borrower proposes to utilize for the purpose, the borrower's other commitments and anticipated needs over the loan period, and the best interests of the credit union.

(b) Pursuant to the bylaws, the board of directors of a Federal credit union by resolution may require that all loans approved by the credit committee, or by a duly appointed and authorized loan officer, or that certain classes of such loans, shall provide for payment or amortization by periodic, substantially equal, payments of principal which are to be made at intervals shorter than 12 months and which are sufficient to retire the loan at its maturity.

(c) Subject to any limitations imposed by the board of directors as provided for by paragraphs (a) and (b) of this section, the credit committee, or a duly appointed and authorized loan officer, may approve loans with maturities of one year or less which provide for retirement thereof by a single payment of the principal at maturity.

(d) (1) Subject to any limitations im= posed by the board of directors as provided for in paragraphs (a) and (b) of this section, loans with maturities in excess of one year approved by the credit committee, or a duly appointed and authorized loan officer, shall provide for payment or amortization by periodic, substantially equal, payments of principal which are to be made at intervals of not greater than 12 months and which are sufficient in amount to retire such loans at maturity.

(2) Notwithstanding the provisions of subparagraph (1) of this paragraph, and subject to any limitations imposed by the board of directors as provided for by paragraphs (a) and (b) of this section, loans with maturities in excess of one year but not in excess of thirty months, may provide for retirement by a single payment of principal at maturity or by payments at intervals greater than 12 months where the credit committee finds that such terms are justified by the needs and condition of the borrower after taking into account, among other factors deemed relevant, his current commitments, the source or sources of the funds from which he plans and proposes to make such payment or payments, the regularity, frequency and reasonably predictable nature of the receipt of such funds, and the best interests of the credit

86-096-68-31

union: Provided, That the payment or payments so provided for shall be scheduled to coincide with the anticipated receipt of the funds intended to be used therefor: And provided, That the findings of the credit committee shall be in writing signed by the chairman of the committee and retained in the borrower's loan file.

(3) Notwithstanding the provisions of subparagraph (1) of this paragraph, and to the extent that the board of directors by resolution approves, loans with maturities up to five years for the purpose of higher education of the member-borrower may be made upon such terms of payment or amortization as the credit committee finds consonant with the needs of the member-borrower and the best interests of the credit union.

(e) All loans shall provide for the payment of interest with each payment of principal: Provided however, That no loan shall provide for the payment of interest less frequently than at intervals of twelve months.

[25 F.R. 5286, June 14, 1960, as amended at 27 F.R. 6980, July 24, 1962]

§ 301.22 Selling checks and money orders.

(a) A Federal credit union may undertake to sell negotiable checks (including travelers checks) and money orders to its members only, for a fee which does not exceed the direct and indirect costs incident to providing such service, when it is determined by the board of directors that the provision of such service will not have any adverse effect upon the accomplishment by the credit union of its basic purpose of promoting thrift among its members and of providing to them a source of credit for provident and productive purposes.

(b) A Federal credit union which undertakes to provide this service shall:

(1) Have adequate physical facilities to handle and safeguard the cash funds to be used in connection therewith;

(2) Establish and maintain effective internal controls for the handling of and accounting for the cash funds and fees to be received and charged in connection therewith;

(3) Establish and enforce reasonable rules covering the kinds of negotiable checks (including travelers checks) and money orders, and the maximum amounts thereof, that it will sell to members;

(4) Establish and enforce reasonable rules and procedures to assure that the service will be provided to members of the Federal credit union only, including the identification of any member who requests the service;

(5) Obtain, and maintain in force and effect, and additional surety bond and insurance coverage required thereby;

(6) Determine that the fee charged does not exceed the direct and indirect costs incident thereto.

(c) The board of directors of a Federal credit union which has undertaken to provide this service shall review its operation from time to time to make certain that it is not having any adverse affect upon the accomplishment by the credit union of its basic purpose, and that the requirements of paragraph (b) of this section are being fulfilled on a current basis. Controls, rules and procedures established pursuant to paragraph (b) of this section may be amended by the board of directors from time to time to provide new or increased safeguards against loss, and to meet the best interests of the cerdit union and its members.

