08-2
08-2
March 12, 2008
Re: California Financial Code Section 14950(c)
Dear Mr. ________:
This follows your letter of March 6, 2008, and our previous telephone conversation on the same subject. You state that with the enactment of Subdivision (c) of Financial Code Section 14950, “California credit unions are now permitted to make business loans to entities that are not eligible for membership, provided that that the loan also has a co-borrower who is a member and who is a joint applicant or co-obligor.” To illustrate your point, you present a hypothetical situation involving a limited liability partnership which is not a member of a credit union applying with an individual who is a member of the credit union for a joint loan.
We believe that the language of Section 14950(c) is clear, and we agree with your assessment that California credit unions are permitted to make business loans to entities that are not eligible for membership provided that the loan has a joint applicant and co-obligor who is a member of the credit union. It should be emphasized that any such loan must be made in accordance with the credit union’s lending policies, and comply with any and all applicable guidelines and regulations. Further, it must be emphasized that the non-member co-borrower must not be extended any other benefit or service of the credit union solely as the result of participation in a loan as a joint applicant and co·obligor. It should also be noted that nothing bars the non-member co-borrower from becoming a member of the credit union provided that the non-member co-borrower qualifies for membership under the credit union’s field of membership.
I trust that this letter is responsive to your request.
Very truly yours,
KENNETH SAYRE-PETERSON
Acting General Counsel
KSP#97:pjp
cc: Beverly Ryan, Assistant Deputy Commissioner for Credit Unions, DFI, San Francisco
Bert McLane, Assistant Deputy Commissioner for Credit Unions, DFI, Los Angeles
Joni Kimbrell, Assistant Deputy Commissioner for Credit Unions, DFI, Los Angeles
March 6, 2008
Kenneth Sayre-Peterson, Acting General Counsel
DEPARTMENT OF FINANCIAL INSTITUTIONS
1810 13th Street
Sacramento, CA 95811
Re: Business Loan Under California Financial Code § 14950(c) Involving Non-Member Entity
Dear Ken:
We are writing to request a written opinion as to whether a California credit union may make a joint member business loan to a non-member under California Financial Code § 14950(c) under the circumstances set forth below.
As you know, the California Legislature recently enacted a change to California Financial Code § 14950 that added subsection (c), which now reads as follows:
“(c) Notwithstanding subdivision (a), a credit union may permit a nonmember to participate in an obligation or extension of credit to a member as a joint applicant or co-obligor. An obligation or extension of credit made pursuant to this subdivision shall not be deemed a violation of subdivision (b) of Section 14800. Except as otherwise permitted by statute or regulation, the credit union shall not extend any other benefit or service of the credit union to the nonmember solely as a result of participation as a joint applicant or co-obligor unless the nonmember is thereafter admitted to membership.”
Given the above, we believe that California credit unions are now permitted to make business loans to entities that are not eligible for membership, provided that the loan also has a co-borrower who is a member and who is a joint applicant or co-obligor.
To illustrate, suppose that XYZ, LLP (“XYZ”) is a limited liability partnership that is not a member of ABC Credit Union and does not fall within the Credit Union’s field of membership.’ Assume, further, however, that one (1) of XYZ’s three (3) partners is a member of the Credit Union. Given § 14950(c), it appears that the loan is permissible if the member/partner applies for a business loan jointly with nonmember XYZ. Of course, this assumes that the loan is underwritten in accordance with the Credit Union’s business lending policies and NCUA Rules & Regulations § 723.
We thank you in advance for your willingness to consider this matter and ask that you respond in writing confirming our interpretation of § 14950(c). Of course, if you have any questions, please do not hesitate to contact us.
Sincerely,
We have assumed that XYZ is a limited liability partnership, however, it appears that the same conclusion is reached regardless of the type of business entity (e.g., limited liability company, C-corporation, S-corporation, general partnership, or limited partnership).