Erik M. Shaw, VP of Lending
Texaco PAW Employees FCU
4401 Highway 73
P.O. Box 3903
Port Arthur, Texas 77643-3903

Re: Lending to a Church, Your letter dated November 2, 1998.

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