(d) The fees or commissions which a Federal credit union may receive pursuant to a contract with a third party providing for the sale of negotiable checks (including travelers checks) and money orders furnished by the third party, shall be deemed to be not in excess of the direct and indirect costs incident to providing this service.

(e) No fee shall be charged by a Federal credit union to a member for a check drawn by it on its own bank account in connection with the withdrawal by the member from a share account, or in connection with the disbursement of the proceeds of a loan.

§ 301.23 Cashing checks and money orders.

(a) A Federal credit union may undertake to cash checks and money orders for its members only, for a fee which does not exceed the direct and indirect costs incident to providing such service, when it is determined by the board of directors that the provision of such service will not have any adverse effect upon the accomplishment by the credit union of its basic purpose of promoting thrift among its members and of providing to them a source of credit for provident and productive purposes.

(b) A Federal credit union which undertakes to provide this service shall:

(1) Have adequate physical facilities to handle and safeguard the cash funds to be used in connection therewith;

(2) Establish and maintain effective internal controls for the handling of and accounting for the cash funds to be used and the fees to be charged in connection therewith;

(3) Establish and enforce rules covering the kinds of checks and money orders, and the maximum amounts thereof, that will be cashed;

(4) Establish and enforce rules and procedures to assure that the service will be provided to members of the Federal credit union only, including the identification of any member who requests the service;

(5) Obtain, and maintain in force and effect, any additional surety bond and insurance coverage required thereby;

(6) Determine that the fee charged does not exceed the direct and indirect costs incident thereto.

(c) The board of directors of a Federal credit union which has undertaken to provide this service shall review its operation from time to time to make certain that it is not having any adverse effect upon the accomplishment by the credit union of its basic purpose, and that the requirements of paragraph (b) of this section are being fulfilled on a current basis. Controls, rules and procedures established pursuant to paragraph (b) of this section may be amended by the board of directors from time to time to provide new or increased safeguards against loss, and to meet the best interests of the credit union and its members.

(d) No fee shall be charged by a Federal credit union to a member as for the cashing of a check or money order when such check or money order is used in whole or in part for payment of a loan, payment of interest, payment of any obligation to the credit union, or the purchase of shares. Nor shall any fee be charged to the member for the cashing of a check or money order drawn by the Federal credit union on its own bank account and issued to the member in connection with a withdrawal by the member from a share account or in connection with the disbursement of a loan.

§ 301.24 Refund of interest.

The board of directors of a Federal credit union may authorize an interest refund to all members who paid interest to the credit union during any dividend period and who are members of record at the close of business on the last day of any such dividend period. The board may authorize an interest refund for a dividend period only during a month in which, under the bylaws, it may declare the dividend, except that if, under the bylaws, a credit union has semiannual dividend periods, and an interest refund was not authorized for the first dividend period, the board may provide an interest refund for the first dividend period in the authorization for interest refund made for the second dividend period. However, the board shall not authorize an interest refund for any dividend period with respect to which it has not declared a dividend. The amount of interest refund to the members shall be in proportion to the amount of interest paid by them during the dividend period as determined for the dividend period by the application of a uniform percentage. When an interest refund is authorized with respect to a dividend period, it shall be recorded in the books of the credit union as a reduction of interest income for that period. If the authorization covers both semiannual dividend periods, the combined interest refunds shall be a reduction of interest income for the second dividend period. An interest refund may be credited to the members' share accounts or paid directly to the members. [30 F.R. 5794, Apr. 24, 1965]

§ 301.25 Insured loans to student members in eligible higher education or Vocational institutions.

