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
“Founders Capital Shares”, secondary capital, which a credit union may accept from natural
person members, nonnatural person members and nonnatural person nonmembers subject to
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
(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
(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
(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
(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
(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.
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