Bill Text: NJ A1597 | 2010-2011 | Regular Session | Introduced
Bill Title: Authorizes credit unions to serve as depositories of public funds; requires credit unions to provide certain funds for financial literacy education.*
Spectrum: Strong Partisan Bill (Democrat 16-1)
Status: (Introduced - Dead) 2011-06-29 - Substituted by S1807 (2R) [A1597 Detail]
Download: New_Jersey-2010-A1597-Introduced.html
STATE OF NEW JERSEY
214th LEGISLATURE
PRE-FILED FOR INTRODUCTION IN THE 2010 SESSION
Sponsored by:
Assemblyman FREDERICK SCALERA
District 36 (Bergen, Essex and Passaic)
Assemblyman UPENDRA J. CHIVUKULA
District 17 (Middlesex and Somerset)
Assemblyman JOHN S. WISNIEWSKI
District 19 (Middlesex)
Co-Sponsored by:
Assemblywoman Pou, Assemblyman Moriarty, Assemblywomen Riley, Lampitt, Assemblyman Fuentes and Assemblywoman Wagner
SYNOPSIS
Authorizes credit unions to serve as depositories of public funds.
CURRENT VERSION OF TEXT
Introduced Pending Technical Review by Legislative Counsel
An Act authorizing credit unions to serve as public depositories and amending P.L.1970, c. 236 and P.L.1984, c. 171.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 1 of P.L.1970, c. 236 (C.17:9-41) is amended to read as follows:
1. In this act, unless the context otherwise requires:
"Association" means any State or federally chartered savings and loan association;
"Capital funds" means (a) in the case of a State bank or national bank or capital stock savings bank, the aggregate of the capital stock, surplus and undivided profits of the bank or savings bank; (b) in the case of a mutual savings bank, the aggregate of the capital deposits, if any, and the surplus of the savings bank; [and] (c) in the case of an association, the aggregate of all reserves required by any law or regulation, and the undivided profits, if any, of the association; and (d) in the case of a credit union, the aggregate of all reserves required by any law or regulation and the capital deposits of the credit union;
"Commissioner" means the Commissioner of Banking and Insurance;
"Credit union" means a credit union as defined by section 2 of P.L.1984, c.171 (C.17:13-80);
"Defaulting depository" means a public depository as to which an event of default has occurred;
"Eligible collateral" means:
(a) Obligations of any of the following:
(1) The United States;
(2) Any agency or instrumentality of the United States, including, but not limited to, the Student Loan Marketing Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration and the Small Business Administration;
(3) The State of New Jersey or any of its political subdivisions;
(4) Any other governmental unit; or
(b) Obligations guaranteed or insured by any of the following, to the extent of that insurance or guaranty:
(1) The United States;
(2) Any agency or instrumentality of the United States, including, but not limited to, the Student Loan Marketing Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration and the Small Business Administration;
(3) The State of New Jersey or any of its political subdivisions; or
(c) Obligations now or hereafter authorized by law as security for public deposits;
(d) Obligations in which the State, political subdivisions of the State, their officers, boards, commissions, departments and agencies may invest pursuant to an express authorization under any law authorizing the issuance of those obligations;
(e) Obligations, letters of credit, or other securities or evidence of indebtedness constituting the direct and general obligation of a federal home loan bank or federal reserve bank; or
(f) Any other obligations as may be approved by the commissioner by regulation or by specific approval;
"Event of default" means issuance of an order of a supervisory authority or of a receiver restraining a public depository from making payments of deposit liabilities;
"Governmental unit" means any county, municipality, school district or any public body corporate and politic created or established under any law of this State by or on behalf of any one or more counties or municipalities, or any board, commission, department or agency of any of the foregoing having custody of funds;
"Maximum liability" of a public depository means, with respect to any event of default, a sum equal to 5% of the average daily balance of collected public funds held on deposit by the depository during the six-month period ending on the last day of the month next preceding the occurrence of such event of default;
"Net deposit liability" means the deposit liability of a defaulting depository to a governmental unit after deduction of any deposit insurance with respect thereto;
"Obligations" means any bonds, notes, capital notes, bond anticipation notes, tax anticipation notes, temporary notes, loan bonds, mortgage related securities, or mortgages;
"Public depository" means a State or federally chartered bank, savings bank, credit union, or an association located in this State or a state or federally chartered bank, savings bank, credit union, or an association located in another state with a branch office in this State, the deposits of which are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration and which receives or holds public funds on deposit;
"Public funds" means the funds of any governmental unit, but does not include deposits held by the State of New Jersey Cash Management Fund;
"Valuation date" means December 31 and June 30.
