46th legislature - STATE OF NEW MEXICO - first session, 2003

RELATING TO CREDIT UNIONS; CLARIFYING PROVISIONS FOR OUT-OF-STATE CREDIT UNIONS TO CONDUCT BUSINESS IN NEW MEXICO; MODIFYING LOAN POLICIES; AMENDING, REPEALING AND ENACTING SECTIONS OF THE CREDIT UNION ACT.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. Section 58-11-2 NMSA 1978 (being Laws 1987, Chapter 311, Section 2, as amended) is amended to read:

"58-11-2. DEFINITIONS.--As used in the Credit Union Act:

A. "board member" means a member of the board of directors of a credit union;

B. "capital" means share accounts, membership shares, reserves and undivided earnings;

C. "credit union" means a cooperative, nonprofit, financial institution organized under or subject to the Credit Union Act for the purposes of encouraging thrift among its members, creating a source of credit at fair and reasonable rates of interest and providing an opportunity for its members to use and control their own money on a democratic basis in order to improve their economic and social condition;

D. "deposit account" means a balance held by a credit union and established by a person in accordance with standards specified by the credit union, including balances designated as deposits, deposit certificates, checking accounts or other names. Ownership of a deposit account does not confer membership or voting rights and does not represent an interest in the capital of the credit union upon dissolution or conversion to another type of institution;

E. "director" means the director of the financial institutions division of the regulation and licensing department;

F. "division" means the financial institutions division of the regulation and licensing department;

G. "executive officer" means any person who is responsible for the management of the credit union as provided in the bylaws of the credit union and includes the chief executive officer, the president, a vice president, the credit union manager, an assistant manager or a person who is assigned and performs the management duties appropriate to those offices;

H. "governmental unit" means any board, agency, department, authority, instrumentality or other unit or organization of the United States, this state or any political subdivision thereof;

I. "immediate family" means those persons related by blood or marriage as well as stepchildren, foster children and adopted children or persons who live in the same residence and maintain a single economic unit;

J. "insolvent" means the condition that results when the cash value of assets is less than the liabilities and members' share and deposit accounts;

K. "insuring organization" means the national credit union administration or any other insurer [which] that has been approved by the director to provide aid and financial assistance to credit unions that are in the process of liquidation or are incurring financial difficulty, in order that the share and deposit accounts in credit unions shall be protected or guaranteed against loss without limit or up to a specified level for each account;

L. "membership share" means a balance held by a credit union and established by a member in accordance with standards specified by the credit union. [Each member may own only one membership share.] Ownership of a membership share represents an interest in the capital of the credit union upon dissolution or conversion to another type of institution;

M. "organization" means any corporation, association, partnership, society, firm, syndicate, trust or other legal entity;

N. "person" means any individual, organization or governmental unit;

O. "primary share account" means a share account that a credit union's bylaws designate as conferring voting rights;

[O.] P. "risk assets" means all assets of the credit union except those exempted by the director by regulation;

[P.] Q. "service facility" means any building, machine or device, whether mechanical, electronic or otherwise, that is operated or maintained, in whole or in part, to provide services to members; and

[Q.] R. "share account" means a balance held by a credit union and established by a member in accordance with standards specified by the credit union, including balances designated as shares, share certificates, share draft accounts or other similar names. Ownership of a share account confers membership [and voting rights] and represents an interest in the capital of the credit union upon dissolution or conversion to another type of institution."

Section 2. Section 58-11-6 NMSA 1978 (being Laws 1987, Chapter 311, Section 6) is amended to read:

"58-11-6. RECORDS.--

A. A credit union shall maintain all books, records, accounting systems and procedures in accordance with the rules, regulations and orders the director from time to time establishes or issues. In establishing and issuing such rules, regulations and orders, the director shall consider the relative size of a credit union and its reasonable capability of compliance.

