Connecticut Seal

Substitute Senate Bill No. 890

Public Act No. 03-35

AN ACT CONCERNING DIRECTORS OF CREDIT UNIONS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 36a-435b of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

As used in sections 36a-435a to 36a-472a, inclusive, unless the context otherwise requires:

(1) "Appointed director" means a director emeritus or an advisory director of a Connecticut credit union, who is not a member of the governing board of such credit union;

[(1)] (2) "Branch" means any office of a Connecticut credit union at a fixed location, other than the main office, at which shares or deposits are received, share drafts or checks are paid, or money is lent;

[(2)] (3) "Capital" means undivided earnings, regular reserves, other special purpose reserves, donated equity, and accumulated, unrealized gains or losses on securities in accordance with generally accepted accounting principles;

[(3)] (4) "Certificate of incorporation" means the certificate of incorporation of a Connecticut credit union and includes in the case of Connecticut credit unions in existence on July 1, 1975, articles of association, articles of incorporation and certificates of organization;

[(4)] (5) "Corporate", when used in conjunction with any institution that is a Connecticut credit union, federal credit union or out-of-state credit union, means a corporate credit union, as defined in 12 CFR 704. 2, as from time to time amended;

[(5)] (6) "Credit manager" means a natural person approved by the governing board of a Connecticut credit union and employed by such credit union to supervise its lending activities;

[(6)] (7) "Credit union service organization services" means those services that are authorized for credit union service organizations under state or federal law, and that are closely related to credit union business, are convenient and useful to credit union business, are reasonably related to the operations of a credit union or are financial in nature;

[(7)] (8) "Director" means a member of the governing board [, a director emeritus or an advisory director] of a Connecticut credit union;

[(8)] (9) "Federal Credit Union Act" means 12 USC Section 1751 et seq. , as from time to time amended;

[(9)] (10) "Financial institution" means any Connecticut credit union, bank, federal credit union, out-of-state bank or out-of-state credit union;

[(10)] (11) "Immediate family member" means any person related by blood, adoption or marriage to a person within the field of membership of the Connecticut credit union;

[(11)] (12) "Member" means any person who has been admitted to membership in the Connecticut credit union in accordance with this chapter;

[(12)] (13) "Member in good standing" means a member who (A) owns at least one membership share in a credit union, (B) is current on all credit obligations to the credit union, and (C) has not caused the credit union a credit or share loss that remains outstanding;

[(13)] (14) "Membership share" means a share equal to the stated par value of the Connecticut credit union which may not be withdrawn or transferred except upon termination of membership and which confers membership and voting rights on the member;

[(14)] (15) "Multiple common bond membership" means a field of membership consisting of more than one group of individuals, each of which has, within the group, a common bond of occupation or association;

[(15)] (16) "Officer" means the chairperson, vice chairperson, secretary and treasurer of the governing board of a Connecticut credit union;

[(16)] (17) "Senior management" means the president or chief executive officer, vice president or vice chief executive officer, chief financial officer, credit manager, and any person occupying a similar status or performing a similar function;

[(17)] (18) "Share" means the basic unit of moneys held by a member of a Connecticut credit union in share accounts at a Connecticut credit union on which a dividend may be paid;

[(18)] (19) "Single common bond membership" means a field of membership consisting of one group that has a common bond of occupation or association.

Sec. 2. Section 36a-437a of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) A Connecticut credit union organized under this title shall be subject to the provisions of the laws of this state governing corporations without capital stock, provided the provisions of this title shall prevail over any inconsistent provisions of title 33.

