§ 23-35-603 — Loans and extensions of credit in advance

(a) A credit union may loan to members for a provident or productive purpose and upon such security as the bylaws may provide and as the credit committee or loan officer shall approve. (b) (1) No loan shall bear an interest rate to exceed the highest lawful rate permitted under the Constitution of the State of Arkansas. (2) No credit union shall charge the borrower anything of value in connection or in association with the loan, other than repayment of the unpaid principal balance and interest. However, on loans secured by real estate a credit union may charge a loan origination fee not to exceed three percent (3%) of the original principal balance of the loan. A borrower may be charged for the cost of appraisals and credit investigations. If permitted by the bylaws, the borrowing members may be charged for the cost of the filing fees on security instruments in connection with the transaction. (c) Every application for a loan shall be made upon a form, which the credit committee has prescribed and the board of directors of the credit union has approved, which shall state at least the purpose for which the loan is desired, the security, if any, offered, the amount of the loan being applied for, and any other information which may be required to determine the financial ability of the applicant to repay the loan. (d) Every loan shall be evidenced by a written instrument. (e) (1) No unsecured loan shall be made to any member in an aggregate amount in excess of three thousand dollars ($3,000). (2) No secured loan shall be made to any member in an aggregate amount in excess of ten percent (10%) of the credit union's total assets. (3) No loan shall be made to any member if, in the aggregate, the balances of the secured and unsecured loans outstanding to that member exceed ten percent (10%) of the total assets of the credit union. (4) Secured and unsecured loans made against joint accounts shall be included in the aggregate and shall not be allocated to each joint tenant in determining the loan amounts set forth in this subsection. (5) If the State Credit Union Supervisor in his or her discretion determines that the ten percent (10%) limit as set out in this subsection is operating to the detriment of a credit union, he or she may by rule or order reduce the ten percent (10%) limit. (f) (1) No loan shall be made unless it has been approved by a loan officer or has received approval of a majority of the members of the credit committee in conformity with the other provisions of this chapter. (2) A loan or aggregate of loans to a director or member of the supervisory or credit committee of the credit union making the loan which exceeds six thousand dollars ($6,000) plus pledged shares shall be approved by a majority of the credit committee and a majority of the board members present. No member of the board or the credit committee may take part in the consideration of his or her loan application. (g) (1) Loans may be granted to members of the credit union, secured by a first or second mortgage on real estate. The aggregate of the loans shall not exceed eighty percent (80%) of the market value of the real estate which is set forth in an appraisal prepared by an independent qualified real estate appraiser. The loans shall also provide for substantially equal monthly payments for insurance premiums and taxes assessed against the security. The total outstanding balance of all first mortgage loans on real estate shall not exceed thirty percent (30%) of the outstanding shares of the credit union. (2) For purposes of this subsection and applicable rules: (A) "Appraisal" means an objective estimate of value based upon a physical examination and evaluation which shall disclose the market value of the security offered by use of the market sales approach which shall be supported by an analysis of comparable properties in the immediate area. The market value shall also be supported by use of the cost and income appraisal methods if conditions warrant and shall include documentation of the purchase price of the property offered as security; (B) "Independent qualified real estate appraiser" means a person who is experienced in the appraisal of the type of real estate being offered as security, who is actively engaged in real estate appraisal work and whose qualifications are demonstrated by membership in a national professional appraisal organization, or who is licensed to appraise in the state in which the real estate is located, or who is acceptable as an appraiser by an insuring or guaranteeing agency of the federal or state government and who has no present or contemplated future interest in the property being appraised; and (C) "Market value" means the highest price which real property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. (h) (1) A credit union may make any loan insured by any federal program on terms set out in the applicable federal legislation, and that insurance shall be deemed adequate security. (2) (A) In addition to generally accepted types of security, the endorsement of a note by a guarantor or assignment of shares or wages, in a manner consistent with the laws of Arkansas, shall be deemed security within the meaning of this chapter. (B) For purposes of this subsection and applicable rules a "guarantor" means one who enters into an enforceable guaranty agreement and provides current financial statements showing a net worth free of homestead and subject to execution in an amount at least equal to the amount of the loan. (C) The guaranty agreement and the financial statements must be presented to the credit committee of the credit union for consideration and then placed in the file of the borrower. (3) The adequacy of all securities shall be within the determination of the credit committee or loan officer, subject to the provisions of this chapter and the bylaws. (i) A member may receive a loan in installments or in one (1) sum, and he or she may pay the whole or any part of this loan on any day in which the credit union office is open for business. (j) The credit committee may approve an extension of credit in advance, upon its own motion or upon application by a member, and loans may be granted to the member within the limits of the extension of credit. When an extension of credit has been approved, applications for loans need no further consideration as long as the aggregate obligation does not exceed the limits of the extension of credit. The credit committee shall review all extensions of credit at least once a year, and any extension of credit shall expire if the member becomes more than ninety (90) days delinquent in his or her obligations to the credit union. (k) No director, member of the credit or supervisory audit committee, or credit union employee shall cosign, endorse, or act as a guarantor for any borrower from the credit union.

Legislative History

Acts 1971, No. 132, § 16; 1975, No. 530, §§ 13-15; 1975 (Extended Sess., 1976), No. 1182, § 2; 1979, No. 206, § 5; 1985, No. 936, §§ 8-11; A.S.A. 1947, § 67-916; Acts 1987, No. 750, § 1; reen. 1987, No. 995, § 2.