B. A credit union is not liable for destroying records after the expiration of the record retention time prescribed by regulation, except for any records involved in an official investigation or examination about which the credit union has received notice.

C. A photostatic, photographic or xerographic reproduction of any credit union [records] record or any credit union record retrieved in perceptible form from an electronic record maintained pursuant to the provisions of the Uniform Electronic Transactions Act shall be admissible as evidence of transaction with the credit union."

Section 3. Section 58-11-7 NMSA 1978 (being Laws 1987, Chapter 311, Section 7, as amended) is amended to read:

"58-11-7. REPORTS.--

A. Credit unions shall report to the director [semiannually] quarterly on or before [July 30 and] January 30, April 30, July 30 and October 30. Reports shall be on forms supplied by the director. The director may require additional reports.

B. A charge of twenty-five dollars ($25.00) shall be levied for each day a credit union fails to provide a required report, unless that charge is by the director excused for cause."

Section 4. Section 58-11-16 NMSA 1978 (being Laws 1987, Chapter 311, Section 16, as amended) is amended to read:

"58-11-16. OUT-OF-STATE CREDIT UNIONS--APPROVAL TO CONDUCT BUSINESS--DIRECTOR'S DUTIES AND POWERS.--

[A] A. An out-of-state credit union organized [under] pursuant to the laws of another state or territory of the United States may conduct business as a credit union in this state with the approval of the director.

B. Before granting [the] approval [the supervisory authority of such credit union shall certify] for an out-of-state credit union to conduct business in New Mexico, the director shall determine that the out-of-state credit union:

[A.] (1) is [a credit union] organized [under] pursuant to laws similar to those provided in the Credit Union Act;

[B.] (2) is financially solvent;

(3) is examined and supervised by a regulatory agency of the state or territory in which it is organized;

[C. has account] (4) meets share and deposit insurance [approved for credit unions incorporated under or subject to the Credit Union Act] requirements comparable to those provided in Section 58-11-48 NMSA 1978; and

[D. needs] (5) establishes a need to conduct business in this state to adequately serve its members in this state.

C. The director may:

(1) revoke the approval granted to an out-of-state credit union to conduct business in New Mexico if the director determines that:

(a) the credit union no longer meets the requirements as provided in Subsection B of this section;

(b) the credit union has violated a law of this state or a rule issued by the director;

(c) the credit union has engaged in a pattern of unsafe or unsound credit union practices;

(d) permitting the credit union to continue to conduct business in New Mexico is likely to have a substantial adverse impact on financial, economic or other interests of the residents of the state; or

(e) the credit union is prohibited from conducting business in the state or territory in which it is organized;

(2) cooperate with credit union regulators in other states or territories and share with those regulators pertinent information received pursuant to the provisions of the Credit Union Act;

(3) adopt rules for the periodic examination and investigation of the affairs of an out-of-state credit union conducting business in New Mexico. The costs associated with the examination or investigation shall be borne by the out-of-state credit union that is the subject of the examination or investigation; or

(4) enter into agreements with the regulators of out-of-state credit unions to identify laws and rules applicable to branches of out-of-state credit unions conducting business in New Mexico, or enter into agreements with credit union regulators in other states or territories to identify laws and rules applicable to credit unions organized in New Mexico pursuant to the Credit Union Act that are conducting business in out-of-state locations. The agreements provided for in this section may include, but are not limited to, agreements concerning corporate governance and operational matters, and the rules regarding the manner in which examination, supervision and application processes shall be coordinated with the regulators.

D. An out-of-state credit union conducting business in New Mexico shall:

(1) comply with the provisions of the Credit Union Act, rules issued pursuant to that act and all other applicable state laws; and

(2) designate and maintain an agent for service of process in New Mexico."