(b) Seven or more individuals may file with the commissioner an application to organize a Connecticut credit union, provided each is at least eighteen years of age. The application shall be in writing and shall include (1) a proposed certificate of incorporation on a standard form provided by the Commissioner of Banking, signed and acknowledged by the organizers either individually or collectively before an officer competent to administer oaths. The proposed certificate of incorporation shall specifically state: (A) The name of the Connecticut credit union; (B) the town in which the main office is to be located; (C) the name, occupation and residence, post office or business address of each organizer, proposed director, proposed appointed director and proposed member of senior management, provided the organizers, proposed directors, proposed appointed directors and proposed senior management shall separately file with the Commissioner of Banking the notice of the residence of each organizer, proposed director, proposed appointed director and proposed member of senior management whose residence address is not included in the proposed certificate of incorporation; and (D) a statement that the purpose of the Connecticut credit union is to conduct the business of and to engage in any act or activity lawful for a Connecticut credit union, or, in the case of a Connecticut credit union that is organized to provide basic services, a statement that the purpose of such credit union is to offer basic services; (2) the proposed bylaws prescribing the manner in which the business of the Connecticut credit union shall be conducted on a standard form provided without charge by the Commissioner of Banking, signed and acknowledged by the organizers either individually or collectively before an officer competent to administer oaths; (3) a business plan, including a three-year financial forecast; (4) a potential member survey; (5) in the case of a proposed Connecticut credit union the membership of which is limited to persons within a well-defined community, neighborhood or rural district, evidence to support a finding of such community, neighborhood or rural district; and (6) any other information that the Commissioner of Banking may require.

(c) In connection with an application to organize and at any other time the Commissioner of Banking requests, each organizer, [and] director and appointed director of a Connecticut credit union shall provide fingerprints to the Commissioner of Banking for use in conducting criminal history records checks. Such criminal history records checks shall be conducted in accordance with section 29-17a.

(d) (1) Upon the filing of the required application, the Commissioner of Banking shall investigate the facts and shall determine whether: (A) The proposed field of membership is favorable to the success of the Connecticut credit union; (B) the organizers, proposed directors, proposed appointed directors and proposed members of senior management are of such character, general fitness and experience as to warrant belief that the business of the proposed Connecticut credit union will be conducted honestly and efficiently in accordance with the provisions of sections 36a-435a to 36a-472a, inclusive; (C) the proposed certificate of incorporation meets the requirements of this section; and (D) the proposed credit union provides reasonable promise of successful operation. In addition to the determinations under this subdivision, the Commissioner of Banking shall consider the effect of overlapping fields of membership on the proposed credit union and existing Connecticut credit unions and federal credit unions. As a condition of approval of the application, the Commissioner of Banking may require the proposed Connecticut credit union to limit or eliminate overlaps to achieve the purposes of sections 36a-435a to 36a-472a, inclusive, and promote the welfare and stability of those credit unions doing business in this state.

(2) The Commissioner of Banking shall not issue a certificate of authority to engage in the business of a Connecticut credit union if, in the opinion of the Commissioner of Banking, the name selected would tend to confuse the public.

(3) If the Commissioner of Banking determines that the foregoing requirements are satisfied, and that the proposed Connecticut credit union will have its shares and deposits insured by the National Credit Union Administration, or its successor agency, the Commissioner of Banking shall issue a certificate of authority to engage in the business of a Connecticut credit union. One original of the certificate of incorporation and one original of the certificate of authority shall be filed by the Connecticut credit union with the Secretary of the State. When the certificate of incorporation and certificate of authority are filed with the Secretary of the State in accordance with the provisions of this subsection, the Connecticut credit union shall become a corporation and its corporate existence shall continue perpetually unless otherwise expressly provided by law.

(e) Within a reasonable time after issuance of the certificate of authority by the Commissioner of Banking, the organizers shall hold an organization meeting at which they shall elect directors, who thereafter shall elect officers, appoint committee members and appointed directors, adopt the bylaws, and conduct any other business necessary to complete the organization of the Connecticut credit union. The Connecticut credit union shall complete such organization and shall commence business within six months from the issuance of the certificate of authority by the Commissioner of Banking or such certificate of authority shall be void. The Commissioner of Banking may, upon the application of the organizers and for good cause shown, grant a Connecticut credit union a reasonable extension of time to complete such organization and commence business. A Connecticut credit union shall not commence business until its shares and deposits are insured by the National Credit Union Administration or its successor agency, and it has been bonded by a surety company authorized to do business in this state to the same extent such bonding is required by 12 CFR Part 713, as from time to time amended.

