BANKING

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF BANKING

Credit Unions

Proposed Readoption with Amendments: N.J.A.C 3:21

Authorized By: Donald Bryan, Acting Commissioner,

Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 1-15e and 17:13-79 et seq.

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002-72

Submit comments by April 20, 2002 to:

Karen Garfing, Assistant Commissioner

Regulatory Affairs

New Jersey Department of Banking and Insurance

PO Box 325

Trenton, NJ 08625-0325

Fax: (609) 292-0896

Email: legsregs@dobi.nj.gov

The agency proposal follows:

The Department of Banking and Insurance ("Department") proposes to readopt its rules governing credit unions. Pursuant to N.J.S.A. 52:14B-5.1, the rules in this chapter are scheduled to expire January 24, 2002. In accordance with N.J.S.A. 52:14B-5.1c, the submission of this notice of proposal to the Office of Administrative Law extended that expiration date 180 days to July 23, 2002.

N.J.A.C. 3:21-1 authorizes the Commissioner of Banking and Insurance ("Commissioner"), with the concurrence of the appropriate Regional Director of the National Credit Union Administration, to designate certain credit unions as low income credit unions ("LICU's"). This designation permits them to apply to participate in certain Federal programs, for example, as "Participating Credit Unions" pursuant to 12 C.F.R. 705. Low income credit unions, which the Federal government selects, may participate in the Community Development Revolving Loan Program for Credit Unions. The rules specify the characteristics of LICU's, and authorize the loss of designation in the event a credit union no longer meets the qualifying criteria. The rules also set forth a schedule for calculating the fees for examining low-income credit unions.

N.J.A.C. 3:21-2.1 addresses parity of New Jersey credit unions with Federal credit unions. It is proposed for amendment to recognize the name change of the New Jersey Credit Union League to the Credit Union Affiliates of New Jersey. Recent amendments to N.J.S.A. 17:13-90 will be addressed in a separate rulemaking in the near future. The complexity of the topic warrants a distinct proposal and adoption.

N.J.A.C. 3:21-3 permits branching by a State-chartered credit union. The rules govern the content of applications to establish a branch, the conditions to remain in good standing and the procedures to discontinue a branch.

The Department also proposes to amend the chapter by adding a subchapter at N.J.A.C. 3:21-4 to establish standards for mergers of credit unions. The proposed new rules would require the continuing credit union management to have sufficient expertise and for the continuing credit union to have a high likelihood of operating in a safe and sound manner going forward.

The Department has reviewed the rules and has determined that they continue to be necessary, reasonable and proper for the purpose for which they were originally promulgated.

A 60 day comment period is provided and, therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, the proposal is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

The rules proposed for readoption with amendments apply to all New Jersey State chartered credit unions. N.J.A.C. 3:21-3 also applies to those out-of-State state chartered credit unions that branch or seek to branch into New Jersey. The rules proposed for readoption with amendments give credit unions flexibility in locating branches, make them competitive with their Federally chartered counterparts, enable them to offer a wide range of financial products to their members and establish standards in the event of credit union mergers. The rules proposed for readoption with amendments will have a beneficial social impact on credit unions, the general public and on low income communities.

It is not expected that the rules proposed for readoption with amendments will have a negative economic impact on credit unions. The parity section enables State-chartered credit unions to operate on a substantially competitive basis with their Federal counterparts.

The proposed new rules to establish merger standards would minimize expenses for those credit unions exploring the possibility of merger or actually seeking to merge by making explicit the standards under which the application would be reviewed. Some of these credit unions may choose to seek professional assistance in the form of accountants, financial industry consultants or attorneys. The cost of the professional will vary based on the individual professional and the amount of work requested.

Credit unions that seek to branch will need to submit the necessary documents. They may choose to seek professional assistance in the form of accountants or attorneys. The cost of the professional will vary based on the individual and the amount of work requested.