Section 5. Section 58-11-18 NMSA 1978 (being Laws 1987, Chapter 311, Section 18, as amended) is amended to read:

"58-11-18. POWERS OF CREDIT UNIONS.--In addition to the powers authorized elsewhere in the Credit Union Act, a credit union may:

A. enter into contracts of any nature;

B. sue and be sued;

C. adopt, use and display a corporate seal;

D. acquire, lease, hold, assign, pledge, hypothecate, sell and discount or otherwise dispose of property or assets, either in whole or in part, necessary or incidental to its operations;

E. lend funds to members;

F. borrow from any source; provided that a credit union shall have prior approval of the director before borrowing in excess of an aggregate of fifty percent of its capital;

G. purchase the assets of another credit union, subject to the approval of the director;

H. offer various financial services approved by the director;

I. hold membership in other credit unions organized under the Credit Union Act, the Federal Credit Union Act or other acts and in associations and organizations controlled by or fostering the interests of credit unions, including a central liquidity facility organized under state or federal law;

J. engage in activities and programs as requested by any governmental unit;

K. act as fiscal agent and receive payments on deposit accounts from a governmental unit; [and]

L. sell or offer to sell insurance to the same extent allowed by law to other state chartered lending institutions; and

M. provide services to persons within the credit union's field of membership, including electronic funds transfers and the sale and negotiation of instruments, including money orders, traveler's checks and stored value cards."

Section 6. Section 58-11-27 NMSA 1978 (being Laws 1987, Chapter 311, Section 27, as amended) is amended to read:

"58-11-27. DIRECTION OF AFFAIRS.--

A. A credit union shall be directed by a board of directors, consisting of an odd number of members, as provided in the bylaws, but not less than five in number, to be elected annually by and from the members. The election shall be held at the annual meeting or in such other manner as the bylaws provide. All members of the board shall hold office for such terms as the bylaws provide.

B. [The members shall elect as prescribed in the bylaws] A supervisory committee [of not less than three members at each annual election for the terms the bylaws provide] shall consist of an odd number of members, as provided in the bylaws, but not less than three or more than seven in number. The bylaws shall specify the length of the terms of the committee members and whether membership of the supervisory committee shall be by annual election or appointment by the board of directors.

C. The board of directors may delegate any or all of its authority to extend credit, including the determination of interest rates, to one or more committees or an executive officer, provided [that] such person is not a member of the board. A committee may consist of one or more members."

Section 7. Section 58-11-30 NMSA 1978 (being Laws 1987, Chapter 311, Section 30, as amended) is amended to read:

"58-11-30. COMPENSATION OF OFFICIALS.--No board or committee member may be compensated for services performed in the regular course of duties pertaining to that board or committee position. Notwithstanding any provision of the Credit Union Act to the contrary, board or committee members may be compensated for those services provided to the credit union while temporarily serving in an additional capacity other than as a board or committee member. Reasonable life, [health] accident and similar insurance protection shall not be considered compensation to a board or committee member. Board and committee members may be reimbursed for reasonable and necessary expenses incidental to the performance of official business of the credit union, provided [that] such expenses are documented."

Section 8. Section 58-11-36 NMSA 1978 (being Laws 1987, Chapter 311, Section 36, as amended) is amended to read:

"58-11-36. DUTIES OF BOARD MEMBERS.--

A. The board of directors shall:

(1) act upon applications for membership or to appoint one or more membership officers to approve applications for membership under such conditions as the board prescribes. A record of the actions taken by a membership officer shall be made available in writing to the board of directors for inspection. A person denied membership may appeal the denial to the board, and the person shall be informed of that right of appeal in writing by the credit union;

(2) authorize and require the purchase of adequate fidelity coverage as it determines to be necessary for the board members, committee members, executive officers or employees of the credit union, with documentation made available to the director about who is covered;

(3) authorize and determine from time to time the interest rates that shall be charged on extensions of credit to members and authorize any interest refunds on extensions of credit under the conditions the board prescribes; provided that the board may delegate that authority to the chief executive officer and a committee with the requirement that any exercise of that authority shall be reported to the board at the next monthly board meeting;

