June 18, 1998
Larry W. Norris, President
West Monroe City Employee's Federal Credit Union
2305 North 7th Street
West Monroe, Louisiana 71291
You have asked whether it is permissible for a federal credit
union (FCU) to secure a loan to a nonprofit organization through
wage assignments of the members of the association. Unless an
FCU has received approval for a nonstandard bylaw amendment, a
loan to an association must either be secured by its shareholdings
in the FCU or the loan must be made jointly to the association
and a majority of the association's members, depending on the
bylaw provision adopted by the FCU.
The FCU Bylaws state that loans to other than natural persons
must be share secured. FCU Bylaws, Article XII, Section 1. Alternatively,
FCUs can adopt a standard amendment that allows an FCU to make
a loan to an association if the loan is made jointly to a majority
of the members of the association and to the association in its
own right. FCU Standard Bylaw Amendments and Guidelines, Article
XII, Section 1.
A majority of the association members are not co-borrowers on
the loan. We also note that the wage assignments, which you contend
are serving as collateral on the loan, are assignments by association
members to the association, not to the FCU. Since the loan was
made only to the association, it must be secured by the association's
shares.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MFR:bhs
SSIC 3700
98-0516