RECOMMENDATIONS OF THE BUREAU OF FEDERAL CREDIT UNIONS LETTER OF TRANSMITTAL DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, Hon. A. WILLIS ROBERTSON, Washington, October 4, 1956. Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR ROBERTSON: Enclosed for the committee's use in its study of Federal statutes governing financial institutions and credit are the recommendations of this Department regarding proposed revisions of the Federal Credit Union Act. These proposals are designed to remove obsolete provisions from the law and in some instances to add new authority where desirable or needed. We are continuing to study the law and the various problems arising in the course of its administration. As the result of that study we may subsequently suggest to the Congress other amend ments. We shall be glad to assist your committee in drafting the amendments to effectuate the enclosed suggestions, if you so desire. Because of the limited time available for preparation of these recommendations, no advice has been obtained from the Bureau of the Budget as to their relationship to the program of the President. Sincerely yours, Existing law M. B. FOLSOM, Secretary. 167. REMOVAL OF OBSOLETE DATE IN SECTION 8 "SEC. 8. BYLAWS.-In order to simplify the organization of Federal credit unions the Director shall, on June 26, 1934, cause to be prepared a form of organization certificate and a form of bylaws, consistent with this chapter, which shall be used by Federal credit union incorporators, and shall be supplied to them on request. At the time of presenting the organization certificate the incorporators shall also submit proposed bylaws to the Director for his approval.” Recommendation Delete "on June 26, 1934" from this section since it is obsolete. Reason Standard bylaws and organization certificate should be revised from time to time as deemed necessary. 207 168. MEMBERSHIP OF SUPERVISORY COMMITTEE Existing law "SEC. 11. MANAGEMENT.-(a) GENERALLY.-The business affairs of a Federal credit union shall be managed by a board of not less than five directors, a credit committee of not less than three members, and a supervisory committee of three members (a majority of whom shall not be directors) all to be elected by the members (and from their number) at their annual meeting, and to hold office for such terms, respectively, as the bylaws may provide. A record of the names and addresses of the members of the board and committees and officers shall be filed with the Bureau within ten days after their election. No member of the board or of either committee shall, as such, be compensated." Recommendation Prohibit overlap of supervisory committee membership with board of directors or credit committee. Reason It is believed that the supervisory committee should be composed of persons who are not involved in or responsible for any operations of the Federal credit union. It can then be more objective in making its audits of the affairs of the organization. Existing law 169. CHANGES IN SEC. 11 (b) oF ACT "SEC. 11 (b) OFFICERS.-At their first meeting after the annual meeting of the members, the directors shall elect from their number a president, a vice president, a clerk, and a treasurer, who shall be the executive officers of the corporation and may be compensated for their services to such extent as the bylaws may provide. The offices of clerk and treasurer may be held by the same person. The duties of the officers shall be as determined by the bylaws, except that the treasurer shall be the general manager of the corporation. Before the treasurer shall enter upon his duties he shall give bond with good and sufficient surety, in an amount and character to be determined from time to time by the board of directors in compliance with regulations prescribed, from time to time, by the Director, conditioned upon the faithful performance of his trust." Recommendation (a) Provide for more than one vice president. Change "a vice president" to "one or more vice presidents". (b) Change name of "clerk" to "secretary". Provide that among the elected officers the treasurer only may be compensated. Reason (a) Some Federal credit unions have requested permission to amend bylaws to provide for more than one vice president. This is justifiable in some cases. (b) A number of credit union leaders have suggested this change. Secretary is more descriptive of the position and would probably add dignity to the office. (c) The act prohibits compensation for directors and committeeMembers of the credit committee and supervisory committee. normally must devote as much or more time to their duties than is required of the president, vice president, or clerk. The treasurer is general manager and should be compensated in proportion to the requirements of his duties and the ability of the Federal credit union to pay.. Service on the management staff of Federal credit unions has traditionally been on a voluntary basis without compensation. It is believed that the nonprofit and cooperative nature of Federal credit unions can best be preserved if its officials (other than treasurer) will continue to serve without compensation. If other officers are compensated, it follows that credit committeemen and supervisory committeemen should also be compensated. Such a development would tend to change the motivation for service in these positions and lead to commercialization of the operations. At present bylaws of all Federal credit unions provide only for compensation of the treasurer. It is suggested that this principle be incorporated in the act itself. 170. CLERICAL AND AUDITING ASSISTANCE FOR SUPERVISORY COMMITTEE Existing law "SEC. 11 (c) DIRECTORS.