§ 28-7-1-39 — Limits on loans to members; exceptions; prohibition against accepting compensation for procuring loan; exception for bona fide employment or compensation agreements; deadline for compliance

(a) As used in this section, "loans and
extensions of credit" includes all direct or indirect advances of funds
made to a member on the basis of:
(1) an obligation of the member to repay the funds; or
(2) a pledge of specific property by or on behalf of the member
and from which the funds advanced are repayable.
The term includes any contractual liability of a credit union to advance
funds to or on behalf of a member, to the extent specified by the
department. The term also includes any credit exposure to a person
arising from a derivative transaction (as defined in 12 U.S.C. 84(b)(3))
between the credit union and the person.
(b) As used in this section, "member" includes an individual, a sole
proprietorship, a partnership, a joint venture, an association, a trust, an
estate, a business trust, a limited liability company, a corporation, a
sovereign government, or an agency, instrumentality, or political
subdivision of a sovereign government, or any similar entity or
organization.
(c) Except as provided in subsection (e), the total loans and
extensions of credit by a credit union to a member outstanding at any
given time and not fully secured, as determined in a manner consistent
with subsection (d), by collateral with a market value at least equal to
the amount of the loan or extension of credit may not exceed fifteen
percent (15%) of the capital and surplus of the credit union.
(d) Except as provided in subsection (e), the total loans and
extensions of credit by a credit union to a member outstanding at any
given time and fully secured by readily marketable collateral having a
market value, as determined by reliable and continuously available
price quotations, at least equal to the amount of funds outstanding may
not exceed ten percent (10%) of the capital and surplus of the credit
union. The limitation in this subsection is separate from and in addition
to the limitation set forth in subsection (c).
(e) The limitations set forth in subsections (c) and (d) are subject to
the following exceptions:
(1) Loans or extensions of credit arising from the discount of
commercial or business paper evidencing an obligation to the
member negotiating it with recourse are not subject to any
limitation based on capital and surplus.
(2) The purchase of bankers' acceptances of the kind described in
12 U.S.C. 372 and issued by a financial institution organized or
reorganized under the laws of Indiana or any other state or the
United States are not subject to any limitation based on capital
and surplus.
(3) Loans or extensions of credit secured by bills of lading,
warehouse receipts, or similar documents transferring or securing
title to readily marketable staples are subject to a limitation of
thirty-five percent (35%) of capital and surplus in addition to the
general limitations if the market value of the staples securing each
additional loan or extension of credit at all times equals or
exceeds one hundred fifteen percent (115%) of the outstanding
amount of the loan or extension of credit. The staples shall be
fully covered by insurance whenever it is customary to insure
such staples.
(4) Loans or extensions of credit secured by bonds, notes,
certificates of indebtedness, or Treasury bills of the United States
or by any other obligation fully guaranteed as to principal and
interest by the United States are not subject to any limitation
based on capital and surplus.
(5) Loans or extensions of credit to or secured by unconditional
takeout commitment or guarantees of any department, agency,
bureau, board, commission, or establishment of the United States
or any corporation wholly owned directly or indirectly by the
United States are not subject to any limitation based on capital
and surplus.
(6) Loans or extensions of credit secured by a segregated deposit
account in the lending credit union are not subject to any
limitation based on capital and surplus.
(7) Loans or extensions of credit to any credit union, when the
loans or extensions of credit are approved by the director of the
department, are not subject to any limitation based on capital and
surplus.
(f) Loans or extensions of credit arising from the discount of
negotiable or nonnegotiable installment consumer paper that carries a
full recourse endorsement or unconditional guarantee by the member
transferring the paper are subject under this section to a maximum
limitation equal to twenty-five percent (25%) of the capital and surplus,
notwithstanding the collateral requirements set forth in subsection (d).
(g) If the credit union's files or the knowledge of the credit union's
officers of the financial condition of each maker of consumer paper
described in subsection (f) is reasonably adequate, and an officer of the
credit union designated for that purpose by the board of directors of the
credit union certifies in writing that the credit union is relying primarily
upon the responsibility of each maker for payment of the loans or
extensions of credit and not upon any full or partial recourse
endorsement or guarantee by the transferor, the limitations of this
section as to the loans or extensions of credit of each maker shall be the
sole applicable loan limitations.
(h) Loans or extensions of credit secured by shipping documents or
instruments transferring or securing title covering livestock or giving
a lien on livestock when the market value of the livestock securing the
obligation is not at any time less than one hundred fifteen percent
(115%) of the face amount of the note covered are subject under this
section, notwithstanding the collateral requirements set forth in
subsection (d), to a maximum limitation equal to twenty-five percent
(25%) of the capital and surplus.
(i) Loans or extensions of credit that arise from the discount by
dealers in dairy cattle of paper given in payment for dairy cattle, which
paper carries a full recourse endorsement or unconditional guarantee
of the seller and that are secured by the cattle being sold, are subject
under this section, notwithstanding the collateral requirements set forth
in subsection (d), to a limitation of twenty-five percent (25%) of the
capital and surplus.
(j) Except as otherwise provided, an officer, director, employee, or
attorney of a credit union who stipulates for, receives, or consents or
agrees to receive, any fee, commission, gift, or thing of value, from any
person, for the purpose of procuring or endeavoring to procure for any
member any loan from or the purchase or discount of any paper, note,
draft, check, or bill of exchange by the credit union, commits a Class
A misdemeanor. However, the prohibitions set forth in this subsection
do not apply to a credit union's:
(1) bona fide employment agreements, including benefit or
compensation plans; or
(2) compensation agreements with third party independent
contractors.
(k) Except as otherwise provided in this chapter, any credit union
that holds obligations of indebtedness in violation of the limitations
prescribed in this section shall, not later than July 1, 2006, cause the
amount of the obligations to conform to the limitations prescribed by
this chapter and by the provisions of this section. The department may,
in its discretion, extend the time for effecting this conformity, in
individual instances, if the interests of the depositors will be protected
and served by an extension. Upon the failure of a credit union to
comply with the limitations, in accordance with this section or in
accordance with any order of the department concerning the
limitations, the department may declare that the credit union is
conducting its business in an unauthorized or unsafe manner and
proceed in accordance with IC 28-1-3.1-2.
(l) The department may apply the provisions of 12 CFR 32 in the
application and administration of this chapter.

Legislative History

As added by P.L.141-2005, SEC.18. Amended by P.L.1-2006, SEC.493; P.L.90-2008, SEC.46; P.L.27-2012, SEC.94; P.L.159-2017, SEC.37.