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Substitute House Bill No. 5410

PUBLIC ACT NO. 96-53

AN ACT CONCERNING CREDIT UNION LOANS.

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

Section 1. Subsection (a) of section 36a-441 of the general statutes is repealed and the following is substituted in lieu thereof:

(a) A Connecticut credit union may, subject to the restrictions and limitations of sections 36a-435 to 36a-474, inclusive, AS AMENDED and its bylaws: (1) Issue shares to its members and receive payments on shares, reduce the amount of its members' shares and cancel shares as provided in sections 36a-435 to 36a-474, inclusive, AS AMENDEDincluding (A) club shares to be withdrawn within fifteen months and on which no dividends need be paid and (B) membership shares, if the bylaws so provide, on which no dividends need be paid; (2) Make unsecured and secured loans in the manner provided in section 36a-456 AS AMENDED BY SECTION 3 OF THIS ACT; (3) Contract for loan protection insurance on the lives of its borrowing members and for life savings insurance on its members' shares; (4) Deposit its funds in financial institutions whose accounts are insured by or under a program operated by an agency or instrumentality of the United States, provided not more than ten per cent of its assets may be deposited in financial institutions whose principal offices are located in any other state; (5) Invest its funds in bonds legal as investments for Connecticut banks under the provisions of section 36a-275 AS AMENDED subject to the limitations contained in section 36a-452; (6) Sell or issue to its members without charge negotiable checks or drafts drawn by or on it and payable by it or through any bank accepting commercial deposits, provided the Connecticut credit union shall give the commissioner prior written notification of its intention to issue and sell such negotiable checks or drafts; (7) Borrow money to an amount not exceeding fifty per cent of the paid-in and unimpaired capital and surplus of the Connecticut credit union. A Connecticut credit union shall notify the commissioner in writing of its intention to borrow amounts in excess of an aggregate of thirty-five per cent of its paid-in and unimpaired capital and surplus; (8) Make loans not exceeding twenty per cent of the lending Connecticut credit union's paid-in and unimpaired capital and surplus to any other Connecticut credit union and any federal credit union; (9) Expel members, as provided in sections 36a-435 to 36a-474, inclusiveAS AMENDED; (10) Acquire, improve, hold, alter, maintain, repair, encumber and convey such real property as may be necessary for the transaction of its business including the safekeeping and protection of its assets. No Connecticut credit union may expend in the purchase or construction of any building for the purpose, in whole or in part, of accommodating its business, a greater amount than, in the opinion of the commissioner, should be used for such purpose, and such expenditure shall be subject to the approval of the commissioner; (11) Make home or property improvement loans as provided in section 36a-456 AS AMENDED BY SECTION 3 OF THIS ACT; (12) Make higher education loans as provided in sections 36a-435 to 36a-474, inclusive AS AMENDED; (13) Make loans secured by mortgage on real property INCLUDING HOME EQUITY LOANS as provided in sections 36a-265 and 36a-442 AS AMENDED BY SECTION 2 OF THIS ACT; (14) Make contributions or gifts for charitable, educational or public welfare purposes, except that the total amount of such contributions or gifts made by any Connecticut credit union in any one fiscal year shall not exceed the greater of: (A) One hundred dollars, (B) one and one-half per cent of its undivided earnings, or (C) one-tenth of one per cent of its gross income in the immediately preceding fiscal year; (15) Sell any or all of its outstanding loans to any other lending institution and to purchase one or more outstanding [credit union] loans from any other Connecticut credit union or federal credit union OR PURCHASE FROM ANY OTHER LENDING INSTITUTION RESIDENTIAL MORTGAGE LOANS OR CONSUMER LOANS MADE TO THE CREDIT UNION'S MEMBERS on a recourse or without recourse basis for such consideration as shall be agreed upon. A loan servicing agreement or arrangement contemplated by such a transaction shall be subject to the prior approval of the commissioner; (16) Sell a participating interest in any or all of its outstanding loans pursuant to an appropriate written loan participation and servicing agreement to be signed by both Connecticut credit unions involved in such transaction, provided such agreement shall be subject to the prior approval of the commissioner; (17) Act as agent for the sale, issue and redemption of the obligations of the United States and pledge assets to the United States or to the proper federal reserve bank for its obligations as such agent; (18) Subject to the prior approval of the commissioner, install safe deposit boxes within suitably constructed vaults in its business building or buildings and rent the boxes to its members provided the Connecticut credit union has assets of at least five hundred thousand dollars and at least one full-time employee; and (19) Act as agent for the sale to its members of money orders and travelers checks issued by the central credit union.

