Credit Unions; Employees’ Performance Bonds

Subject:

Credit Unions; Employees’ Performance Bonds; G.S. §§ 54-109.11(5), 54-109.44(2), 54109.21(25); 4 N.C.A.C. 06C .0311

Requested By:

Stanley W. Brown, Jr. Deputy Administrator Credit Union Division Department of Commerce

Questions:

1. May a State-chartered credit union, acting pursuant to 4 N.C.A.C. 06C .0311, provide a performance bond for its chief executive officer only and not for any other officer, employee, or agent?

2. Is 4 N.C.A.C. 06C .0311 consistent with applicable statutes?

Conclusions:

1. No.
   

2. No, to the extent that the rule purports to permit a State-chartered credit union to provide a
   performance bond for the chief financial officer in lieu of the bonds required by statute for other employees.
   

We are informed that the National Credit Union Administration now requires that only the chief executive officer of a federally-chartered credit union be covered by "faithful performance insurance coverage." The question has arisen whether the administrative rule appearing at 4

N.C.A.C. 06C .0311 will permit State-chartered credit unions in North Carolina to follow the same practice. It has also been asked whether Rule .0311 complies with applicable law.

It is our opinion that the laws of this State require that persons in addition to the chief executive officer of State-chartered credit unions be covered by surety bonds for faithful performance. The pertinent provisions of G.S. § 54-109.11(5) require that the Administrator of Credit Unions "fix the amount of a blanket surety bond which shall be required of each credit union official, committee member and employee, irrespective of whether such official, committee member and employee receives, pays or has custody of money or other personal property owned by a credit union. . . ." The bond is to provide coverage to the credit union for loss "by reason of acts of fraud or dishonesty including forgery, theft, embezzlement, wrongful abstraction or misapplication on the part of the person, directly or through connivance with others. . . ." Further, "[t]he treasurer and all other persons handling credit union funds or records before entering upon his or their duties shall give a proper bond with good and sufficient surety, in an amount and character to be determined by the [credit union’s] board [of directors] in compliance with regulations conditioned upon the faithful performance of his or their trust." The directors are required by G.S. § 54-109.44 (2) to "[p]urchase a blanket fidelity bond, in accordance with any such rules and regulations of the Administrator, to protect the credit union against losses caused by occurrences covered therein such as fraud, dishonesty, forgery, embezzlement, misappropriation, misapplication, or unfaithful performance of duty by a director, officer, employee, member of an official committee, attorney-at-law or other agent".

The language of G.S. §§ 54-109.11(5) and 109.44(2) relating to blanket surety bonds is mandatory and extends to all State-chartered credit union officers, employees, agents, and others in a position of trust. The provision for requiring a surety bond of the "treasurer and all other persons handling credit union funds or records" is somewhat less clear. We construe it to mean, however, that the board of directors may require, consistent with administrative rules promulgated by the Administrator, an additional surety bond for those having actual possession of or control over credit union funds or financial records. Since the Administrator has broad discretion and authority under G.S. § 54-109.12 to prescribe rules "relating to financial records, business practices and the conduct and management of credit unions," it is our opinion that the Administrator can promulgate reasonable guidelines for boards of directors to follow in determining the "amount and character" of the bond to be required. It does not appear to be within the discretion of a board of directors or the Administrator to determine who shall be covered by the bond, however, other than to identify "persons handling credit union funds or records."

No court decisions have been found construing the statutes applicable here. The statutes clearly and expressly state what the Legislature intended, however: that adequate surety bonds must be provided to protect credit unions from loss by reason of fraudulent or other dishonest acts by officers, employees, agents, or other persons in positions of trust. Given such legislative intent, no basis or rationale can be found for reducing that protection through eliminating the bonding requirements for most of the persons named in the statutes.

The language of Rule .0311(b) is less than totally clear, but it is our opinion that to the extent the rule may purport to permit an individual’s bond to be substituted for the blanket bond or to permit an individual’s bond to cover persons other than those specified in G.S. § 54-109.11(5), it is in conflict with controlling law and is void. A blanket surety bond covering the persons specified in

G.S. §§ 54-109.11(5) and 54-109.44(2) is mandatory with regard to all State-chartered credit unions. The additional bond provided for in G.S. § 54-109.11(5) must cover "the treasurer and all other persons handling credit union funds or records." Nothing in the statutes permits the chief financial officer or the chief executive officer of a State-chartered credit union to be substituted for the persons specified.

The provisions of G.S. § 54-109.21(25) have also been considered, and we are of the opinion that they have no relevance here.

LACY H. THORNBURG Attorney General

Henry T. Rosser Special Deputy Attorney General