September 29, 1997
Anita Gieser, President
Pepto Makers Federal Credit Union
P.O. Box 2468
Greenville, South Carolina 29602
Dear Ms. Gieser:
You have written asking whether it is legally permissible for
Pepto Makers Federal Credit Union (Pepto) to distribute retained
earnings to its members based on an equal distribution or on length
of membership. As explained below, the answer is no.
Pepto is merging with Greenville Federal Credit Union (Greenville).
The merger agreement provides that Pepto transfer all of its
share accounts, accounts receivable, assets and reserves with
the exception of $37,500 in retained earnings to Greenville.
The Pepto board of directors wants to distribute the $37,500 to
the members based on their length of membership. As an alternative,
the board would like to make an equal distribution to the members,
regardless of their amount of shares. The board has been advised
by the NCUA examiner that the proposed distribution plans are
impermissible.
The Federal Credit Union Act authorizes the board to declare dividends
on share accounts. 12 U.S.C. §1763. Different types of
shares may receive different dividend rates, for example, share
certificates as opposed to regular share accounts, but there is
no authority to pay dividends based on length of membership.
Id. The NCUA rules specifically provide for a bonus dividend
and the permissible methods of payment. 12 C.F.R. §§707.2(m)
and 707.7. Payments are to be based on the member's principal
balance. 12 C.F.R. §707.7(a)(1) and (2). There is no authority
to pay dividends based on length of membership or per capita.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MFR:bhs
SSIC 3000
97-0813
cc: Region III