(cf: P.L.2003, c.178, s.1)
2. Section 4 of P.L.1970, c. 236 (C.17:9-44) is amended to read as follows:
4. a. Every public depository having public funds on deposit therein shall, as security for such deposits, maintain eligible collateral having a market value at least equal to either (1) 5% of the average daily balance of collected public funds on deposit during the 6-month period ending on the next preceding valuation date, or (2), at the election of the depository, at least equal to 5% of the average balance of collected public funds on deposit on the first, eighth, fifteenth and twenty-second days of each month in the 6-month period ending on the next preceding valuation date, but no public depository shall be required to maintain any eligible collateral pursuant to this act as security for any deposit or deposits of any governmental unit to the extent that such deposit or deposits are insured by the Federal Deposit Insurance Corporation [or] , the Federal Savings and Loan Insurance Corporation, the National Credit Union Administration, or by any other agency of the United States which insures deposits made in public depositories. In the case of any public depository which has not held public funds on deposit for all of such 6-month period, the commissioner shall prescribe the amount of eligible collateral required to be maintained. Depositories shall have the right to make substitutions of eligible collateral at any time. The income from eligible collateral shall belong to the public depository without restriction.
b. No public depository shall at any time receive and hold on deposit for any period in excess of 15 days public funds of a governmental unit or governmental units which, in the aggregate, exceed 75% of the capital funds of the depository, unless such depository shall, in addition to the security required to be maintained under paragraph a. of this section, secure such excess by eligible collateral with a market value at least equal to 100% of such excess.
c. All collateral required to be maintained shall be deposited with the Federal Reserve Bank of New York, the Federal Reserve Bank of Philadelphia, the Federal Home Loan Bank of New York, as the case may be, or with any other banking institution located in this State or a contiguous state which is a member of the Federal Reserve System and has capital funds of not less than $25,000,000.00. Notwithstanding the foregoing, the commissioner may authorize public depositories to hold and maintain the required collateral in such a manner as he deems consistent with the purposes of this act.
d. The market value of eligible collateral maintained pursuant to this section on any valuation date shall be presumed to be the market value of such collateral until the next succeeding valuation date.
(cf: P.L.1973, c. 98, s. 2)
3. Section 5 of P.L.1970, c.236 (C.17:9-45) is amended to read as follows:
5. When the commissioner determines that an event of default has occurred, he shall proceed in the following manner:
a. Within 20 days after the occurrence of the event of default, he shall ascertain the amount of public funds on deposit in the defaulting depository as disclosed by its records and the amount thereof covered by federal deposit insurance and certify the amounts thereof to each affected governmental unit;
b. Within 10 days after receipt of such certification, each such governmental unit shall furnish to the commissioner verified statements of its public deposits in such defaulting depository as disclosed by its records;
c. Upon receipt of such certificate and statements, he shall ascertain and fix the amount of such public funds on deposit in such defaulting depository, net after deduction of any deposit insurance;
d. He shall ascertain the amount derived or to be derived from the liquidation of the collateral maintained by the defaulting depository pursuant to section 4 of this act, and shall distribute such proceeds pro rata among the governmental units affected to the extent necessary to satisfy the net deposit liabilities to such governmental units;
e. If the proceeds of the sale of the collateral of a defaulting depository which is a State bank, a national bank, a credit union, or a savings bank are insufficient to pay in full the net deposit liability of such depository to all affected governmental units, he shall assess the deficiency against all other such public depositories having public funds on deposit as of the occurrence of the event of default in the proportion that the maximum liability of each such other public depository bears to the aggregate of the maximum liabilities of all such other depositories, but no such assessment shall exceed the maximum liability of any such other depository;
f. If the proceeds of the sale of the collateral of a defaulting depository which is an association are insufficient to pay in full the net deposit liability of such depository to all affected governmental units, he shall assess the deficiency against all such other public depositories having public funds on deposit as of the occurrence of the event of default in the proportion that the maximum liability of each such other public depository bears to the aggregate of the maximum liabilities of all such other depositories, but no such assessment shall exceed the maximum liability of any such other depository;
g. Assessments so made by the commissioner shall be payable on the fifth day following the demand therefor by the commissioner. On default of such payment by any such other public depository, the commissioner shall take possession of and liquidate so much of the eligible collateral maintained by such depository as shall be necessary to satisfy the assessment so made. If the proceeds of the liquidation of the eligible security are insufficient to pay such assessment in full, the commissioner may sue to recover the amount of the deficiency within the limits of the depository's maximum liability.
h. All sums so collected by the commissioner shall be paid by him to the governmental units having deposits in the defaulting depository in the proportion that the net deposit liability to each such governmental unit bears to the aggregate of the net deposit liabilities to all such governmental units;
i. No State bank, national bank, credit union, or savings bank shall be liable with respect to the occurrence of an event of default of an association, and no association shall be liable with respect to the occurrence of an event of default of a State bank, a national bank, a credit union, or a savings bank.