Sec. 2. Subsection (f) of section 36a-442 of the general statutes is repealed and the following is substituted in lieu thereof:

(f) [In the case of a Connecticut credit union making loans secured by a mortgage on real property under the limitation of subsection (e) of this section, the loan may exceed eighty per cent of the net equity value if: (1) All or part of such loan is made in primary reliance upon the mortgage insurance policy of a private mortgage guaranty company, licensed by the insurance commissioner to do business in this state and approved by the commissioner, (2) all or part of the loan is made in primary reliance on mortgage insurance issued by the Secretary of Housing and Urban Development, or (3) all or part of such loan is made in primary reliance on mortgage insurance issued by the Veteran's Administration pursuant to and in furtherance of an Act of Congress entitled "Servicemen's Readjustment Act of 1944" as from time to time amended; provided, one-twelfth of the estimated annual taxes on the real property is paid each month by the mortgagor and held in an escrow account by the Connecticut credit union.] THE FOLLOWING MORTGAGE LOANS MAY BE MADE WITHOUT REGARD TO THE LOAN-TO-VALUE LIMITS SET FORTH IN SUBSECTION (e) OF THIS SECTION OR IN SUBDIVISION (5) OF SUBSECTION (f) OF SECTION 36a-456, AS AMENDED BY SECTION 3 OF THIS ACT: (1) LOANS GUARANTEED OR INSURED BY THE UNITED STATES GOVERNMENT OR ITS AGENCIES, PROVIDED THE AMOUNT OF THE GUARANTY OR INSURANCE IS AT LEAST EQUAL TO THE PORTION OF THE LOAN THAT EXCEEDS THE APPLICABLE LOAN-TO-VALUE LIMIT. (2) LOANS BACKED BY THE FULL FAITH AND CREDIT OF A STATE GOVERNMENT, PROVIDED THE AMOUNT OF THE ASSURANCE IS AT LEAST EQUAL TO THE PORTION OF THE LOAN THAT EXCEEDS THE APPLICABLE LOAN-TO-VALUE LIMIT. (3) LOANS GUARANTEED OR INSURED BY A STATE, MUNICIPAL OR LOCAL GOVERNMENT, OR ITS AGENCY, PROVIDED (A) THE AMOUNT OF THE GUARANTY OR INSURANCE IS AT LEAST EQUAL TO THE PORTION OF THE LOAN THAT EXCEEDS THE APPLICABLE LOAN-TO-VALUE LIMIT AND (B) THE CONNECTICUT CREDIT UNION HAS DETERMINED THAT THE GUARANTOR OR INSURER HAS THE FINANCIAL CAPACITY AND WILLINGNESS TO PERFORM UNDER THE TERMS OF THE GUARANTY OR INSURANCE AGREEMENT. (4) LOANS THAT ARE RENEWED, REFINANCED, OR RESTRUCTURED WITHOUT THE ADVANCEMENT OF NEW