
10VAC5-40-10. Surety bond amount required.
A. Every credit union incorporated and operating under the provisions of Chapter 4.01 13 (§ 6.1-225.1 6.2-1300 et seq.) of Title 6.1 6.2 of the Code of Virginia shall obtain and keep in force a blanket surety bond upon all of its officials, committee members and employees in a surety company licensed to do business in Virginia in an amount of at least that shown in the following schedule based upon its total assets as shown by its latest statement of financial condition made to the Commission as of the end of each calendar year:
| ASSETS | MINIMUM BOND |
| $0 to $10,000 | Coverage equal to the credit union's assets. |
| $10,001 to $1,000,000 | $10,000 for each $100,000 or fraction thereof. |
| $1,000,001 to $50,000,000 | $100,000 plus $50,000 for each million or fraction over $1,000,000. |
| $50,000,001 to $295,000,000 | $2,550,000 plus $10,000 for each million or fraction thereof over $50,000,000. |
| Over $295,000,000 | $5,000,000 |
B. The maximum amount of deductibles allowed are based on the credit union's total assets. The following table sets out the maximum deductibles:
| ASSETS | MINIMUM DEDUCTIBLE |
| $0 - $100,000 | No deductibles allowed |
| $100,001 - $250,000 | $1,000 |
| $250,001 - $1,000,000 | $2,000 |
| Over $1,000,000 | $2,000 plus 1/1000 of total assets up to a maximum deductible of $200,000 |
C. No bond obtained pursuant to this chapter may be canceled unless written notice thereof is given to the Commissioner of Financial Institutions at least 30 days prior to the effective date of such cancellation, and every such bond shall contain a provision to that effect.
10VAC5-40-20. Schedule prescribing annual fees paid for examination, supervision, and regulation of state chartered credit unions.
Pursuant to the requirement of § 6.1-225.5 6.2-1310 of the Code of Virginia, state-chartered credit unions shall pay annual fees for their examination, supervision and regulation in accordance with the following schedule:
| SCHEDULE |
| Total Assets | FEE |
| $25,000 or less | $4 per $1,000 but not less than $20 |
| Over $25,000 through $100,000 | $100 plus $1.75 per $1,000 for assets in excess of $25,000 |
| Over $100,000 through $1,000,000 | $231.25 plus $.75 per $1,000 for assets in excess of $100,000 |
| Over $1,000,000 through $5,000,000 | $906.25 plus $.60 per $1,000 for assets in excess of $1,000,000 |
| Over $5,000,000 through $10,000,000 | $3,306.25 plus $.30 per $1,000 for assets in excess of $5,000,000 |
| Over $10,000,000 | $4,806.25 plus $.20 per $1,000 of assets in excess of $10,000,000 |
(These fees are to be applied to even $1,000 units, with fractional parts of $1,000 dropped.)
The assessment shall be computed on the basis of the credit union's total assets as shown by its Report of Condition as of the close of business for the preceding year (December 31), as filed with the Bureau of Financial Institutions on or before the first day of February.
10VAC5-40-30. Regular reserve accounts.
Pursuant to § 6.1-225.3:1 6.2-1377 of the Code of Virginia, a state credit union shall establish and maintain a regular reserve account in accordance with applicable provisions of Part 702 of the National Credit Union Administration Rules and Regulations, 12 CFR 702.1 through 702.403, regardless of subdivisions 1, 2, and 3 of § 6.1-225.58 6.2-1377 of the Code of Virginia.
10VAC5-40-40. Serving underserved areas.
Any multiple-group state credit union shall have the power to amend its articles of incorporation or bylaws, pursuant to § 6.1-225.16 6.2-1323 of the Code of Virginia, to expand its field of membership to include individuals and organizations in one or more underserved areas to the same extent, and subject to the same conditions, as is authorized for federal credit unions under 12 USC § 1759. The numerical limitations contained in § 6.1-225.23 6.2-1327 B 2 and the provisions of § 6.1-225.23:1 6.2-1328 of the Code of Virginia shall not apply to the exercise of this power.
10VAC5-40-60. Credit union service organizations (CUSOs).
A. 1. Except as otherwise provided in this section, a state-chartered credit union shall not, directly or indirectly, invest its funds or make loans pursuant to subdivision 10 of § 6.1-225.57 6.2-1376 of the Code of Virginia.
