THE ATTORNEY GEXEIRAL
OF ?FEXAS
December 30, 1986
x,TQRXRY QEXRRAL
@mrabIe F. A. Cerda Opinion No. ~~-604
District Attorney
P. 0. Box 340 Re: Whether a political subdivision
Eebbronville, Texas 78361 may designate a credit union as a
depository of public funds
Dear Mr. Cerda:
You ask whether a general law city may designate a credit union
as a depository for municipal funds. We conclude that it may not.
Your question arises because of a conflict between article
2+61-4.01(a)(S), V.T.C.S.. setting forth the powers of a credit union
and articles 2559 et seq..,V.T.C.S., governing a city’s selection of a
depository. Article 2559, V.T.C.S., p.rovides the following in
pertinent part:
The governing body of every city, town and village
in the State of Texas. incorporated under either
the General or Special Laws, including those
operating under special charter or amendments of
charter adopted pursuant to the ‘Eome Rule’
provisions of the Constitution, is authorized to
receive applications for the custody of city funds
.from any banking corporation, association or
Individual banker that may desire to be selected
as a depository of the city, town or village.
(Emphasis added).
Article 2560. V.T.C.S., sets forth the following in pertinent part:
Upon considering the applications submitted, the
novernina bodv shall select as the deuositorv or
-
depositoiies bf such funds the banking corpora-
tions, association or individual banker or bankers
offering the most favorable terms and conditions
for the handling of such funds. (Emphasis added).
Article 2461-4.01, V.T.C.S., sets forth the general powers of a credit
union. Subsection (a) specifically provides that
p. 2699
Honorable F. A. Carda - Page 2 (~~-604)
[a] credit'union may exercise all powers nacessary
or appropriate to accomplish the purposes for
which it is organized and all powers granted
corporations authorized to do business in this
state. These powers include, but are not limited
to, the power to:
. . . .
(8) act as agent or depository of the United
States, any agent or instrumentality of the United
States, this or any other state, ot any city,
town. village, county, school district. municipal
corporation, political subdivision, or taxing
authority of this or any other state, accept for
deposit the funds of such an entity or both. . . .
(Emphasis added).
V.T.C.S. art. 2461-4.01(a)(8). It is clear that a credit union is
authorized to act as a depository of a city's public funds. At issue
is whether a city may choose a credit union as a depository and
specifically whether a credit union is a "banking corporation,
sssociation or.individual banker" for purposes of article 2559 c
s, V.T.C.S. On the basis of .prior authority, we conclude that it
is not. Article 2461-4.01. V.T.C.S., authorizes credit unions to
.receive deposits from political subdivisions; it does not authorize
political subdivisions to make such deposits in. credit unions.
-See Attorney General Opinion H-723 (1975).
Ii Attorney General Opinion MW-534 (1982). this office concluded
that neither a credit union nor a' ssvings and loan could serve as a
depository for a hospital district. Citing prior opinions of this
office which hold that savings and loan associations were not embraced
.by the phrase "banking corporation, association or individual banker"
for purposes of articles 2544 through 2558a. V.T.C.S., governing a
county's selection of a depository (made applicable to hospital
districts by article 4494n. 110, V.T.C.S.), the opinion extended the
same rationale to credit unions as well. See Attorney General
Opinions MW-272 (1980) (reaches credit unions aGel as savings and
loan associations); E-1013 (1977) (soil and water conservation
district not authorized to deposit funds in savings and loan
associations); E-723 (1975) (same with regard to political sub-
divisions); M-22 (1967) (concluding that "banking corporations,
associations or individual banker" does not include savings and loan
associations for purposes of the depository statutes). Cf. Attorney
General Opinion JM-42 (1983) (PTA funds may be depositedin credit
union where statutes do not govern disposition of funds). The opinion
relied in part upon the policy considerations set forth In an earlier
opinion of this office, Attorney General Opinion WW-838-A (1961).
which held inapplicable to credit unions an article of the banking
p. 2700
Honorable F. A. Cerda - Page 3 (J-M-604)
code which prohibits "branch banking." In that earlier opinion this
office declared:
[Although] credit unions exercise two of the most
important functions of banking, the receiving of
deposits and the lending of money, it must be
recognized that credit unions or associations are
not 'banks' as that term is defined in the Texas
Banking Code of 1943 . . . [citation omitted1 or
as that term is commonly used or understood.
Furthermore, the operations of a credit union In
receiving deposits or lending money are
substantially different from the corresponding
operations of a commercial bank, snd in fact, the
functions and underlying concept of a credit union
are basically different from those of a commercial
bank.
The opinion then detailed other basic functions of banking that
distinguish both banks from credit unions and banks from savings and
loan associations. Cf. Attorney General Opinion NW-1498 (1962))
withdrawn and replaced by Attorney General Opinion NW-1498-A (1963)
(also indexed as -Attorney-General bpinion C-87 (1963)). Accordingly,
we conclude that a city may not designate a credit union as a
depository.
SUMMARY
Article 2559, V.T.C.S., does not authorize s
city to designate a credit union as a depository
for city funds.
JIM MATTOX
Attorney General of Teras
JACK HIGHTONER
First Assistant Attorney General
MARY KFLLER
Executive Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Jim Moellinger
Assistant Attorney General
p. 2701