. .,.
The Attorney General of Texas
December 21, 1982
MARK WHITE
Attorney General
Honorable Oscar H. Mauzy Opinion No. MI.&524
Supreme Court Building
Chairman
P. 0. BOX 12546
Austin, TX. 76711. 2548
Senate Committee on Jurisprudence Ret Regulation by credit
512,475.2501 Texas State Senate union connnissioner of credit
Telex 9101874-1367 State Capitol union loans
Telecopier 51214750266 Austin, Texas 78711
1607 Main St., Suite 1400
Dear Senator Mauzy:
Dallas, TX. 75201.4709
2141742-6944 You have inquired about article 2461-7.02, V.T.C.S., of the Texas
Credit Union Act, which limits the lending powers of credit unions as
follows:
4624 Alberta Ave., Suite 160
El Paso. TX. 79905.2793
9151533.3464 No credit union may make a loan or aggregate of
loans to any one member in an amount greater than
10 percent of the unimpaired capital and surplus
1220 Dallas Ave., Suite 202
Houston, TX. 77002.6966
of the credit union.
7131650-0666
You pose the following questions regarding the application of
this article:
606 Broadway. Suite 312
Lubbock. TX. 79401-3479
8061747-5238
1. Is the credit union commissioner allowed to
pierce the corporate veil in determining whether
the ten percent limitation on loans to an official
4309 N. Tenth. Suite B of a credit union has been reached; and
McAllen, TX. 76501-1685
5121662-4547
2. Must the commission consider each loan to a
corporation, whether controlled by an officer of
200 Main Plaza, Suite 400 the credit union or not, as a separate and
San Anfonio. TX. 76205-2797 distinct transaction subject to the ten percent
5121225-4191 limitation?
An Equal Opportunity/ YOW questions concerning article 2461-7.02 arise in
Affirmative Action Employer circumstance where a credit union officer and a corporation controlled
by that officer receive credit union loans, the total amount of which
exceeds ten percent of the unimpaired capital and surplus of the
credit union. You ask generally whether the credit union commissioner
has the power to disregard the controlled corporate entities and
aggregate the loans in enforcing the ten percent limit of article
2461-7.02.
p. 1898
Honorable Oscar H. Mausy - Page 2 (MW-524)
Initially, we note that the article 2461-7.02 limitation applies
to loans made to "members" of a credit union. Indeed, a credit union
is authorized to make loans only to its members. V.T.C.S. art.
2461-7.01. Consequently, we answer your inquiries more generally as
that article applies to loans to any credit union member, not just
members who are officers. It should be noted, however, that loans to
officers are subjected to special scrutiny under the act. See
V.T.C.S. art. 2461-7.05.
The credit union commissioner has specific statutory authority to
determine whether a particular practice by a credit union violates the
Credit Union Act. V.T.C.S. art. 2461-5.09(a)(l), (2). This power to
find violations necessarily implies the power to decide whether a
particular practice is, in fact, violating the act, and consequently
involves interpretation of the act itself. As with all administrative
adjudications, the commissioner's decision as to whether article
2461-7.02 is violated involves interpretation of the scope of that
article. Therefore, it falls under the primary jurisdiction of the
commissioner to determine whether, under applicable standards of law,
an aggregation of loans to a member and a corporation controlled by
that member violates article 2461-7.02.
Disregarding the corporate entity is an equitable doctrine
invoked to protect matters of public policy. Pacific American
Gasoline Company v. Miller, 76 S.W.2d 833, 851 (Tex. Civ. App. -
Amarillo 1934, writ ref'd); Roylex, Inc. v. Langson Brothers
Construction Company, 585 S.W.2d 768, 771 (Tex. Civ. App. - Houston
[lst Dist.] 1979, writ ref'd n.r.e.). Among the reasons justifying
the application of this doctrine is frustration of a statute's
purpose. Particularly with regulatory statutes, whenever the use of a
corporation circumvents the statutory purposes, it is proper to
disregard the corporate entity in enforcing the statute. Delaney v.
Fidelity Lease Ltd., 526 S.W.2d 543, 546 (Tex. 1975); Sapphire Homes.
Inc. V. Gilbert, 426 S.W.2d 278, 283 (Tex. Civ. App. - Dallas 1968,
writ ref'd n.r.e.); Beneficial Finance Company v. Miskell, 424 S.W.2d
482, 484 (Tex. Civ. App. - Austin 1968, writ ref'd n.r.e.).
Turning to the present inquiry, it would be proper to disregard a
corporation's existence if it was determined that use of the corporate
entity resulted in circumvention of the purposes of the ten percent
loan limit of article 2461-7.02. One of the primary purposes of that
article is to insure credit union solvency and viability by
prohibiting a concentration of loans in a single entity. Due to the
inherent limitations on capital infusion available to credit unions,
it is important to minimize lending risks by diversifying loans among
borrowers. A high level of concentration of loans in a single
responsible entity could have severe financial consequences to a
credit union should that entity go into default.
p. 1899
. -
Honorable Oscar H. Mausy - Page 3 (NW-524)
In the case of loans to a controlled corporation, it may be
determined that actual or ultimate responsibility for those loans lies
with the controlling member. In light of the risk prevention purpose
of article 2461-7.02, the corporate entity could be ignored and the
loans could be treated as loans of the member in calculating whether
the ten percent loan limit has been exceeded.
Many factors are relevant to a decision to aggregate such
corporate loans under article 2461-7.02, including the degree of
control by the member, the capitalization and current financial
position of the corporation, the use of the loan money, the collateral
for the loan, and guarantors or co-signers of the loan. In light of
these and other relevant factors, if the commissioner determines that
the use of the corporate entity would frustrate the statutory purpose
he would have authority to aggregate the corporate loans with those
of the controlling member in enforcing the ten percent loan limit.
See generally Hamilton, The Corporate Entity, 49 Tex. L.Rev. 979,
997-998 (1971).
Therefore, we conclude that when the commissioner determines that
the purpose or effect of loans to a member and a corporation
controlled by that member violate the policies of the ten percent loan
limit of article 2461-7.02, he has authority to disregard the
corporate entities and aggregate the loans for purposes of enforcing
that article.
SUMMARY
The credit union commissioner has the authority
to disregard a corporate entity and aggregate
credit union loans to a corporation with loans to
the member controlling the corporation, for
purposes of determining whether the ten percent
loan limit of article 2461-7.02, V.T.C.S., has
been violated.
MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
p. 1900
.. .
Honorable Oscar H. Mauzy - Page 4 (MW-524)
Prepared by Thomas M. Pollan
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Susan L. Garrison, Chairman
Rick Gilpin
Patricia Hinojosa
Jim Moellinger
Thomas M. Pollan
p. 1901