2. Except as provided in subsection H of this section, a CUSO shall not, directly or indirectly, invest any of its funds in a corporation, limited liability company, partnership, association, trust, or other legal or commercial entity unless the state-chartered credit union or credit unions having an interest in the CUSO would be permitted to directly invest its funds in such entity and the state-chartered credit union or credit unions comply with the notice requirement in subsection B and the other provisions of this section.
3. CUSOs shall not, directly or indirectly, acquire control of another depository institution, nor invest in shares, stocks, or obligations of an insurance company, trade association, liquidity facility, or similar organization, corporation, or association.
B. 1. A state-chartered credit union shall give the Commissioner of Financial Institutions (commissioner) written notice of its investment in or loans to a CUSO.
2. A state-chartered credit union may invest up to 5.0% of its outstanding shares and reserves in a CUSO. However, a state-chartered credit union's total investments in all CUSOs shall not exceed, in the aggregate, 5.0% of its outstanding shares and reserves.
3. A state-chartered credit union may make loans to a CUSO provided that the amount of the loans, when combined with the credit union's total investments in and loans to all CUSOs, does not exceed, in the aggregate, 5.0% of its outstanding shares and reserves.
4. If the limits specified above are reached or exceeded because of the profitability of the CUSO and the related GAAP valuation of the investment under the equity method, without an additional cash outlay by the state-chartered credit union, divestiture is not required. A state-chartered credit union may continue to invest up to these limits without regard to the increase in the GAAP valuation resulting from a CUSO's profitability.
5. The 5.0% limits specified in this subsection may be exceeded with prior written approval from the commissioner.
C. 1. A state-chartered credit union may invest in or make loans to a CUSO only if the CUSO is or will be structured as a corporation, limited liability company, or limited partnership. A state-chartered credit union may only participate in a limited partnership as a limited partner.
2. A state-chartered credit union may invest in or make loans to a CUSO only if the CUSO primarily serves credit unions, its membership, or the membership of credit unions contracting with the CUSO.
3. A state-chartered credit union shall account for its investments in or loans to a CUSO in conformity with GAAP.
4. A state-chartered credit union shall obtain written agreements from a CUSO, prior to investing in or making loans to the CUSO, that the CUSO shall:
a. Account for all of its transactions in accordance with GAAP;
b. Prepare quarterly financial statements and obtain an annual financial statement audit of its financial statements by a licensed certified public accountant in accordance with generally accepted auditing standards. A wholly owned CUSO is not required to obtain a separate annual financial statement audit if it is included in the annual consolidated financial statement audit of the credit union that is its parent; and
c. Provide the Bureau of Financial Institutions (bureau) and its staff with complete access to any books and records of the CUSO and the ability to review CUSO internal controls, as deemed necessary by the bureau in carrying out its responsibilities under the Virginia Credit Union Act (§ 6.1-225.1 et seq. of the Code of Virginia) Chapter 13 (§ 6.2-1300 et seq.) of Title 6.2 of the Code of Virginia.
5. A CUSO shall comply with all applicable federal, state, and local laws and regulations.
D. 1. A state-chartered credit union and a CUSO shall be operated in a manner that demonstrates to the public the separate existence of the state-chartered credit union and the CUSO. Good business practices dictate that each shall operate so that:
a. Its respective business transactions, accounts, and records are not intermingled;
b. Each observes the formalities of its separate company procedures;
c. Each is adequately financed as a separate unit in light of normal obligations reasonably foreseeable in a business of its size and character;
d. Each is held out to the public as a separate enterprise;
e. The state-chartered credit union does not dominate the CUSO to the extent that the CUSO is treated as a department of the credit union; and
f. Unless the state-chartered credit union has guaranteed a loan obtained by the CUSO, all borrowings by the CUSO shall indicate that the state-chartered credit union is not liable.
2. If a CUSO in which a state-chartered credit union has an investment plans to change its structure, the credit union shall obtain prior, written legal advice that the CUSO shall remain established in a manner that will limit potential exposure of the credit union to no more than the loss of funds invested in or loaned to the CUSO. The legal advice shall address factors that have led courts to "pierce the corporate veil" such as inadequate capitalization, lack of separate corporate identity, common boards of directors and employees, control of one entity over another, and lack of separate books and records. The legal advice may be provided by independent legal counsel of either the investing state-chartered credit union or the CUSO.
E. The commissioner may at any time, based upon supervisory, legal, or safety and soundness considerations, prohibit or otherwise limit any CUSO activities or services.
F. A state-chartered credit union may only invest in or make loans to CUSOs that are or will be sufficiently bonded or insured for their specific operations.