(f) Seven or more individuals may organize a Connecticut credit union that provides basic services in accordance with this section, except a Connecticut credit union the membership of which is limited to persons within a well-defined community, neighborhood or rural district. In order to expedite the issuance of a certificate of authority, the Commissioner of Banking shall provide, without charge, to such organizers: (1) A model business plan for basic services; (2) policy guidelines concerning shares, lending, investments and other credit union business activities; and (3) sample letters for sponsor support, grants and nonmember deposits, where applicable. If the Commissioner of Banking makes the determinations required by subsection (d) of this section, the Commissioner of Banking shall issue a certificate of authority to engage in the business of a Connecticut credit union, with the express restriction that such credit union may offer only basic services. Any credit union organized pursuant to this subsection may upon the approval of the Commissioner of Banking, convert to a Connecticut credit union operating without the restrictions provided in its certificate of authority. A credit union that proposes to convert shall file with the Commissioner of Banking a proposed plan of conversion, including a new business plan, an original certificate of amendment to its certificate of incorporation and a certificate by the secretary of the converting credit union that the proposed plan of conversion and proposed certificate of amendment to its certificate of incorporation have been approved by a majority of the governing board of the converting credit union. The Commissioner of Banking shall approve a conversion under this subsection if the Commissioner of Banking determines that: (A) The converting credit union has complied with all applicable provisions of law; (B) the converting credit union has net worth in the amount required by the Commissioner of Banking; (C) the converting credit union has received satisfactory ratings in its most recent safety and soundness examination; and (D) the proposed conversion will serve the necessity and convenience of the members of the converting credit union. After receipt of the Commissioner of Banking's approval, the converting credit union shall promptly file such approval and the certificate of amendment to its certificate of incorporation with the Secretary of the State. Upon such filing, the converting credit union shall be a Connecticut credit union subject to all the requirements and limitations and possessed of all rights, privileges and powers granted to it by its certificate of incorporation and by the provisions of sections 36a-435a to 36a-472a, inclusive, and shall be subject to all of the duties, relations, obligations, trusts and liabilities of a Connecticut credit union. As used in this section, "basic services" means the issuance of regular shares, the making of signature loans not exceeding amounts predetermined by the Commissioner of Banking, the making of participation loans as a participant in an amount specified by the Commissioner of Banking, the sale of money orders and travelers checks, and the issuance and redemption of savings bonds.

(g) (1) The certificate of incorporation of a Connecticut credit union may, with the approval of the Commissioner of Banking, be amended at any time by the adoption at a meeting of an amendment resolution by two-thirds of the directors of the credit union. Written notice of such meeting, together with the text of the proposed amendment shall be given to each director at least seven days prior to the meeting.

(2) An original certificate of amendment shall be filed with the Commissioner of Banking. The certificate of amendment shall set forth: (A) The name of the Connecticut credit union; (B) the amendment; and (C) a statement of the number of directors' votes required to take such action and the number of votes cast in favor of the amendment.

(3) The Commissioner of Banking, upon determining that the certificate of incorporation, as amended, meets the requirements of sections 36a-435a to 36a-472a, inclusive, shall endorse the Commissioner of Banking's approval thereon, and return the original certificate of amendment to the Connecticut credit union. Upon receipt of the certificate of amendment, the Connecticut credit union shall file the original certificate of amendment with the Secretary of the State, and such amendment shall become effective upon filing.

