Erik M. Shaw, VP of Lending
Texaco PAW Employees FCU
4401 Highway 73
P.O. Box 3903
Port Arthur, Texas 77643-3903
Dear Mr. Shaw:
You ask whether a federal credit union (FCU)
can make a loan to a church, and if so, whether the loan has to
be fully secured by the church's shareholdings in the FCU. Lending
to a church is permissible if the church is a member of the FCU.
A loan to a church is considered a business loan and must meet
the requirements set forth in §701.21(h) of NCUA's regulations.
Further, an FCU may make a loan to a church in excess of the
church's shareholdings if the FCU has adopted a standard bylaw
amendment that provides for such loans.
An FCU can offer loans only to its members.
Membership is open to natural and nonnatural persons within an
FCU's field of membership (FOM). A church is eligible for membership
as a primary member if it is specifically named in an FCU's FOM,
or, as a secondary member if the FCU includes "organizations
of such persons" within its FOM. Chapter 1, Section II.E,
NCUA Chartering and Field of Membership Manual (IRPS 94-1, as
amended by IRPS 96-1 and 98-1). "Organizations of such persons"
means an organization or organizations composed exclusively of
persons who are within an FCU's FOM. Article XVIII, §2(b),
NCUA Bylaws.
Texaco P.A.W. Employees FCU's charter states
that its FOM includes the members and employees of Val Verde Baptist
Church (VVBC), the church seeking a loan. However, the church
itself is not named in FCU's charter. In order for VVBC to be
eligible for membership as a primary member, the Texaco P.A.W.
Employees FCU would have to petition NCUA to have the church added
to its FOM, as the sponsor of an associational group within the
FOM. Chapter 1, Section II.B.1, NCUA Chartering and Field of
Membership Manual (IRPS 94-1, as amended by IRPS 96-1 and 98-1).
However, in this particular situation, the VVBC also would qualify
for secondary membership in the FCU as an "organization of
such person." Thus, as an organization composed exclusively
of persons who are within the FCU's FOM, the Texaco P.A.W. Employees
FCU would not need to petition NCUA to have the VVBC included
within its FOM for the church to be eligible for membership.
Erik M. Shaw, VP of Lending
Page Two
As with any potential member, VVBC must complete
a membership application, purchase or pay the initial installment
on one share of stock, and pay any applicable entrance fee. 12
U.S.C §1759.
VVBC would be a nonnatural member and any loan
to the church would be a business loan subject to the member business
loan requirements. 12 C.F.R. §701.21(h). The NCUA Bylaws
state that an FCU cannot make a loan to a nonnatural member in
excess of that member's shareholdings. Article XII, §1,
NCUA Bylaws. However, there is a standard bylaw amendment to
Article XII, §1, that if adopted by Texaco P.A.W. Employees
FCU, permits loans to other than natural persons in excess of
their shareholdings if the loans are guaranteed. Specifically,
the standard bylaw amendment provides:
Loans to individuals shall be made only to
members, and shall be made for provident or productive purposes
in accordance with applicable law and regulations. Loans to a
member other than a natural person shall not be in excess of its
shareholdings in this credit union, unless the loan is
made jointly to one or more natural person members and a business
organization in which they have majority interest, or if the nonnatural
person is an association, the loan is made jointly to a majority
of the members of the association and to the association in its
own right.
In addition, there is an exemption in the member
business loan regulation that waives the guarantee requirement
for not-for-profit organizations as defined in §501 of the
Internal Revenue Service Code, 26 U.S.C. 501. 12 C.F.R. §701.21(h)(2)(ii)(B).
Thus, Texaco P.A.W. Employees FCU would not have to obtain guarantees
for loans made to VVBC in excess of the church's shareholdings.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/NSW:bhs
SSIC 3000
98-1107