BANKS AND BANKING ‑- CREDIT UNIONS ‑- LOANS ‑- PERMISSIBLE DURATION OF LOANS BY STATE REGULATED CREDIT UNIONS
A state regulated credit union may legally take action which will have the effect of extending a loan beyond the applicable four-year or eight-year statutory limit without violating RCW 31.12.270, but only so long as the extension is and remains at the discretion of the credit union and does not become, in some manner, a contractual right of the borrower.
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March 14, 1978
Honorable Mary Kay Becker
State Representative, 42nd Dist.
P.O. Box 81
South Bellingham Station
Bellingham, Washington 98225 Cite as: AGLO 1978 No. 9
Dear Representative Becker:
By letter previously acknowledged you requested an opinion from this office on the following question:
"Does the final sentence of RCW 31.12.190, which requires that unsecured credit union loans be payable within four years, and secured loans within eight years from the date of the loan, prevent the automatic short-term deferral of a declaration of delinquency of a maximum term loan in the event of an unforeseen non-payment by a member for reasons of temporary non-receipt of wages through the members temporary disability or because of strike or lockout?"
We answer this question in the manner set forth in our analysis.
[[Orig. Op. Page 2]] ANALYSIS
RCW 31.12.270 generally describes the classes of loans which state regulated credit unions are authorized to make and ends with the following paragraph:
"Personal loans shall be given preference, and in the event there are not sufficient funds available to satisfy all loan applicants approved by the credit committee, further preference shall be given to the smaller loan. Each personal loan shall be payable within four years from the date thereof: PROVIDED, That loans with satisfactory security may be made payable within eight years from the date thereof." (Emphasis supplied)
Your question is whether the statutory language which we have here underscored prevents a credit union from granting an automatic short-term deferral of a declaration of delinquency of a maximum term loan in the event of the unforeseen nonpayment by a member-debtor for any of several stated reasons. The key word in the question is "automatic." Unfortunately, however, neither your letter nor the supporting material you have also sent to us describes a particular credit union policy in sufficient detail to explain exactly what is intended to be denoted by that word. Therefore, it will be necessary for us, in turn, to answer in a somewhat equivocal manner.
As we view it, the important factor is whether or not the borrower under the particular arrangement in question enjoys a contractual right to an "automatic" deferral of his loan payments in case of the occurrence of some contingency, such as a strike or other work stoppage. Obviously, the borrower would have such a contractual right if the "automatic" deferral provision were written into the terms of his loan agreement or note. In such a case, there would be conditions or contingencies under which the borrower would have an absolute contractual right to an extension of the loan beyond the statutory maximum time ‑ and such a loan would therefore violate the provisions of RCW 31.12.270 which we have quoted above.
Conversely, however, we can readily visualize a situation in which the credit union does not include any "automatic [[Orig. Op. Page 3]] deferral" provisions in its lending agreements, nor otherwise make any unconditional promise to the borrower to defer his loan, but does have some sort of a formal or informal policy of "automatically" deferred certain types of loans in the event of a work stoppage or other payroll interruption. In such cases, the borrower will have no absolute contractual right to a deferral and any deferral will, instead, take place only at the discretion of the credit unionif one of the stated contingencies arises andif, in the meantime, the credit union has not reversed or modified its policy of granting a deferral in those cases. And in this second situation, unlike the first, we see no violation of the cited statute since the loans involved would not be extended beyond the statutory maximum period except at the discretion of the credit union in the exercise of its business judgment about a particular case.1/
In conclusion, what we are saying, in essence, is this: A credit union may legally take action which will have the effect of extending a loan beyond the applicable four-year or eight-year statutory limit without violating RCW 31.12.270, but only so long as the extension is and remains at the discretion of the credit union and does not become, in some manner, a contractual right of the borrower.
We trust that the foregoing will be of assistance to you.
Very truly yours,
JAMES K. PHARRIS
Assistant Attorney General
*** FOOTNOTES ***
1/Even in this situation, of course, the credit union will run some risk that the supervisor of savings and loan associations will, pursuant to RCW 31.12.230, declare the loan delinquent and require the credit union to charge off or set up a reserve fund for the loan. That possibility does not, however, alter the fact that the loans in themselves will not be in violation of RCW 31.12.270,supra.