(4) establish written policies with respect to the terms and conditions for granting loans and the extension of credit, including the maximum amount that may be provided to any one member;

(5) declare dividends on share accounts and membership shares in the manner and form as provided in the bylaws, which dividends shall not exceed the credit union's net earnings, including undivided earnings; provided that the board may delegate that authority, except with regard to an account that the credit union designates as a member's primary share account, to the chief executive officer and a committee, with the requirement that any exercise of that authority shall be reported to the board of directors at the next board meeting;

(6) have charge of the investment of funds, except that the board may designate an investment committee or investment officer under written investment policies established by the board;

(7) authorize the employment of persons to carry on the business of the credit union and establish the compensation of the executive officer;

(8) approve an annual operating budget for the credit union;

(9) authorize the conveyance of property;

(10) authorize the designation of depositories for the operating funds of the credit union;

(11) appoint any committees deemed necessary; and

(12) perform such other duties as the members from time to time direct and perform or authorize any action not inconsistent with the Credit Union Act and not specifically reserved by the bylaws to the members.

B. Any member of the supervisory committee or of any other committee established for the purposes of extending credit may be temporarily suspended or removed by the board of directors, by a two-thirds vote of the board of directors at a meeting in which a quorum is present, for failure to perform those duties in accordance with the Credit Union Act, the articles of organization or the bylaws and for no other reason. The suspension or removal of a supervisory committee member shall be acted upon by the members at a meeting to be held not less than seven or more than twenty-one days after such suspension or removal."

Section 9. Section 58-11-49 NMSA 1978 (being Laws 1987, Chapter 311, Section 49, as amended) is amended to read:

"58-11-49. LOAN POLICIES.--

A. A credit union may extend credit to members for such purposes and upon such conditions as the bylaws may provide.

B. The interest rates on extensions of credit shall be authorized and determined by the board of directors or any person or committee to which it has delegated that authority.

C. A credit union may assess charges to members, in accordance with the bylaws, for failure to meet their obligations to the credit union in a timely manner.

D. Except as provided in Subsection H of this section, every application for an extension of credit and every approved extension of credit shall be made in writing or in such other manner as permitted or required by law in a standard format consistent with the extension of credit policies approved by the board of directors.

E. No loan shall be made to any member in an aggregate amount in excess of ten percent of the credit union's total assets as determined by the director.

F. Security, within the meaning of the Credit Union Act, may include, without limitation because of enumeration, the endorsement of a note by a surety or guarantor, assignment of an interest in real or personal property or any other collateral deemed acceptable by the board of directors. The types of security acceptable shall be determined by the written policies established by the board of directors pursuant to Section 58-11-36 NMSA 1978.

G. A member may receive an extension of credit in installments or in one sum and may pay the whole or any part on any day on which the office of the credit union is open for business.

H. Upon written application by a member, the board of directors or any person or committee to which it has delegated authority to extend credit may approve a self-replenishing line of credit, and advances may be granted to the member within the limit of such line of credit. Whenever a line of credit has been approved, no additional credit application is required as long as the aggregate indebtedness does not exceed the approved limit; provided, however, each line of credit shall be reviewed in accordance with the credit union's policy governing extensions of credit.

I. A credit union may participate in extensions of credit to credit union members jointly with other credit unions or other financial organizations pursuant to written policies established by the board of directors. [A credit union which originates such an extension shall retain an interest of at least ten percent of the face amount of the extension of credit.]

J. A credit union may:

(1) participate in any guaranteed loan program of the federal government or of this state under the terms and conditions specified by the law under which such a program is provided; and

(2) purchase the conditional sales contracts, notes and similar instruments of its members and other persons within its field of membership.