Notwithstanding the limitations of the Federal Credit Union Act with respect to loans to members, and the provisions of § 301.21, a Federal credit union, upon appropriate amendment of its Bylaws in compliance with § 301.4, may make insured loans to student members pursuant to the power conferred by the Higher Education Act of 1965, Title IV, Part B, section 434, P.L. 89-329, 79 Stat. 1247, approved November 8, 1965, and the National Vocational Student Loan Insurance Act of 1965, section 16, P.L. 89-287, 79 Stat. 1048, approved October 22, 1965. The exercise of this power by a Federal credit union, including the aggregate and individual amounts, terms, and conditions of insured loans to student mem

Any

A Federal credit union may purchase accounting services for the maintenance of all or a portion of its accounting records. As used in this section the term "accounting services" means the maintenance of bookkeeping, accounting, or other records related to the purposes and functions of a credit union, by manual, mechanical, or electronic methods, and the furnishing of reports and information derived from such records. purchase of accounting services shall be evidenced by a written agreement the terms and conditions of which shall expressly include a provision requiring compliance with § 301.14, and a provision requiring the vendor to make any accounting records of the Federal credit union in his possession immediately available for examination by the Bureau. A Federal credit union purchasing accounting services shall notify the Regional Representative in writing of the arrangement at least 30 days prior to the date on which such services shall commence. Such notice shall disclose the name and address of the vendor and information with respect to the records to be maintained and the method to be used. A Federal credit union shall notify the Regional Representative in writing at least 30 days prior to the discontinuance of the arrangement. A Federal credit union, in addition to regular payments for services as provided under the written agreement, shall not pay in advance the actual or estimated charges for more than 3 months services. Where such advance payment is made it shall be amortized over a period not in excess of the period of the written agreement. No official or employee of a Federal credit union shall be engaged directly in the management or operation of the accounting services purchased pursuant to this section, except where the vendor of such services is owned and operated by or controlled by one or more credit union leagues. However, in no event shall an official or employee of a Federal credit union receive from the vendor of such

services any salary or compensation other than the reimbursement of necessary expenses incurred in connection with the vendor's activities.

[32 F.R. 5271, Mar. 29, 1967]

§ 301.27

Participation in accounting service center.

(a) A Federal credit union may participate with one or more other credit unions (either Federal or State chartered) in the establishment or maintenance of an accounting service center, the functions, facilities, and operations of which are limited to providing data processing services only for such participating credit unions. As used in this section the term "data processing services" means the maintenance of bookkeeping, accounting, or other records related to the purposes and functions of a credit union, primarily by mechanical or electronic methods, and the furnishing of reports and information derived from such records. Participation in the accounting service center may be by means of a partnership or other noncorporate arrangement between or among the participating credit unions or by participation in an accounting service center corporation organized for the sole purpose of providing data processing services to the participating credit unions, through ownership of a proportionate amount of the capital stock of such a corporation, provided that the remaining capital stock of such corporation is available for ownership only by the participating credit unions. A Federal credit union's proportionate ownership of the accounting service center shall be in similar proportion to the total ownership of the center as the total facilities and services used by the Federal credit union bears as a percentage to the total facilities and services provided by the accounting service center to all the participating credit unions, but the cost of such ownership shall not exceed two percent of its members' shareholdings. Ownership by the participating credit unions will be reviewed not less frequently than every two years and adjusted among them as necessary to bring such ownership into conformity with the percentage of the total facilities and services of the accounting service center used by each of them.

(b) A Federal credit union may not participate in the establishment or maintenance of an accounting service center unless the arrangement provides, (1) that the operating costs of the accounting service center shall be charged to each of the participating credit unions in such proportion to the total operating costs as the total facilities and services used by each bears as a percentage to the total facilities and services used by all of them; (2) that each participating credit union will have in its records current information disclosing, (1) the name of each participant, (ii) the proportion and amount of ownership of each in the accounting service center, (iii) the proportion of the facilities and services used by each, (iv) the current total operating costs of the accounting service center, and (v) the proportion and the amount of the total operating costs charged to each of the participating credit unions; (3) that the accounting service center shall establish and maintain the records of participating Federal credit unions in accordance with the requirements of § 301.14; and (4) that the records of participating Federal credit unions in possession of the accounting service center shall be available immediately for examination by the Bureau. No official

or employee of a participating Federal credit union may receive any salary or compensation from the accounting service center other than the reimbursement of necessary expenses incurred in connection with service center activities.