(cf: P.L.1970, c. 236, s. 5)
4. Section 11 of P.L.1984, c. 171 (C.17:13-89) is amended to read as follows:
11. A credit union's powers shall include, but not be limited to, the power to:
a. Make contracts;
b. Sue and be sued;
c. Adopt and use a common seal and alter same;
d. Acquire, lease, hold, assign, pledge, hypothecate, sell and otherwise dispose of property, either in whole or in part, necessary or incidental to its operations;
e. Offer its members and other credit unions, shares, share certificates, deposits, deposit certificates, or share drafts as provided in this act;
f. Lend its funds to its members as hereinafter provided;
g. Borrow money from the any source, provided that a credit union shall notify the commissioner in writing of its intention to borrow in excess of an aggregate of 50% of its shares and undivided earnings;
h. Discount or sell any of its assets, and purchase the assets of another credit union, subject to the approval of the commissioner;
i. Make deposits and invest in legally chartered banks, savings banks, savings and loan associations, trust companies, and other credit unions, including corporate credit unions, and invest funds as otherwise provided in this act;
j. Hold membership in other credit unions organized under this act, and in associations and organizations controlled by or fostering the interests of credit unions, including a central liquidity facility organized under state or federal law;
k. Act as fiscal agent for and receive payment on shares or deposits, or both, from the federal government, this State, or any agency or political subdivision thereof;
l. Have and exercise all the powers of corporations organized under Title 14A of the New Jersey Statutes which are not inconsistent with this act;
m. Maintain service facilities, including automated terminals at locations other than its principal office upon the approval of the commissioner. The maintenance of these facilities shall be reasonably necessary to furnish service to its members. A credit union may join with one or more financial institutions in the operation of a service facility to meet member needs;
n. Contract with outside vendors to make insurance and group purchasing plans available to its members and receive compensation from the vendors in return for performing administrative functions on their behalf;
o. Participate in loans to credit union members jointly with other credit unions, credit union organizations, or financial institutions, provided that the originating credit union retains an interest of at least 10% of the face amount of the loan;
p. Participate in any guaranteed loan program of the federal or state government;
q. Purchase the conditional sales contracts, notes, and similar instruments of its members;
r. Purchase and maintain insurance on behalf of any person who is an officer, director, employee, or agent of the credit union;
s. Collect, receive and disburse monies in connection with the providing of negotiable checks, money orders, travelers' checks, and similar instruments, and for any other purposes which may provide benefit or convenience to its members, and to charge a reasonable fee for these services;
t. Declare dividends to its members, as provided in the bylaws or by rules and regulations of the commissioner;
u. Participate in government programs designed to alleviate social and economic problems at the community, state, or regional levels; and
v. Act as a public depository pursuant to the provisions of P.L.1970, c. 236 (C.17:9-41 et seq.) .
(cf: P.L.1984, c. 171, s. 11)
5. This act shall take effect immediately.
STATEMENT
This bill amends the New Jersey "Governmental Unit Deposit Protection Act," P.L.1970, c.236 (C.17:9-41 et seq.) (GUDPA) to allow credit unions to serve as public depositories that are eligible to receive and hold deposits from New Jersey local government units such as municipalities, counties, and school districts.
Currently, GUDPA provides that only financial institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC) may serve as public depositories. This restriction excludes credit unions, whose deposits are insured by the National Credit Union Administration (NCUA), even though the NCUA provides deposit protection that is equivalent to the protection provided by the FDIC. The bill expands GUDPA's definition of "public depository" to include credit unions whose deposits are insured by the NCUA.
The bill applies to New Jersey credit unions that are chartered under the "Federal Credit Union Act" (12 U.S.C. s.1751 et seq.) or the State's "The Credit Union Act of 1984," P.L.1984, c.171, sections 2 to 46 (C.17:30-80 to 17:30-124). The bill also amends "The Credit Union Act of 1984" to reflect that credit unions have the authority to serve as public depositories pursuant to GUDPA.
This bill is intended to increase the number of financial institutions eligible to receive public funds, in order to increase competition for public deposits. Increased competition allows local governments to optimize the return on public deposits and lower the costs for other financial services, thus benefiting taxpayers.