FUNDS OR AN INCREASE IN A LINE OF CREDIT, EXCEPT FOR REASONABLE CLOSING COSTS. (5) LOANS THAT ARE RENEWED, REFINANCED, OR RESTRUCTURED IN CONNECTION WITH WORKOUT SITUATIONS INVOLVING EXISTING LOANS FROM THE CONNECTICUT CREDIT UNION TO ITS MEMBERS, EITHER WITH OR WITHOUT THE ADVANCEMENT OF NEW FUNDS, WHERE SUCH ACTION IS CONSISTENT WITH SAFE AND SOUND LENDING PRACTICES AND IS A PART OF A CLEARLY DEFINED AND WELL DOCUMENTED PROGRAM TO ACHIEVE ORDERLY LIQUIDATION OF THE DEBT, REDUCE RISK OF LOSS OR MAXIMIZE RECOVERY OF THE LOAN. (6) LOANS THAT FACILITATE THE SALE OF REAL ESTATE ACQUIRED BY THE CONNECTICUT CREDIT UNION IN THE ORDINARY COURSE OF COLLECTING A DEBT PREVIOUSLY CONTRACTED IN GOOD FAITH. (7) LOANS WHERE ALL OR PART OF SUCH LOAN IS MADE IN PRIMARY RELIANCE UPON THE MORTGAGE INSURANCE POLICY OF A PRIVATE MORTGAGE GUARANTY COMPANY, LICENSED BY THE INSURANCE COMMISSIONER TO DO BUSINESS IN THIS STATE AND APPROVED BY THE COMMISSIONER. (8) WITH PRIOR NOTICE TO THE COMMISSIONER, UNLESS THE COMMISSIONER DISAPPROVES WITHIN THIRTY DAYS AFTER RECEIPT OF SUCH NOTICE, RESIDENTIAL MORTGAGE AND CONSUMER LOAN PROGRAMS FOR MEMBERS WHICH ARE DETERMINED BY THE GOVERNING BOARD OF THE CONNECTICUT CREDIT UNION OR BY A MANAGEMENT COMMITTEE OR BOARD COMMITTEE APPROPRIATELY DESIGNATED BY SUCH GOVERNING BOARD, TO BE PRUDENT UNDER THE CIRCUMSTANCES AFTER CONSIDERATION OF THE RELEVANT UNDERWRITING RISKS, PROVIDED (A) THE AGGREGATE AMOUNT OF ALL SUCH LOANS, CALCULATED AT THE TIME OF ORIGINATION OF EACH SUCH LOAN, DOES NOT EXCEED EIGHTY PER CENT OF THE CONNECTICUT CREDIT UNION'S PAID-IN AND UNIMPAIRED CAPITAL AND SURPLUS, (B) THE AGGREGATE AMOUNT OF ALL SUCH LOANS, CALCULATED AT THE TIME OF ORIGINATION OF EACH SUCH LOAN, DOES NOT EXCEED THIRTY PER CENT OF THE CONNECTICUT CREDIT UNION'S EQUITY CAPITAL AND RESERVES FOR LOAN AND LEASE LOSSES, AND (C) THE CONNECTICUT CREDIT UNION MAKES A NOTATION OF SUCH DETERMINATION AND THE REASONS THEREFOR IN THE APPLICABLE LOAN FILE. A LOAN WHICH IS INCLUDED WITHIN THE AGGREGATE LIMITS OF THIS SUBDIVISION MAY SUBSEQUENTLY BE EXCLUDED IF THE APPLICABLE LOAN-TO-VALUE LIMIT IS SATISFIED BECAUSE OF A REDUCTION IN PRINCIPAL OR SENIOR LIENS, ADDITIONAL CONTRIBUTION OF REAL ESTATE COLLATERAL OR INCREASES IN EQUITY VALUE SUBSTANTIATED BY A CURRENT SUITABLE APPRAISAL.