(h) (1) The bylaws of a Connecticut credit union shall specify at least the following: (A) The name of the credit union; (B) the field of membership of the credit union and the qualifications for membership; (C) the par value of shares; (D) the number and terms of directors [including directors emeritus and advisory directors] and appointed directors, if applicable, and procedures for their election; (E) the duties of the members of senior management; (F) the manner in which a credit committee, credit manager, loan officer or any combination thereof shall be responsible for the credit functions of the credit union; (G) the manner of conducting the annual meeting and the provisions for voting; (H) conditions for payment on, receipt of or withdrawal of shares and deposits; and (I) such other matters as the governing board deems necessary.

(2) The bylaws of a Connecticut credit union may not be amended without the written approval of the Commissioner of Banking for a period of three years following issuance by the Commissioner of Banking of the certificate of authority to engage in the business of a Connecticut credit union. Thereafter, the bylaws of a Connecticut credit union may be amended in accordance with subdivision (3) of this subsection, provided the bylaws comply with this subdivision, and any such amendment changing the name of the credit union or the field of membership of the credit union shall require the written approval of the Commissioner of Banking in accordance with subdivision (3) of this subsection. The Commissioner of Banking's approval shall not be required to amend the field of membership of a Connecticut credit union with a multiple common bond membership to add a group of less than five hundred potential members, excluding members of the immediate family or household of a potential member.

(3) The bylaws may be amended by the adoption at a meeting of an amendment resolution by two-thirds of the directors of the credit union. Written notice of the meeting and text of the proposed amendment shall be given to each director at least seven days prior to the meeting. The Connecticut credit union shall file with the Commissioner of Banking, within ten days after its adoption, one copy of any proposed amendment on a form provided by the Commissioner of Banking. In the case of a proposed amendment requiring the Commissioner of Banking's approval, the Commissioner of Banking shall, within thirty days after such filing, determine whether such proposed amendment is consistent with the provisions and purposes of sections 36a-435a to 36a-472a, inclusive. The Commissioner of Banking, upon determining that such proposed amendment satisfies the requirements of said sections 36a-435a to 36a-472a, inclusive, shall endorse the Commissioner of Banking's approval on such proposed amendment, and return one copy thereof to the Connecticut credit union.

(4) Any amendment to the bylaws of a Connecticut credit union shall become effective when adopted except amendments requiring the approval of the Commissioner of Banking which shall become effective upon such approval.

Sec. 3. Subsection (a) of section 36a-438a of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) (1) Except as provided in subdivision (2) of this subsection, the field of membership of a Connecticut credit union is limited to (A) a single common bond membership, (B) a multiple common bond membership, or (C) persons within a well-defined community, neighborhood or rural district.

(2) The field of membership of a Connecticut credit union may include (A) members of the immediate family or household of all persons included under subparagraphs (A), (B) and (C) of subdivision (1) of this subsection, (B) organizers and employees of such credit union, (C) [any advisory director of such credit union, (D)] the surviving spouse of a deceased member of such credit union, and [(E)] (D) notwithstanding any change in employment, occupation, residence or other condition initially controlling the eligibility for membership in any Connecticut credit union, any person properly admitted to membership in a Connecticut credit union. Such person may continue membership therein during such person's lifetime. The field of membership of a Connecticut credit union under subparagraphs (A) and (B) of subdivision (1) of this subsection may include associations and organizations of individuals who are members of such credit union, partnerships in which the majority of the partners are individuals who are members of such credit union and, corporations in which the majority of whose shareholders are individuals who are members of such credit union.

Sec. 4. Subsection (k) of section 36a-448a of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(k) (1) If the bylaws so provide, the governing board may appoint advisory directors and directors emeritus to serve [at the pleasure of such governing board to advise and consult with the board in carrying out the board's duties and responsibilities] as appointed directors without compensation. Appointed directors shall serve at the pleasure of the governing board to advise and consult with the board in carrying out the board's duties and responsibilities.

(2) An advisory director need not be eligible for membership in the credit union, shall not be a member of the governing board, and shall not be entitled to vote on any matter before the board. An advisory director may participate in any governing board or committee deliberation, but shall not make any motions.