G. A state-chartered credit union may only invest in or make loans to CUSOs that are or will be engaged in activities and services that are reasonably related to the operations of credit unions, including but not limited to the following:
1. Checking and currency services (i.e., check cashing, coin and currency services, money orders, savings bonds, travelers checks, and purchase and sale of U.S. Mint commemorative coin services);
2. Clerical, professional and management services (i.e., accounting services, courier services, credit analyses, facsimile transmissions, copying services, internal audits for credit unions, locator services, management and personnel training and support, marketing services, research services, and supervisory committee audits);
3. Business loan origination;
4. Consumer mortgage loan origination and processing;
5. Electronic transaction services (i.e., automated teller machine (ATM) services, credit card and debit card services, data processing, electronic fund transfer (EFT) services, electronic income tax filing, payment item processing, wire transfer services, and cyber financial services);
6. Financial counseling services (i.e., developing and administering Individual Retirement Accounts (IRAs), Keogh, deferred compensation, and other personnel benefit plans, estate planning, financial planning and counseling, income tax preparation, investment counseling, and retirement counseling);
7. Fixed asset services (i.e., management, development, sale, or lease of fixed assets, and sale, lease, or servicing of computer hardware or software);
8. Insurance brokerage or agency (i.e., agency for sale of insurance, provision of vehicle warranty programs, and provision of group purchasing programs);
9. Leasing personal property and real estate leasing of excess CUSO property;
10. Loan support services (i.e., debt collection services, loan processing, loan servicing, loan sales, and selling repossessed collateral);
11. Record retention, security and disaster recovery services (i.e., alarm-monitoring and other security services, disaster recovery services, microfilm, microfiche, optical and electronic imaging, CD-ROM data storage and retrieval services, provision of forms and supplies, and record retention and storage);
12. Securities brokerage services;
13. Shared credit union branch (service center) operations;
14. Student loan origination;
15. Travel agency services;
16. Trust and trust-related services (i.e., acting as administrator for prepaid legal service plans, acting as trustee, guardian, conservator, estate administrator, or in any other fiduciary capacity, and other trust services); and
17. Real estate brokerage services and real estate listing services.
H. In connection with providing a permissible service, a CUSO may invest in a non-CUSO service provider. The amount of the CUSO's investment is limited to the amount necessary to participate in the service provider, or a greater amount if necessary to receive a reduced price for goods or services.
I. In order for a state-chartered credit union to invest in or make loans to a CUSO that is or will be engaged in activities or services that are not enumerated in subsection G of this section, the state-chartered credit union shall obtain prior approval from the State Corporation Commission (commission). A request for commission approval of an activity or service that is not enumerated in subsection G of this section shall be submitted in writing to the commissioner and include a full explanation and complete documentation of the activity or service and how that activity or service is reasonably related to the operations of credit unions.
J. 1. If a state-chartered credit union has outstanding loans or investments in a CUSO, then the credit union's officials, senior management employees, and their immediate family members shall not receive, either directly or indirectly, any salary, commission, investment income, or other income or compensation from the CUSO or from any person being served through the CUSO. This provision does not prohibit the credit union's officials or senior management employees from assisting in the operation of a CUSO, provided the officials or senior management employees are not compensated by the CUSO. Furthermore, the CUSO may reimburse the state-chartered credit union for the services provided by such credit union officials and senior management employees only if the account receivable of the credit union due from the CUSO is paid in full at least every 120 days.
2. The prohibition contained in subdivision 1 of this subsection also applies to state-chartered credit union employees not otherwise covered if the employees are directly involved in dealing with the CUSO, unless the state-chartered credit union's board of directors determines that the credit union's employees' positions do not present a conflict of interest.
3. All transactions with business associates or family members of state-chartered credit union officials, senior management employees, or their immediate family members that are not specifically prohibited by subdivision 1 or 2 of this subsection shall be conducted at arm's length and in the interest of the state-chartered credit union.
K. 1. A state-chartered credit union's investments in CUSOs in existence prior to July 1, 2008, shall conform with this section no later than January 1, 2009, unless the commissioner grants prior written approval to continue the credit union's investments for a stated period.
2. A state-chartered credit union's loans to CUSOs in existence prior to July 1, 2008, shall conform with this section no later than January 1, 2009, unless (i) the commissioner grants prior written approval to continue the credit union's loans for a stated period, or (ii) under the terms of its loan agreement, the credit union cannot require accelerated repayment without breaching the agreement.
VA.R. Doc. No. R12-2558; Filed August 19, 2011, 3:10 p.m.