State-Chartered Credit Unions

Vermont Banking Division
REGULATION B-06-1: Pertaining to State-Chartered Credit Unions
Effective 8/29/07
(Revised effective July 1, 2014)

INTRODUCTION: Regulation B-06-1 supersedes former credit union regulation B-
83-1, and is promulgated by the Commissioner under the authority established by 8
V.S.A. Section 30203.

Section I. Minimum Bond Coverage

1. The governing body of each credit union shall acquire and maintain a blanket
fidelity bond covering the directors, officers, employees, members of official
committees, attorneys at law, and other agents with protection against loss to the
credit union caused by dishonesty, burglary, robbery, larceny, theft, holdup,
forgery or alteration of instruments, misplacement, or mysterious disappearance
and for faithful performance of duty. (See Title 8, V.S.A., Sections 31302(3) and
31602(a)). This Section I prescribes the amount of minimum bond coverage
required for all credit unions, which in no way absolves the governing body of
their responsibility as noted in this regulation and in applicable statute.

2. The governing body of each credit union shall, at least annually, carefully
review the bond and insurance coverage in force in order to ascertain its adequacy
in relation to the exposure and potential risks facing the credit union and to the
minimum requirements set forth herein by the Department of Banking, Insurance,
Securities and Health Care Administration (the “Department”).

3. The form of surety bond, at a minimum, shall satisfy the requirements of 8
V.S.A. §31602. The credit union shall receive written confirmation from the
bonding company that the surety bond, at a minimum, covers the directors,
officers, employees, members of official committees, attorneys at law, and other
agents and that the bond provides protection against loss caused by dishonesty,
burglary, robbery, larceny, theft, holdup, forgery or alteration of instruments,
misplacement or mysterious disappearance, and for faithful performance of duty.

4. The following schedule sets forth the minimum coverage and maximum
deductible requirements:

Assets Coverage Deductible
0-$1,000,000 lesser of assets or $100,000 $2,000
$1,000,001-$4,000,000 $250,000 $4,000
$4,000,001-$50,000,000 $250,000 plus $50,000 for each
million or fraction thereof of
assets over $4,000,000
$2,000 plus 1/1000 of the total
assets
Over $50,000,000 $2,550,000 plus $10,000 for each
million or fraction thereof of
assets over $50,000,000
$2,000 plus 1/1000 of the total
assets up to a maximum
deductible of $200,000

It shall be the duty of the governing body to provide proper protection to meet
potential risks by obtaining adequate bond and insurance coverage in excess of
the above minimum requirements when circumstances require such additional
coverage.

5. (a) Notwithstanding the minimum coverage requirements set forth in
subsection 4 above, the minimum coverage required under this regulation for a
credit union shall be increased to be equal to the greater of either of the following
amounts:
(1) The aggregate amount of the daily cash fund (plus maximum
anticipated daily money receipts) on the credit union's premises, or
(2) The aggregate amount of the credit union's money placed in transit in
any one shipment.
(b) Such increased limits must be obtained no more than 30 days after the
discovery of the need for such increase.
(c) Notwithstanding subsection 5(a), no increase in coverage shall be required
when a credit union temporarily increases its cash fund because of an unusual
event that cannot reasonably be expected to recur. The Commissioner shall
determine whether this subsection applies to a given situation.

6. The Commissioner may require additional coverage for any credit union when,
in the Commissioner's opinion, the surety bonds in force are inadequate. The
credit union shall obtain such additional coverage within 30 days after the date of
written notice.
Section II. Directors Acknowledgment of Report of Examination; Examination
Expenses
The Department must receive a properly completed Directors Acknowledgment of Report
of Examination, and payment of any invoice for examination expenses, no later than
thirty (30) calendar days after the date of the transmittal letter to the credit union
accompanying the report of examination or the invoice for examination expenses, as
applicable.

Section III. Real Estate Loans

1. A credit union may grant loans or lines of credit secured by an instrument
providing a direct lien(s) on real property owned, in whole or in part, by one or
more members.

2. Each contract between the credit union and the borrower shall include a
provision that the credit union may, at its option, declare immediately due and
payable all or any part of the loan if all or any part of the real property securing
the loan is sold or transferred by the borrower without the prior written consent of
the credit union.