Credit unions that have or establish successful branches will provide a positive economic benefit. The costs to obtain approval to establish a branch are reasonable.

Lastly, some credit unions may seek to be classified as low income credit unions. A simple application completed by existing staff would be necessary. Low income credit unions that obtain Federal loan funds will create a positive economic benefit.

Credit unions may, in the future, become subject to Federal standards pursuant to a proper exercise of parity in accordance with the rules. While the Federal standards applicable in such cases cannot be identified at this time, there will be no applicable State standards that may exceed them because parity with Federal institutions entails application of the pertinent Federal standards. Low income credit unions may participate in Federal programs. If they do participate they would be subject to the Federal standards. No State standard would exceed the Federal standards in such a case.

The branching provisions of the rules proposed for readoption with amendments are not subject to any Federal standards or requirements. The proposed new rules relating to mergers of credit unions do not contain standards or requirements that exceed Federal standards. These proposed new rules apply certain Federal standards, set forth at 12 U.S.C.§1715 et seq., to New Jersey credit unions that merge.

The Department does not anticipate any jobs will be lost as a result of the rules proposed for readoption with amendments. Most credit unions will use existing staff for continued compliance with the existing rules. Some credit unions may choose to employ professional services to meet the recordkeeping, reporting and other compliance requirements.

If credit unions increase their business because of their parity with their Federal counterparts, they may seek to hire additional staff. The proposed merger standards would not require credit unions to hire additional staff; however, some credit unions seeking to merge may hire professionals to assist in the merger process to assist them in evaluating if they meet the standards. The costs of this are discussed in the Economic Impact above.

The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed readoption with amendments together with their written comments on other aspects of this proposal.

The Department does not expect any agriculture industry impact from the rules proposed for readoption with amendments.

All New Jersey state chartered credit unions and some out-of-state state chartered credit unions are small businesses as defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The rules proposed for readoption with amendments will continue to impose compliance requirements on these entities. The rules proposed for readoption with amendments will continue to require approval of the Commissioner for branching by credit unions and require them to maintain records concerning their business.

Those credit unions seeking low income designation will follow a simple application process. The costs for compliance are set out in the Economic Impact above. Those credit unions that seek to merge would have to comply with the established standards. The costs for compliance are set out in the Economic Impact above.

The Department believes that the requirements set forth in the rules are generally mandated pursuant to good banking practice. Moreover, the Department does not believe that these requirements are unduly burdensome and should not require professional services for compliance. The purpose of these rules is to assist credit unions in their operations and protect consumers who use credit unions. Thus, the purpose of these requirements does not vary based upon business size. Accordingly, no differentiation based on business size is provided.

Full text of the rules proposed for readoption may be found in the New Jersey Administrative Code at N.J.A.C. 3:21.

Full text of the proposed amendments follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

3:21-2.1 Credit union parity with Federally chartered credit unions

In addition to other authority granted by law and unless contrary to State law, a credit union may exercise any power, right, benefit or privilege which is now or hereafter authorized for Federal credit unions to the same extent as Federal credit unions pursuant to Federal law or rules and regulations of the National Credit Union Administration. A credit union in exercising those powers shall do so in accordance with the terms, conditions and requirements established for Federal credit unions. Such powers shall be automatically exercisable upon the expiration of 30 days from the date of adoption of the enabling regulation by the Federal regulatory agency, except if the Commissioner of Banking and Insurance within that time provides notice that the power shall not be granted to New Jersey credit unions. Such notice shall be provided to each credit union, and to the [New Jersey] Credit Union [League] Affiliates of New Jersey for publication. The Commissioner of Banking and Insurance may permit credit unions to begin the exercise of a power prior to the expiration of the 30-day period by providing notice of permission to each credit union and the [New Jersey] Credit Union [League] Affiliates of New Jersey.

(a) In approving a certificate and plan of merger under N.J.S.A. 17:13-110, the Commissioner of Banking and Insurance shall make the following determinations:

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