K. A credit union may make an extension of credit to any of its executive officers, board members and members of its supervisory and other committees; provided that:

(1) the extension of credit complies with all lawful requirements under the Credit Union Act with respect to loans to other members, is not on terms more favorable than those extended to other borrowers and is in compliance with loan policies established by the board for other borrowers;

(2) the following provisions have been met:

(a) the extension of credit is approved by the board of directors or any person or committee to which it has delegated authority to extend credit; and

(b) the applicant takes no part in the consideration of his application and does not attend any committee or board meeting while his application is under consideration; and

(3) if the aggregate extension of credit to the applicant, including the extension applied for and excluding share or deposit secured loans, exceeds [twenty thousand dollars ($20,000)] the limits set for the total asset size of the credit union as provided in this paragraph, the extension of credit [must be approved by] shall be submitted to the board of directors [after submission by the applicant of] for approval. The board shall require, at a minimum, a completed loan application [including] and a detailed current financial statement of the applicant; provided that submission to the board of directors of an application of an executive officer shall only be required for an applicant serving the credit union as chief executive officer, chief operating officer, chief financial officer or chief lending supervisor. The set limits for the total asset size of the credit union are as follows:

Credit Union Total Assets Aggregate Credit Exceeding

less than $5,000,000 $20,000

$5,000,000 - $10,000,000 $30,000

$10,000,001 - $50,000,000 $40,000

$50,000,001 or greater $50,000.

L. A credit union may permit executive officers, board members and members of its committees to act as co-makers, guarantors or endorsers of extensions of credit to other members, subject to the requirements of Subsection K of this section."

Section 10. Section 58-11-51 NMSA 1978 (being Laws 1987, Chapter 311, Section 51, as amended) is amended to read:

"58-11-51. LIABILITY AND FIDELITY INSURANCE FOR OFFICIALS AND EMPLOYEES.--A credit union [may] shall, unless otherwise specified by the director, purchase and maintain liability and fidelity insurance coverage on behalf of [any] a person who is or was a board member, committee member, executive officer, employee or agent of the credit union or who is or was serving at the request of the credit union as a director, committee member, executive officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against that person and incurred by that person in any such capacity or arising out of that person's status whether or not the credit union would have the power to indemnify that person against such liability; provided, a credit union shall not provide for the indemnification of personnel who are adjudged guilty of or liable for willful misconduct, gross neglect of duty or criminal acts."

Section 11. Section 58-11-53 NMSA 1978 (being Laws 1987, Chapter 311, Section 53, as amended) is amended to read:

"58-11-53. MONEY-TYPE INSTRUMENTS.--A credit union may collect, receive and disburse money in connection with the providing of negotiable checks, money orders, travelers checks and other money-type instruments for its members and other persons within the credit union's field of membership and in connection with the providing of services through service facilities, including automated terminal machines, and for such other purposes as may provide benefit or convenience to its members. A credit union may charge reasonable fees for those services."

Section 12. Section 58-11-56 NMSA 1978 (being Laws 1987, Chapter 311, Section 56, as amended) is amended to read:

"58-11-56. INVESTMENTS.--

A. Funds not required to satisfy member demands for extensions of credit may be invested in:

[A.] (1) securities, obligations or other instruments of or issued by or fully guaranteed as to principal and interest by the United States or any agency of the United States or in any trust investing solely, directly or indirectly, in the same;

[B.] (2) securities, obligations or other instruments of this state or any political subdivision of this state;

[C.] (3) deposits or other accounts of state or federally chartered financial institutions, the accounts of which are insured by an agency of the United States;

[D.] (4) loans or extensions of credit to or shares or deposits of other credit unions, central credit unions or corporate credit unions, the accounts of which are insured by the national credit union administration's share insurance fund;

[E.] (5) deposits in, loans to or shares of any federal reserve bank or of any central liquidity facility established under federal law;

[F.] (6) shares, stocks, loans or extensions of credit to or other obligations of any organization, corporation or association providing services [which] that are associated with the general purposes of the credit union or [which engages] that engage in activities incidental to the operations of a credit union. Those investments in the aggregate shall not exceed five percent of the credit union's capital;