Sec. 3. Section 36a-456 of the general statutes, as amended by section 1 of public act 95-250, is repealed and the following is substituted in lieu thereof:

(a) As provided in section 36a-441, AS AMENDED BY SECTION 1 OF THIS ACT a Connecticut credit union may make such secured and unsecured loans, INCLUDING LEASE FINANCING FOR PERSONAL PROPERTY TO ITS MEMBERS IF THE LEASES ARE THE FUNCTIONAL EQUIVALENT OF SECURED LOANS FOR PERSONAL PROPERTY with such maturities as may be determined by the governing board, repayable in weekly, semimonthly, monthly, quarterly or semiannual installments, but which may be repaid in whole or in part prior to maturity, to its members for provident or productive purposes, on such terms as sections 36a-435 to 36a-474, inclusive, AS AMENDED the bylaws and any written loan policies of the governing board may permit.

(b) Applications for loans shall be submitted in writing to the credit committee, shall state the purpose for which the loan is desired and shall contain any other information the credit committee deems appropriate.

(c) No Connecticut credit union may make secured or unsecured loans to a member primarily or any person secondarily liable in reliance on the credit of such member totaling either the greater of two hundred dollars or ten per cent of the Connecticut credit union's paid-in and unimpaired capital and surplus.

(d) The governing board of the Connecticut credit union may [, with the prior written approval of the commissioner,] establish the maximum rate of interest which the Connecticut credit union may charge, contract for and receive on loans to its members.

(e) Subject to regulations adopted by the commissioner, in accordance with chapter 54, the governing board of a Connecticut credit union may authorize interest refunds to members following the close of any annual, semiannual or quarterly accounting period. Refunds shall be made from income earned and received during such accounting period, in proportion to the interest paid by such members during the accounting period on reasonable, objective classes of loans established by the governing board and under such conditions as the governing board may prescribe.

(f) The following shall be security for loans made pursuant to this section: (1) Share accounts in any Connecticut credit union or federal credit union or savings accounts in any bank, provided, the savings accounts are insured by or under a program operated by an agency or instrumentality of the United States; (2) Share accounts in any out-of-state credit union, or savings accounts in any out-of-state bank to the extent the accounts are insured by or under a program operated by an agency or instrumentality of the United States; (3) A contract issued by a life insurance company under which such company is obligated to grant a cash value, loan value or other value to the pledgor or assignor within not more than one year after demand, but only to the extent of the value the company is obligated to grant; (4) Stocks, bonds or other investment securities that, based on quality, maturity and marketability, are deemed by the Connecticut credit union to be appropriate security; (5) A secondary mortgage on real property whose net equity value, as defined in section 36a-442, AS AMENDED BY SECTION 2 OF THIS ACT is at least twenty per cent of the appraised value of such real estate after the granting of the secondary mortgage pursuant to this subsection; (6) Tangible personal property that, based on intended use and normal useful life and resale value, is deemed by the Connecticut credit union to be appropriate security for such loans; and (7) The endorsement or other guaranty of a loan.

(g) Loans that are secured in full by pledge of the borrowing member's own shares may be made without regard to the instalment repayment provisions of subsection (a) of this section and without the prior approval of the credit committee.

(h) A Connecticut credit union may make the following home or property improvement loans to its members: (1) Any loan, not exceeding the amount specified in Section 1703(b)(1) of the National Housing Act, as from time to time amended, insurable by the Secretary of the Department of Housing and Urban Development under Sections 1702 to 1709, inclusive, of that act, and (2) any loan, not exceeding the amount specified in Section 1709(b)(2) of the National Housing Act insurable by the Secretary of the Department of Housing and Urban Development for the maximum amount under Section 1709(k)(1) to (5), inclusive, or Section 1715k(h) of the National Housing Act.

(i) A Connecticut credit union may make loans to members for the payment of expenses of college or university education for a member or a member of a member's family. The loans shall be subject to the applicable limitations on amount, duration and requirement of security provided for by sections 36a-435 to 36a-474, inclusive AS AMENDED. All such loans which are fully secured by insurance available under the provisions of any state or federal legislation shall not exceed the applicable limitations imposed by such legislation, and the limitations shall apply in lieu of the corresponding limitations stated in said sections.

(j) No Connecticut credit union may make a loan other than a loan permitted by sections 36a-435 to 36a-474, inclusive AS AMENDED. A loan other than a loan permitted by said sections shall be immediately due and payable on demand of the Connecticut credit union notwithstanding any provisions to the contrary contained in the note or other instrument evidencing such loan. An officer, director or member of a statutorily authorized committee of a Connecticut credit union who knowingly permits or participates in the making of a loan other than a loan permitted by said sections, shall be fined not more than five hundred dollars and shall be primarily liable to the Connecticut credit union for the entire unpaid balance of the unauthorized loan. The illegality of a loan shall not be a defense in any action by the Connecticut credit union to recover the loan.

(k) No director, member of a statutorily authorized committee or employee of a Connecticut credit union may act as endorser or other guarantor on any loan made by the Connecticut credit union, except a loan made by the Connecticut credit union to a member of such person's immediate family. For purposes of this subsection "immediate family" means any person related by blood, adoption or marriage to the borrower, regardless of whether such person lives in the same household as the borrower.

Sec. 4. This act shall take effect from its passage.

Approved May 7, 1996. Effective May 7, 1996.

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