Or. Admin. R. 441-720-0300

Current through Register Vol. 63, No. 6, June 1, 2024

Section 441-720-0300 - Definitions

(1) "Associated borrower" means any other person or entity with a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower. This means any person or entity named as a borrower or debtor in a loan or extension of credit, or any other person or entity, such as a drawer, endorser, or guarantor, engaged in a common enterprise with the borrower, or deriving a direct benefit from the loan to the borrower.

(2) "Commercial loan" means:

(a) Any loan, line of credit, or letter of credit, and any interest a credit union obtains in such loans made by another lender, to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, but not for personal expenditure purposes.

(b) Excluded from this definition are loans made by a corporate credit union; loans made by a federally insured credit union to another federally insured credit union; loans made by a credit union to a credit union service organization; loans fully secured by shares, including deposits, in the credit union making the extension of credit or in other financial institutions; loans secured by a one-to-four (1-4) family residential property (whether or not it is the borrower's primary residence); loans secured by a vehicle manufactured for household use that will be used for a commercial, corporate, other business investment property or venture, or agricultural purpose (unless a fleet of six or more vehicles); and loans that would otherwise meet the definition of commercial loan and which, when the aggregate outstanding balances and unfunded commitments to a borrower or an associated borrower, less any loans fully secured by shares, including deposits, are equal to less than $50,000. The definition of "commercial loan" also excludes covered loans issued under the Small Business Administration's Paycheck Protection Program.

(3) "Common enterprise" means:

(a) The expected source of repayment for each loan or extension of credit is the same for each borrower and no individual borrower has another source of income from which the loan (together with the borrower's other obligations) may be fully repaid. An employer will not be treated as a source of repayment because of wages and salaries paid to an employee, unless the standards described in paragraph (b) of this definition are met;

(b) Loans or extensions of credit are made:

(A) To borrowers who are related directly or indirectly through common control, including where one borrower is directly or indirectly controlled by another borrower; and

(B) Substantial financial interdependence exists between or among the borrowers. "Substantial financial interdependence" means 50 percent or more of one borrower's gross receipts or gross expenditures (on an annual basis) are derived from transactions with another borrower. Gross receipts and expenditures include gross revenues or expenses, intercompany loans, dividends, capital contributions, and similar receipts or payments; or

(c) Separate borrowers obtain loans or extensions of credit to acquire a business enterprise of which those borrowers will own more than 50 percent of the voting securities or voting interests.

(4) "Community development financial institution" means a financial institution, with a primary mission of community development that provides credit and financial services to under served markets and population and is certified by an entity recognized by the director.

(5) "Construction or development loan" means a financing arrangement for acquiring property or rights to property, including land or structures, with the intent to construct or renovate an income-producing property such as residential housing for rental or sale; or a commercial building for industrial use; or similar uses. It also means a financing arrangement for the construction, major expansion, or renovation of the property types referenced in this section.

(6) "Control" means a person or entity directly or indirectly, or acting through or together with one or more persons or entities:

(a) Owns, controls, or has the power to vote 25 percent or more of any class of voting securities of another person or entity;

(b) Controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of another person or entity; or

(c) Has the power to exercise a controlling influence over the management or policies of another person or entity.

(7) "Credit risk rating system" means a formal process that identifies and assigns a relative credit risk score to each commercial loan in a credit union's portfolio, using ordinal ratings to represent the degree of risk. The credit risk score is determined through an evaluation of quantitative factors based on financial performance and qualitative factors based on management, operational, market, and business environmental factors.

(8) "Direct benefit" means the proceeds of a loan or extension of credit to a borrower, or assets purchased with those proceeds, that are transferred to another person or entity, other than in a bona fide arm's-length transaction where the proceeds are used to acquire property, goods, or services.

(9) "Director" means the director of the Department of Consumer and Business Services.

(10) "Immediate family member," for the application of this rule, means a spouse or other family member living in the same household.

(11) "Loan secured by a 1-4 family residential property" means a loan that, at origination, is secured wholly or substantially by a lien on a 1-4 family residential property for which the lien is central to the extension of the credit; that is, the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan is wholly or substantially secured by a lien on a 1-4 family residential property if the estimated value of the real estate collateral at origination (after deducting any senior liens held by others) is greater than 50 percent of the principal amount of the loan.

(12) "Loan-to-value ratio or LTV ratio" means the aggregate amount of all sums borrowed, including senior liens, outstanding balances, and any unfunded commitments secured by the collateral, divided by the market value of the collateral. The current collateral value must be established by prudent and accepted commercial lending practices and comply with all regulatory requirements. For a construction and development loan, the collateral value is the lesser of cost to complete or prospective market value, as determined in accordance with applicable subsection of OAR 441-720-0355.

(13) "Low-income designation" means a credit union that has received the designation from the National Credit Union Adminstration (NCUA) or the director because of the income thresholds of the members or field of membership.

(14) "Member business loan" means any commercial loan as defined in OAR 441-720-0300(2) of this part, and any loan secured by a vehicle manufactured for household use that will be used for a commercial, corporate, other business investment property or venture, or agricultural purpose if the aggregate member business loan balance and unfunded commitments to a member and associated borrowers is $50,000 or greater.

(15) "Net member business loan" means the amount of the outstanding balances and unfunded commitments of the member business loans, reduced by any loan in which a federal or state agency (or its political subdivision) fully insures repayment, fully guarantees repayment, or provides an advance commitment to purchase the loan in full or any loan that is fully secured by a lien on a 1-4 family dwelling; or any portion of a loan sold as a participation interest without recourse and qualifying for true sales accounting under Generally Accepted Accounting Principles (GAAP).

(16) "Net worth" means retained earnings of the credit union at quarter-end as determined under Generally Accepted Accounting Principles (GAAP). Retained earnings normally includes undivided earnings, regular reserves and any other appropriations designated by management or regulatory authorities. It does not include the allowance for loan and lease losses account.

(17) "NCUA" means the National Credit Union Administration.

(18) "Residential property" means a house, condominium unit, cooperative unit, manufactured home (whether completed or under construction), or unimproved land zoned for 1-4 family residential use. A boat or motor home, even if used as a primary residence, or timeshare property is not residential property.

Or. Admin. R. 441-720-0300

FCS 2-2002, f. & cert. ef. 8-27-02; FSR 1-2022, amend filed 05/18/2022, effective 6/1/2022

Statutory/Other Authority: ORS 723.102

Statutes/Other Implemented: ORS 723.152, 723.156 & 723.512