[(2)] (3) [If the bylaws so provide, the governing board may appoint directors emeritus to serve at the pleasure of the governing board to advise and consult with the governing board in carrying out the board's duties and responsibilities. ] A director emeritus shall be a member of the credit union and shall not be an officer of the credit union, participate in any governing board or committee deliberations, make motions or vote on any matter before the governing board.

[(3)] (4) The number of [advisory directors and directors emeritus] appointed directors and their qualifications shall be specified for in the bylaws.

Sec. 5. Section 36a-454a of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) In addition to compensating its employees, a Connecticut credit union may, either independently or in conjunction with one or more other Connecticut credit unions, with the approval of the governing board, provide death benefits, disability benefits, accident benefits, hospital, medical, surgical and dental benefits, incentive savings benefits, severance benefits, retirement benefits and other employee benefits for its active and retired employees and their families. The provisions of this section shall be subject to the conditions and requirements imposed by the Employee Retirement Income Security Act of 1974, Public Law 93-406, as from time to time amended.

(b) A Connecticut credit union may, with the approval of a majority of the governing board, provide personal liability or indemnity insurance coverage for its directors, appointed directors, credit committee members and supervisory committee members. With the approval of the Commissioner of Banking, a Connecticut credit union may also provide reasonable health, accident and related types of personal insurance for its directors, [other than its emeritus directors and advisory directors,] which insurance shall not be considered compensation. A Connecticut credit union shall not provide such health, accident or related types of personal insurance for its appointed directors.

Sec. 6. Section 36a-454b of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) The governing board of a Connecticut credit union shall adopt a written conflict of interest policy that includes provisions addressing transactions with insiders and their immediate family members, as defined in section 36a-435b, and other persons having a common ownership, investment or other pecuniary interest in a business enterprise with such insiders and immediate family members of such persons. As used in this section, (1) "insider" means a director, appointed director, member of a board-appointed committee, member of senior management and loan officer of a Connecticut credit union, and (2) "immediate family member" has the same meaning as "immediate family member" as defined in section 36a-435b, as amended by this act, provided the term also includes any person related by blood, adoption or marriage to an appointed director.

(b) An extension of credit made by a Connecticut credit union to an insider shall require the approval of the governing board if (1) such insider is the debtor, guarantor, endorser or cosigner of the extension of credit; and (2) the extension of credit by itself or when added to the aggregate of all outstanding extensions of credit for which such insider is the debtor, guarantor, endorser or cosigner exceeds twenty-five thousand dollars plus pledged shares.

(c) No insider of a Connecticut credit union or professional retained by a Connecticut credit union shall in any manner, directly or indirectly, participate in any determination affecting such person's pecuniary interest or the pecuniary interest of any immediate family member of such person or any corporation, partnership or association, other than the Connecticut credit union, in which such person is directly or indirectly interested.

(d) An insider, immediate family member of such insider or other person having a common ownership, investment or other pecuniary interest in a business enterprise with an insider or immediate family member of such insider shall not obtain an extension of credit from the Connecticut credit union with preferential rates, terms or conditions, or act as guarantor or endorser thereon, and shall not be involved in the appraisal or valuation of assets which are to be used as collateral for an extension of credit.

(e) An insider and the immediate family member of such insider shall not receive, directly or indirectly, any commission, fee or other compensation, except those of a nominal value, in connection with any extension of credit by the Connecticut credit union, provided this subsection shall not prohibit: (1) Payment by a Connecticut credit union of: (A) Salaries to employees, (B) incentives or bonuses to employees based on the Connecticut credit union's overall financial performance, (C) incentives or bonuses to employees, other than a member of senior management, in connection with an extension of credit, provided the governing board establishes written policies and internal controls in connection with such incentives or bonuses and monitors compliance with such policies and controls at least annually, (D) fees to an insider or immediate family member of such insider for the performance of title searches, loan closings and collections, provided the Connecticut credit union has complied with subsection (k) of this section prior to engaging such insider or immediate family member of such insider; and (2) receipt of compensation from a person outside a Connecticut credit union by a director, appointed director, member of a board-appointed committee or employee who is not a member of senior management or an immediate family member of such director, appointed director, committee member or employee, for a service or activity performed by the director, appointed director, committee member or employee outside the Connecticut credit union, provided no referral has been made by the credit union or the director, appointed director, committee member, employee or immediate family member of such director, appointed director, committee member or employee.