[G.] (7) shares of a cooperative society organized under the laws of this state or of the laws of the United States in a total amount not exceeding ten percent of the capital of the credit union, subject to prior approval by the director;

[H.] (8) fixed assets, not to exceed six percent of the credit union's capital and deposits, unless with the written approval of the director. For the purpose of this subsection, "fixed assets" means structures, land, computer hardware and software and heating and cooling equipment that are affixed to the premises; [and]

(9) common trusts or mutual funds whose investment portfolios consist of mortgages, securities and obligations and bonds of the federal national mortgage association, freddie mac, the government national mortgage association and other government-sponsored enterprises;

(10) other investments, or in amounts in excess of the thresholds listed in this section, as approved by the director in written application; and

[I. investments or] (11) activities that the director determines are a part of or incidental to the operations of a credit union notwithstanding any provision to the contrary in the Credit Union Act.

B. Credit unions with minimum undivided earnings of one million dollars ($1,000,000) and with capital in excess of seven and one-half percent after required reserves may also invest funds not required to satisfy member demands for extensions of credit. The aggregate of a credit union's investments as provided in this subsection shall not exceed ten percent of the credit union's undivided earnings. Such investments may only be in or through:

(1) common trusts or mutual funds whose investment portfolios consist of the bonds or other obligations of insured financial institutions organized pursuant to the laws of another state or the United States, or corporations organized in any state, the District of Columbia, the commonwealth of Puerto Rico or the territories organized by congress; provided that the investment portfolios are representative of a recognized broadly traded bond index, as defined in the credit union's board-approved investment policy, and provided that the portfolios shall be limited to such bonds and other obligations having maturities of less than fifteen years with an average weighted life not to exceed seven years and being rated among the three highest ratings established by one or more national rating services; and

(2) common trusts or mutual funds whose investment portfolios consist of the stock of corporations organized in any state, the District of Columbia, the commonwealth of Puerto Rico or the territories organized by congress, provided that the investment portfolios of such common trusts or mutual funds are representative of a recognized broadly traded stock index as defined in the credit union's board-approved investment policy."

Section 13. Section 58-11-60 NMSA 1978 (being Laws 1987, Chapter 311, Section 60) is amended to read:

"58-11-60. CONVERSION.--

A. A credit union organized under the laws of this state may be converted to a credit union organized under the laws of any other state or under the laws of the United States, subject to regulations issued by the director.

B. A credit union organized under the laws of the United States or of any other state may convert to a credit union organized under the laws of this state. To effect such a conversion, a credit union shall comply with all of the requirements of the jurisdiction under which it was originally organized, the requirements provided for in the Credit Union Act and other requirements determined by the director, and file proof of such compliance with the director.

C. A bank, savings and loan company or other financial institution that is not a credit union may be converted to a credit union organized pursuant to the Credit Union Act. To effect such a conversion, the converting financial institution shall file proof of compliance with all of the requirements of the jurisdiction under which it was originally organized, the provisions of the Credit Union Act and other requirements determined by the director.

D. A credit union organized pursuant to the Credit Union Act may be converted to a bank, savings and loan company or other financial institution. To effect such a conversion, the converting credit union shall comply with all the requirements of the jurisdiction in which it will be organized, including any rules issued by the appropriate regulating agency and other requirements determined by the director."

Section 14. A new section of the Credit Union Act is enacted to read:

"[NEW MATERIAL] CAPITALIZATION AND RESERVES.--

A. A credit union shall maintain a well-capitalized status as determined by the director.

B. A credit union shall set aside and maintain such reserves as may be required by the insurer of its share accounts and deposit accounts."

Section 15. REPEAL.--Sections 58-11-57 and 58-11-64 NMSA 1978 (being Laws 1987, Chapter 311, Sections 57 and 64, as amended) are repealed.