(c) Each Federal credit union participating in an accounting service center shall notify the Regional Representative in writing of the arrangement at least 30 days prior to the date on which such participation shall commence. Such notice shall disclose the name and address of the accounting service center, the name of its managing officer, and shall provide information on the records to be maintained and the method to be used for that purpose. A Federal credit union shall notify the Regional Representative in writing at least 30 days prior to discontinuing its participation in an accounting service center. [32 F.R. 5271, Mar. 29, 1967]

§ 301.28 Joint operations and activities.

(a) A Federal credit union may agree with one or more other credit unions to

share quarters and to carry or. business operations either individually or jointly. The agreement, which shall be in writing and which shall have the prior approval of the Director, shall provide that: (1) The assets and records of each credit union shall be completely segregated; (2) the individual identity of each credit union will be clearly maintained; (3) the joint costs will be shared equitably; (4) with respect to joint operations, centralized management controls will be maintained over joint personnel and facilities which, nevertheless, permit each credit union to retain its responsibility for carrying on its own business.

(b) Requests for approval should be submitted to the Regional Representative in writing together with a copy of the agreement and all pertinent facts in support of the proposal not later than 30 days prior to the proposed implemen=tation of the agreement.

[32 F.R. 5272, Mar. 29, 1967]

Sec.

PART 302-RESERVES

302.1 Reserves in general. 302.2 Regular Reserve. 302.3

Special Reserve for Delinquent Loans. AUTHORITY: The provisions of this Part 302 issued under sec. 21, 73 Stat. 635; 12 U.S.C. 1766.

SOURCE: The provisions of this Part 302 appear at 25 F.R. 5289, June 14, 1960, unless otherwise noted.

§ 302.1 Reserves in general.

Federal credit unions shall establish and maintain such reserves as may be required by the Act, or by regulation, or in special cases by the Director on his finding that the reserves of the Federal credit union concerned are insufficient. § 302.2

Regular Reserve.

(a) The treasurer shall transfer to a reserve to be known as the Regular Reserve (1) as of the close of business each month all entrance fees, transfer fees and late charges collected during the month; (2) as of the end of each dividend period 20 percent of the net earnings for that period before the declaration of any dividend: Provided, however, That when the Regular Reserve thus established shall equal 10 percent of the total amount of members'

shareholdings, transfers of net earnings to the Regular Reserve may be limited to the amount necessary to maintain the Regular Reserve equal to 10 percent of the total amount of members' shareholdings; and (3) recoveries on items previously charged to the Regular Reserve.

(b) A Federal credit union may charge to its Regular Reserve losses on uncollectible loans to members and to other credit unions (including unrecovered collectible costs).

(c) (1) A Federal credit union may charge to its Regular Reserve losses other than those resulting from uncollectible loans to members or to other credit unions provided that each such charge has been approved in advance by the Director. In determining whether such charges shall be approved, the Director will be guided by the nature of the loss and the financial condition of the Federal credit union concerned as indicated by: The amount of loan delinquency and estimated losses on outstanding loans, current and prospective net earnings, and similar facts which may affect its operations and development.

(2) Applications for approval to charge such losses to the Regular Reserve shall be made in writing to the Regional Representative. The application shall: (1) be authorized by the board of directors of the Federal credit union; (ii) state the amount and nature of the loss; and (iii) describe fully the causes of the loss; and (iv) be accompanied by a copy of the Federal credit union's current financial and statistical report (Form FCU109) and a copy of the current schedule of delinquent loans. The Regional Representative may request such additional information concerning the financial condition, operating practices, and management of the Federal credit union as he may deem necessary in a particular

case.

(3) The Regional Representative will investigate each such application and will make a recommendation as to whether it should be approved or disapproved. The application and recommendation of the Regional Representative shall be forwarded to the Bureau in Washington, D.C. The Director shall approve or disapprove the application. The Regional Representative will be in