July 31, 1997
Christopher Turner, Corporate Counsel
Southwest Corporate Federal Credit Union
7920 Belt Line, LB-109
Dallas, TX 75240
Dear Mr. Turner:
Southwest Corporate Federal Credit Union (SCFCU) proposes to purchase
share certificates from its member credit unions, secured by the
credit unions' eligible obligations. You have asked what the
payout priority would be for the resulting secured share certificates
in the event of an involuntary liquidation. Because our view
is that a federal credit union (FCU) does not have the authority
to secure shares with eligible obligations, except as expressly
provided in the Federal Credit Union Act (the Act), we do not
reach the issue of payout priorities.
You rely on Section 107(13) of the Act as authority for an FCU
to pledge its eligible obligations to secure shares. 12 U.S.C.
�57(13). This section was amended in 1977, as part of
the Credit Union Modernization Act, and granted an FCU the authority
to pledge the eligible obligations of its members. Credit Union
Modernization Act of 1977, Pub. L. No. 95-22, 91Stat. 49 (codified
as amended in scattered sections of 12 U.S.C.). It was already
in effect at the time Section 121(b) was added to the Act. Section
121(b) gives an FCU express authority to pledge its assets to
secure the payment of funds deposited by state, federal or local
governments or Indian tribes. 12 U.S.C. �67(b). This provision
was added to the FCU Act in 1987 as part of the Competitive Equality
Banking Act. Competitive Equality Banking Act of 1987, Pub. L.
No. 100-86, 101 Stat. 656 (codified as amended in scattered sections
of 12 U.S.C.). The pledging of assets as security for accounts
is limited to funds deposited by federal, state or local governments
or Indian tribes. Although the Office of General Counsel letter
dated April 23, 1984, referred to in your letter cites Section
121 as authority for FCUs to pledge any of their assets when acting
as depositories of public monies, at that time the authority was
based on the express power of FCUs to act as "fiscal agents"
of the United States Treasury and regulations prescribed by the
Secretary of the Treasury. FCUs were not given independent authority
to pledge their assets to secure the payment of funds deposited
by federal, state or local governments or Indian tribes until
1987, when Section 121(b) was added to the Act. The reference
to Section 107(13) in the April 23, 1984, letter was in error
as explained below.
Section 107(13) was not intended to allow FCUs to pledge eligible obligations, which consist primarily of member loans, for shares. If it were, there would have been no reason to add Section 121(b) in 1987. Section 121(b) carves out a narrow exception for the pledging of assets to secure shares. This narrow exception would not have been necessary if Section 107(13) already allowed assets to be pledged to shares
under any circumstance. The maximum, expressio unius est exclusio
alterius, applies to Sections 121(b) and 107(13). "As
the maxim is applied to statutory interpretation, where a form
of conduct . . . and things to which it relates are designated,
there is an inference that all omissions should be understood
as exclusions." SUTHERLAND STATUTORY CONSTRUCTION �.23
(5th ed. 1992).
Further, a plain meaning interpretation of Section 107(13) suggests
that "pledge" is limited to securing obligations. The
plain meaning rule of statutory construction states that "words
should be given their common and approved usage." SUTHERLAND
�.01. "Pledge" is traditionally defined as a
transaction where property is transferred "by a debtor to
his creditor, to be kept until the debtor's obligation is discharged."
72 C.J.S. 2d Pledges �(1987). A share certificate is
classified as an equity account at the FCU where the account is
maintained and not a liability account creating a debtor/creditor
relationship. See, 12 U.S.C.� 1757(6). Since a share
certificate is not a debt obligation, an FCU may not pledge its
eligible obligations as security for it except as authorized by
Section 121(b).
Finally, Section 6030.6 of NCUA's Accounting Manual discusses
the accounting treatment for "Pledge of Eligible Member Obligations
as Security". It states that a credit union may pledge member
loans as collateral for loans. There is no provision for pledging
member loans as collateral for shares.
Because we have determined that it is impermissible for an FCU
to pledge loans as security for shares, there is no need to address
the question concerning payout priorities.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MFR:bhs
SSIC 3600
96-1238