Federal Credit Union Act, Hearing Before ..., 86-1 on S.1786, S.1985, and H.R. 8305 ..., August 21, 1959

Washington, D.C. The committee met, pursuant to call, in room 5302, New Senate Office Building, at 10:35 a.m., Senator A. Willis Robertson (chairman) presiding.

Present: Senators Robertson, Frear, Clark, Proxmire, Williams, Muskie, Bennett, Bush, Beall.

The CHAIRMAN. The committee will please come to order.

The Senate Banking and Currency Committee is holding hearings this morning on H.R. 8305, S. 1786, and S. 1985, bills revising the Federal Credit Union Act. We have scheduled hearings only for today with the thought that it may be possible during today's hearing to develop the full facts with respect to the legislation which may be needed without the need of further extended hearings which might make it impossible to obtain any legislation during this session of Congress.

The Federal Credit Union Act was passed 25 years ago, in 1934, and, incidentally, it had my support when that bill passed the House. Today there are more than 9,000 Federal credit unions operating in the United States, with a membership of over 5 million and with assets of more than $2 billion. The Federal Credit Union Act has not been generally revised and modernized since its original enactment, except that the limit on loans has been increased from time to time. In 1949, for instance, the limit for unsecured loans was raised to $400. In my Financial Institutions Act of 1957, we took testimony concerning the Federal credit unions. We knew how successfully they were operating in Virginia. There was a very high regard for the movement both among employees and among workers generally. I also recommended to this committee at that time in 1957 that we increase the limit to $500. That was put in that bill and supported by this committee, and approved by the Senate; but that bill, as you know, failed on the House side.

The committee has, however, the benefit of the revision proposed in the Financial Institutions Act of 1957, and the hearings held on it and the comments made about it at that time.

The committee has received comments on the bill from several Federal agencies. Without objection, the bills and these comments will be inserted in the record at this point.

(The bills and reports referred to follow :)

[S. 1786, 86th Cong., 1st sess.]

A BILL To amend the Federal Credit Union Act

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) section 2 of the Federal Credit Union Act (12 U.S.C. 1752) is amended to read as follows:

"SEC. 2. As used in this Act

"DEFINITIONS

"(1) The term 'Federal credit union' means a cooperative association organized in accordance with the provisions of this Act for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes, and includes a cooperative association (hereinafter called a 'Federal central credit union') whose members are Federal credit unions and credit unions organized in accordance with the provisions of law of any State, the District of Columbia, the several Territories and possessions of the United States, the Panama Canal Zone, or the Commonwealth of Puerto Rico, and located within a well-defined geographical area, and whose members may also be directors and members of the supervisory and credit committees of such credit unions;

"(2) The term 'Bureau' means the Bureau of Federal Credit Unions; "(3) The term 'Director' means the Director of the Bureau of Federal Credit Unions."

(b) The first sentence of section 3 of such Act (12 U.S.C. 1753) is amended by striking out "natural".

(c) Section 7(7) of such Act (12 U.S.C. 1757(7)) is amended by striking out "or" after "(d)", and by striking out the final period and inserting in lieu thereof the following: "; or (e) in shares of Federal central credit unions and in shares or accounts of other central credit unions. Payments to, and withdrawals from, such central credit unions by a Federal credit union must be specifically authorized by the board of directors of such Federal credit union."

(d) Section 9 of such Act (12 U.S.C. 1759) is amended—

(1) by inserting after "except that" in the first sentence the following: other than as provided in section 2(1) with respect to Federal central credit unions,”; and

(2) by inserting immediately after the first sentence the following new sentence: "A Federal credit union may, by authorization of its board of directors, become a subscriber to, or organizer or member of, a Federal central credit union or other central credit union."

(e) Section 10 of such Act (12 U.S.C. 1760) is amended by adding at the end thereof the following new sentences: "Federal credit unions having membership in a central credit union may be represented at annual or special meetings of the central credit union by one member duly authorized by the board of directors of the member Federal credit union. To the extent permitted by the articles or certificate of incorporation or bylaws of the central credit union, such representative shall have one vote and shall be eligible for office in the central credit union the same as though he were a member as an individual of such credit union."

(f) The next to last sentence of section 11(d) of such Act (12 U.S.C. 1761 (d)) is amended by inserting except in the case of a loan by a Federal central credit union to a member credit union," after "No loan shall be made to any member".