-The board of directors shall meet at least once a month and shall have the general direction and control of the affairs of the corporation. Minutes of all such meetings shall be kept. Among other things they shall act upon applications for membership; require any officer or employee having custody of or handling funds to give bond with good and sufficient surety in an amount and character to be determined from time to time by the board of directors in compliance with regulations prescribed, from time to time, by the Director, and authorize the payment of the premium or premiums therefor from the funds of the Federal credit union; recommend the declaration of dividends; fill vacancies in the board and in the credit committee until successors elected at the next annual meeting have qualified; have charge of investments other than loans to members; determine from time to time the maximum number of shares that be held by any individual; subject to the limitations of this chapter, determine the interest rates on loans and the maximum amount that may be loaned with or without security to any member and, subject to such regulations as may be issued by the Director, authorize an interest refund to members of record at the close of business on December 31 in proportion to the interest paid by them during that year." Recommendation may Provision for compensation of necessary clerical and auditing assistance requested by supervisory committee. Reasons The supervisory committee is charged with the responsibility for making internal audits of the affairs of the Federal credit union. The members of the committee serve without compensation. Usually they need clerical or professional auditing assistance to carry out their full responsibilities, but the committee does not have authority to authorize expenditure of funds for such assistance. It is important that the board of directors give full attention and support to the committee's need for assistance. The Federal Credit Union Act provides for a supervisory committee to perform periodic internal audits of the affairs of the Federal credit union. Up to this time the performance of many such committees has been less than satisfactory. The Bureau of Federal Credit Unions has prepared and is issuing an improved manual for such committees and will endeavor to strengthen their performance. If concerted efforts to obtain adequate performance of the internal audit function do not succeed, it may be necessary to suggest a revision of the basic law in this area. The Department does not have any specific proposal of this nature at this time. 171. MAXIMUM SIZE OF LOANS, UNSECURED LOAN LIMIT, AND LOAN OFFICER Existing law "SEC. 11 (d) CREDIT COMMITTEE. The credit committee shall hold such meetings as the business of the Federal credit union may require and not less frequently than once a month (of which meetings due notice shall be given to members of the committee) to consider applications for loans. No loan shall be made unless approved by a majority of the entire committee and by all the members of the committee who are present at the meeting at which the application is considered. Applications for loans shall be made on forms prepared by such committee, which shall set forth the purpose for which the loan is desired, the security, if any, and such other data as may be required. No loan shall be made to any member which shall cause such member to become indebted to the Federal credit union in the aggregate, upon loans made to such member, in excess of $200 or 10 per centum of the Federal credit union's paid-in unimpaired capital and surplus, whichever is greater, or in excess of $400 unless such excess over $400 is adequately secured. For the purposes of this subdivision an assignment of shares or the endorsement of a note shall be deemed security." Recommendation (a) Provide specific authority for the Director of the Bureau of Federal Credit Unions to impose, by regulation, maximum loan limits. Increase the unsecured loan limit from $400 to $500. (c) Provide authority for the credit committee to delegate to a loan officer, for whom compensation would be authorized, power to approve loans under specified conditions. Reasons (a) The 10 percent limit on loans is not realistic for Federal credit unions that have reached considerable size. There has been very little abuse of this situation up to this time but it is desirable to provide clear authority to deal with this area if and when the need may become apparent. (b) The unsecured loan limit has been progressively increased by action of Congress from an initial limit of $50 in the original act to $100 in 1940, $300 in 1946, and $400 in 1949. The experience of Federal credit unions has been very good in making unsecured loans and it is believed logical now to increase the limit to $500. The cost of living has increased substantially since 1949 so that a limit of $500 at this time would not be out of line with a limit of $400 in 1949. (c) The volume of loan applications in some Federal credit unions is rather large and the credit committee (which is not compensated) finds it difficult to give the time needed to render prompt loan service in many emergencies. Existing law 172. SECTION 19 OF ACT "SEC. 19, APPROPRIATION FOR ADMINISTRATION.-Not to exceed $50,000 of the fund available to the Governor [of the Farm Credit Administration] under section 1404 of this title, for expenses of administration in connection with loans made thereunder to aid in the establishment of agricultural credit corporations, is made available also for administrative expenses in administering this chapter." (June 26, 1934, c. 750, sec. 19, 48 Stat. 1222.) Recommendation Delete section 19 of the act and renumber sections 20-22 accordingly. Reasons The section is obsolete. It refers only to the initial appropriation of funds for administration of the act. 173. ALLOTMENT OF SPACE IN FEDERAL BUILDINGS Existing law "SEC. 21, ALLOTMENT OF SPACE IN FEDERAL BUILDINGS.-Upon application by any credit union organized under State law or by any Federal credit union organized in accordance with the terms of this chapter, the membership of which is composed exclusively of Federal employees and members of their families, which application shall be addressed to the officer or agency of the United States charged with the allotment of space in the Federal buildings in the community or district in which said credit union or Federal credit union does business, such officer or agency may in his or its discretion allot space to such credit union if space is available without charge for rent or services." (June 26, 1934, c. 750, sec. 21, as added July 9, 1937, c. 471, 50 Stat. 487.) Recommendation That the word “exclusively” be changed to "primarily”. Reasons Several Federal credit unions organized to serve Federal employees have a few members who are not Federal employees. An example of this is a retired Federal employee who wishes to continue his membership in the Federal credit union after he has retired. |