Section IV. Delinquent Loans

A loan shall be deemed delinquent if payment has not been made thereon for a period of
two (2) or more months after the most recent contractual payment was due and not paid.
In calculating whether a particular loan is delinquent, no consideration is to be given to
partial payments, unless in the aggregate they total one or more contractual payment.

Section V. [Reserved]

Section VI - Community Development Credit Unions

1. For purposes of this section and 8 V.S.A. §30101(3):
(a) "Low income members" shall include (1) those members whose annual
income falls at or below the lower level standard of living classification as
established by the Bureau of Labor Statistics and as updated by the
Employment and Training Administration of the U.S. Department of
Labor, (2) those members who are residents of a public housing project
who qualify for such residency because of low income, (3) those members
who qualify as recipients in a community action program, and (4) those
members who are enrolled as full-time or part-time students in a college,
university, high school, or vocational school.
(b) "Predominantly" is so defined as a simple majority.

2. A credit union which is designated by the Commissioner as a community
development credit union as defined in 8 V.S.A. §30101(3) may receive and hold
deposits on account from non-members, provided the National Credit Union
Administration concurs with the Commissioner's designation and confirms in
writing to the Commissioner that such accounts will be insured to the same extent
as member deposits.

3. The burden of demonstrating that a credit union is a community development
credit union shall be on the credit union seeking such designation. After receiving
such designation, the governing body shall regularly review its membership list,
and report on an annual basis to the Commissioner, to ensure that it continues to
qualify as a community development credit union.

4. The rate of interest paid on any non-member deposits shall not exceed the rate
being paid on member share certificates with similar terms and conditions.

Section VII Fixed Assets

1. Definitions. As used in this section VII:
(a) “Abandoned premises” means real property previously used to transact credit
union business but no longer used for that purpose and real property originally
acquired for future expansion for which the credit union no longer contemplates
such use.
(b) “Fixed assets” means premises, furniture, fixtures and equipment.
(c) “Premises” means any office, branch office, service center, parking lot, other
facility, or other real property where the credit union transacts or intends to
transact business.
(d) “Furniture, fixtures, and equipment” means all office furnishings, office
machines, computer hardware and software, automated terminals, and heating and
cooling equipment.

2. (a) A credit union may invest in real property (including both improved or
unimproved real property) or leasehold improvements, which the credit union is using or
intends to use as its premises, provided the aggregate of all such investments shall not
exceed six percent of the credit union’s share accounts and total retained earnings.
(b) Additionally, a credit union may invest in furniture, fixtures, and equipment
provided the aggregate of all such investments does not exceed one and one-half percent
of the credit union’s share accounts and retained earnings.

3. A credit union shall not exceed the limitations set forth in this section without the
express prior written consent of the Commissioner.

4. Premises Not Currently Used To Transact Credit Union Business.
(a) When a credit union acquires premises for future expansion and does not fully
occupy the space within one year, the credit union must have a board resolution in place
by the end of that year with definitive plans for full occupation. Premises are fully
occupied when the credit union, or a combination of the credit union, CUSOs, or vendors,
use the entire space on a full-time basis. CUSOs and vendors must be using the space
primarily to support the credit union or to serve the credit union’s members. The credit
union must make any plans for full occupation available to the Department and its
examiner upon request.
(b) When a credit union acquires premises for future expansion, the credit union
must partially occupy the premises within one year and must substantially occupy the
premises within three years. Premises are “partially occupied” when the credit union is
using some part of the space on a fulltime basis. Premises are “substantially occupied”
when the credit union (or combination of credit union, CUSOs, or vendors as described in
subsection 4(a) above) occupies at least 60% of the space on a fulltime basis. The
Commissioner may waive this occupation requirement in writing upon written request.
(c) A credit union must make diligent efforts to dispose of abandoned premises
and any other real property not intended for use in the conduct of credit union business.
The credit union must seek fair market value for the property, and record its efforts to
dispose of abandoned premises. After premises have been abandoned for four years, the
credit union must publicly advertise the property for sale. Unless otherwise approved in
writing by the Department, the credit union must complete the sale within five years of
abandonment.