HOUSE DOCKET, NO. 1041        FILED ON: 1/18/2017

HOUSE  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  No. 590

The Commonwealth of Massachusetts

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PRESENTED BY:

Jonathan D. Zlotnik

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To the Honorable Senate and House of Representatives of the Commonwealth of Massachusetts in General
 Court assembled:

 The undersigned legislators and/or citizens respectfully petition for the adoption of the accompanying bill:

An Act relative to capital of credit unions.

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PETITION OF:

HOUSE DOCKET, NO. 1041        FILED ON: 1/18/2017

HOUSE  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  No. 590

The Commonwealth of Massachusetts

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In the One Hundred and Ninetieth General Court
(2017-2018)

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An Act relative to capital of credit unions.

 Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:
 

 SECTION 1. Section 1 of chapter 171 of the General Laws as appearing in the 2014 Official

 Edition is hereby amended by inserting after the definition of “Foreign credit union” the

 following definition:-

 “Founders Capital Shares”, secondary capital, which a credit union may accept from natural

 person members, nonnatural person members and nonnatural person nonmembers subject to

 certain conditions.

 SECTION 2. Said chapter 171 is hereby amended by adding the following section:-

 Section 85. A credit union may issue Founders Capital Shares obtained from natural person

 members, nonnatural person members and nonnatural person nonmembers subject to the

 following conditions:

 (1) Founders Capital Shares plan. Before accepting Founders Capital Shares, a credit union shall

 adopt, and forward to the commissioner for approval, a written “Founders Capital Shares Plan”

 that, at a minimum:

 (i) States the maximum aggregate amount of Founders Capital Shares the credit union plans to

 accept;

 (ii) Identifies the purpose for which the aggregate Founders Capital Shares will be used, and how

 it will be repaid;

 (iii) Explains how the credit union will provide for liquidity to repay Founders Capital Shares

 upon maturity of the accounts;

 (iv) Demonstrates that the planned uses of Founders Capital Shares conform to the credit union’s

 strategic plan, business plan and budget; and

 (v) Includes supporting pro forma financial statements, including any off-balance sheet items,

 covering a minimum of the next two years.

 (2) Decision on plan. If a credit union is not notified within 45 days of receipt of a Founders

 Capital Shares Plan that the plan is approved or disapproved, the credit union may proceed to

 accept Founders Capital Shares accounts pursuant to the plan.

 (3) Nonshare account. The Founders Capital Shares account must be established as a Founders

 Capital Shares account or other form of non-share account.

 (4) Minimum maturity. The maturity of the Founders Capital Shares account must be a minimum

 of five years.

 (5) Uninsured account. The Founders Capital Shares account will not be insured by the National

 Credit Union Share Insurance Fund.

 (6) Subordination of claim. The Founders Capital Shares account investor's claim against the

 credit union must be subordinate to all other claims including those of shareholders, creditors,

 the National Credit Union Share Insurance Fund and the Massachusetts Credit Union Share

 Insurance Corporation.

 (7) Availability to cover losses. Funds deposited into a Founders Capital Shares account,

 including interest accrued and paid into the Founders Capital Shares account, must be available

 to cover operating losses realized by the credit union that exceed its net available reserves

 (exclusive of Founders Capital Shares and allowance accounts for loan and lease losses), and to

 the extent funds are so used, the credit union must not restore or replenish the account under any

 circumstances. The credit union may, in lieu of paying interest into the Founders Capital Shares

 account, pay accrued interest directly to the investor or into a separate account from which the

 Founders Capital Shares investor may make withdrawals. Losses must be distributed pro-rata

 among all Founders Capital Shares accounts held by the credit union at the time the losses are

 realized.

 (8) Security. The Founders Capital Shares account may not be pledged or provided by the

 account investor as security on a loan or other obligation with the credit union or any other party.

 (9) Merger or dissolution. In the event of merger or other voluntary dissolution of the credit

 union, other than merger into another credit union, the Founders Capital Shares accounts will be

 closed and paid out to the account investor to the extent they are not needed to cover losses at the

 time of merger or dissolution.

 (10) Contract agreement. A Founders Capital Shares account contract agreement must be

 executed by an authorized representative of the account investor and of the credit union

 reflecting the terms and conditions mandated by this section and any other terms and conditions

 not inconsistent with this section.

 (11) Disclosure and acknowledgement. An authorized representative of the credit union and of

 the Founders Capital Shares account investor each must execute a “Disclosure and

 Acknowledgment” at the time of entering into the account agreement. The “Disclosure and

 Acknowledgment” must include: (i) the name of the credit union and investor; (ii) the amount of

 funds committed to the Founders Capital Shares account; (iii) the term during which the funds

 are committed to the Founders Capital Shares account, (iv) that the funds are redeemable prior to

 maturity only at the option of the credit union and with prior approval of the commissioner; (v)

 that the Founders Capital Shares account is not a share account; (vi) that the funds committed to

 the Founders Capital Shares account are not insured by the National Credit Union

 Administration; (vii) an acknowledgment of prepayment risk; (viii) that the funds committed to

 the Founders Capital Shares account may be used by the named credit union to cover losses; (ix)

 an agreement with respect to payment of accrued interest; (x) an acknowledgment regarding

 subordination of claims in the event of liquidation of the credit union; (xi) an acknowledgment

 that the National Credit Union Administration Board or the commissioner may prohibit the credit

 union from paying principal; dividends or interest on its Founders Capital Shares accounts under

 some circumstances. The credit union must retain an original of the account agreement and the

 “Disclosure and Acknowledgment” for the term of the agreement, and a copy must be provided

 to the account investor.

 (12) Prompt corrective action. The commissioner may prohibit a credit union classified

 “critically undercapitalized” or, if “new”, as “moderately capitalized”, “marginally capitalized”,

 “minimally capitalized” or “uncapitalized”, under the National Credit Union Administration’s

 prompt corrective action regulations as from time to time in effect, as the case may be, from

 paying principal, dividends or interest on its Founders Capital Shares accounts, except that

 unpaid dividends or interest will continue to accrue under the terms of the account to the extent

 permitted by law.

 SECTION 3. Section 6D of chapter 294 of the acts of 1961, as most recently amended by

 section 4 of chapter 168 of the acts of 2004, is hereby further amended by adding the following

 paragraph:-

 (m) The Massachusetts Credit Union Share Insurance Corporation may insure Founders Capital

 Shares issued by credit unions, as allowed by the National Credit Union Administration, upon

 terms and conditions established by the directors of the corporation.