(f) An insider and the immediate family members of such insider or an employee of a Connecticut credit union shall not receive anything of value in connection with the making of an investment or deposit by the Connecticut credit union of funds of the credit union, unless the governing board determines that the involvement of the insider, the immediate family member of such insider or the employee does not present a conflict of interest, and includes such determination in its minutes. The prohibition contained in this subsection shall not prohibit the credit union from paying salaries, incentives and bonuses to employees in connection with the making of such investments or deposits. An insider shall conduct all transactions that are not prohibited under this subsection at arm's length and in the best interests of the Connecticut credit union.

(g) An insider and the immediate family members of such insider shall not receive any direct or indirect compensation or benefit in connection with the credit union's insurance or group purchasing activities for members and employees. The prohibition contained in this subsection shall also apply to any employee not otherwise covered if the employee is directly involved in insurance or group purchasing activities unless the governing board determines that the employee's involvement does not present a conflict of interest and includes such determinations in its minutes. An insider and the immediate family member of such insider shall conduct all transactions that are not prohibited under this subsection at arm's length and in the best interests of the credit union.

(h) A Connecticut credit union shall not buy, lease or otherwise acquire premises from any of the following without the prior approval of the governing board, such approval to be included in the governing board's minutes: (1) An insider or immediate family member of such insider; (2) a corporation in which an insider or immediate family member of such insider is an officer or director or has an ownership interest of ten per cent or more; (3) a partnership in which any insider or immediate family member of such insider is a general partner or a limited partner with an interest of ten per cent or more. The prohibition contained in this subsection shall also apply to any employee not otherwise covered if the employee is directly involved in investments in fixed assets unless the governing board determines that the employee's involvement does not present a conflict of interest and includes such determinations in its minutes.

(i) No insider or employee of a Connecticut credit union or the immediate family member of any such person shall purchase, directly or indirectly, any of the assets of the credit union for an amount less than the current market value thereof, without the prior approval of the governing board which approval shall include a determination that the transaction is in the best interests of the credit union. Such approval and determination shall be included in the governing board's minutes.

(j) With the approval of the Commissioner of Banking, a Connecticut credit union may have as an employee, [or] director or appointed director a person who serves as an officer, employee, [or] director or appointed director of any other financial institution.

(k) When a Connecticut credit union retains an insider or an immediate family member of such insider to render services to the credit union, the governing board shall document in its minutes that such hiring was at arm's length and in the best interests of the credit union and was in accordance with the competitive bidding and appropriate due diligence process as provided in the credit union's conflict of interest policy.

(l) The directors, appointed directors, members of board-appointed committees, members of senior management and the immediate family members of such persons that have outstanding loans or investments in a credit union service organization shall not receive any salary, commission, investment income or other income or compensation from such credit union service organization, either directly or indirectly, or from any person being served through the credit union service organization. This provision shall not prohibit (1) such Connecticut credit union insiders or the immediate family members of such persons from assisting in the operation of such credit union service organization, provided such persons are not compensated by the credit union service organization, and (2) reimbursement to the Connecticut credit union for the services provided by such directors, appointed directors, committee members or senior management members if the accounts receivable of the Connecticut credit union due from the credit union service organization is paid in full at least quarterly.

(m) A Connecticut credit union shall not grant a member business loan if any additional income received by the credit union or senior management of the credit union is tied to the profit or sale of the business or commercial endeavor for which the loan is made.

Approved May 23, 2003