SEC. 2. Section 7(5) of the Federal Credit Union Act (12 U.S.C. 1757 (5) ) is amended by striking out "maturities not exceeding three years" and inserting in lieu thereof "maturities not exceeding five years".

SEC. 3. (a) The proviso in the first sentence of section 7(5) of the Federal Credit Union Act (12 U.S.C. 1757 (5)) is amended to read as follows: ": Provided, That no loans to a director or member of the supervisory or credit committee shall exceed the amount of his holdings in the Federal credit union as represented by shares thereof plus the total unencumbered and unpledged shareholdings in the Federal credit union of any member pledged as security for the obligation of such director or committee member".

(b) The second sentence of such section 7(5) is amended to read as follows: "No director or member of the supervisory or credit committee shall endorse for borrowers."

SEC. 4. Section 7 of the Federal Credit Union Act (12 U.S.C. 1757) is further amended by redesignating paragraph (12) as paragraph (13), and by adding after paragraph (11) the following new paragraph:

"(12) To charge members and individuals eligible to become members a reasonable fee for cashing or selling checks, not to exceed the direct and indirect costs incident to providing such service."

SEC. 5. (a) Section 11(a) (except the heading) of the Federal Credit Union Act (12 U.S.C. 1761 (a)) is amended to read as follows:

"(a) The business affairs of a Federal credit union shall be managed by a board of not less than five directors, and a credit committee of not less than three members, all to be elected at the annual members' meeting by and from the members (which, in the case of Federal central credit unions, shall be deemed to include the duly authorized representatives of the member credit unions), and by a supervisory committee of three members, one of whom may be a director other than the treasurer, to be appointed by the president from the membership promptly following the annual meeting, subject to ratification by the board at its next meeting. If the board fails to ratify the appointment of any member of the supervisory committee, the term of such member shall thereupon cease, and the president shall immediately appoint a replacement, subject to ratification by the board at its next succeeding meeting. Any vacancy occurring in the supervisory committee shall be filled in the same manner as original appointments to such committee. All members of the board and of such committees shall 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 such committees and officers shall be filed with the Bureau within ten days after their election or appointment. No member of the board or of either such committee shall, as such, be compensated."

(b) Section 11(e) of such Act (12 U.S.C. 1761(e)) is amended by striking out the second sentence and inserting in lieu thereof the following: "Any and all members of the supervisory committee may be suspended by the president subject to the approval of the board of directors, or by the board of directors subject to the approval of the members. In the latter case, a members' meeting to act upon such suspension shall be held within seven days thereof. The board of directors or the members, as the case may be, shall decide whether the suspended committee member shall be removed from or restored to the supervisory committee."

SEC. 6. Section 11(b) of the Federal Credit Union Act (12 U.S.C. 1761 (b)) is amended by striking out the first two sentences and inserting in lieu thereof the following: "At their first meeting after the annual meeting of the members, the directors shall elect from their number a president, one or more vice presidents, a secretary, and a treasurer, who shall be the executive officers of the corporation. No executive officer, except the treasurer, shall be compensated as such. The offices of secretary and treasurer may be held by the same person."

SEC. 7. (a) Section 11 (c) of the Federal Credit Union Act (12 U.S.C. 1761 (c)) is anmended by striking out "they shall act upon applications for membership" and inserting in lieu thereof the following: "they shall act upon applications for membership directly or shall appoint from among the members of the credit union (other than the treasurer or an assistant treasurer) a membership chairman who shall be authorized to act upon such applications for membership as the board may prescribe and who shall submit to the board at each monthly meeting a list of applications for membership received since the previous monthly meeting, together with such other information as may be required by the bylaws or the board".

(b) Section 11(c) of such Act is further amended by striking out "and, subject" and inserting in lieu thereof "subject", and by inserting before the period at the end thereof the following: "; and provide for compensation of necessary clerical and auditing assistance requested by the supervisory committee, and of loan officers appointed by the credit committee”.

SEC. 8. (a) Section 11(d) of the Federal Credit Union Act (12 U.S.C. 1761(d)) is amended by striking out the second sentence and inserting in lieu thereof the following: "No loan shall be made unless approved by a majority of the entire committee and by all members of the committee who are present at the meeting at which the application is considered: Provided, That the credit committee may appoint one or more loan officers, and delegate to him or them powers to

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