§ 31313. Conflict of interest
(a) The governing body of a credit union shall adopt a written conflict of interest policy
that includes provisions addressing transactions with insiders, employees, volunteers,
and their immediate family members, 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.
(b) An extension of credit to an insider, other than a residential real estate loan secured
by a first lien on property that is owned or will be owned by the insider as a primary
residence, shall require the approval of the governing body if such insider is the
debtor, guarantor, endorser, or cosigner of the extension of credit. If the insider
is a member of the governing body, an extension of credit shall require the approval
of the supervisory committee as well as the approval of the noninterested members
of the governing body. Notwithstanding the foregoing, a loan to an insider that, when
aggregated with the amount of all other extensions of credit to such insider and to
all related interests and all related persons of such insider, would not exceed five
percent of the credit union’s unimpaired capital and surplus or $25,000.00, whichever
is less, may be approved solely by a majority of the noninterested members of any
one of the following committees:
(1) the credit committee, if any;
(2) the supervisory committee; or
(3) the governing body.
(c) An insider of a credit union, or a professional retained by a credit union, shall
not, directly or indirectly, participate in any decision affecting such person’s pecuniary
interest or the pecuniary interest of any immediate family member, or any corporation,
partnership, or association other than the credit union in which such person is directly
or indirectly interested.
(d) An insider, an immediate family member of such insider, or any 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 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 that are to be used as collateral for an extension of credit to
such person.
(e) No insider or immediate family member of such insider shall 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 credit union. Notwithstanding the foregoing, this
subsection:
(1) shall not prohibit payment by a credit union of:
(A) salaries to employees;
(B) incentives or bonuses to employees based on the 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 body 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 credit union has complied
with subsection (k) of this section prior to engaging such insider or immediate family
member of such insider; and
(2) shall not prohibit a director, member of a governing-body-appointed committee, or
employee who is not a member of senior management or an immediate family member of
such director, committee member, or employee, from receiving compensation from a person
unrelated to the credit union for a service or activity performed unrelated to the
credit union, provided no referral has been made by the credit union or the director,
committee member, employee, or immediate family member of such director, committee
member, or employee.
(f) No insider or his or her immediate family members or an employee of a credit union
shall receive anything of value in connection with the making of an investment or
deposit of credit union funds by the credit union, unless the governing body determines
that the involvement of the insider, his or her immediate family member, 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 credit union.
(g) No insider or his or her immediate family members shall 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 body determines
that the employee’s involvement does not present a conflict of interest and includes
such determinations in its minutes. An insider and his or her immediate family member
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 credit union shall not buy, lease, or otherwise acquire premises from any of the
following without the prior approval of the governing body, such approval to be included
in the governing body’s minutes:
(A) an insider or his or her immediate family member;
(B) a corporation in which an insider or immediate family member is an officer or director
or has an ownership interest of ten percent or more; or
(C)(1) a partnership in which any insider or his or her immediate family member is a general
partner or a limited partner with an interest of ten percent or more.
(2) 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 body determines that the employee’s involvement does not present
a conflict of interest and includes such determinations in its minutes.
(i) No insider, employee, or any immediate family member of such insider or employee 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
body, 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 body’s minutes.
(j) With the prior written approval of the Commissioner, a credit union may have as an
employee or director a person who serves as an officer, employee, or director of any
other financial institution.
(k) When a credit union retains an insider or his or her immediate family member to render
services to the credit union, the hiring shall be approved by the noninterested members
of the governing body, and the governing body shall document in its minutes that such
hiring was at arm’s length, was 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, committee members, 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 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 credit union for the services provided by such directors, committee
members, or senior management members if the credit union service organization pays
in full the amounts due to the credit union at least quarterly.
(m) A 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. (Added 2005, No. 16, § 1, eff. July 1, 2005.)