THE ATTORNEY GENERAL
OF -XAS
W’ILL WILSON
AlTORNEY GENERAI.
March 8, 1961
Hon. J. M. Falkner Opinion No. WW-838-A
Banking Commissioner
of Texas Re: Whether a credit union
Department of Banking is prohibited from en-
Austin 14, Texas gaging in business in
more than one place or
maintaining a branch
office, under provisions
of Art. 342-903 and
Art. 2463, V.C.S.
Dear Mr. Falkner:
Upon reconsideration, Opinion No. WW-838 is ,withdrawn,
and this opinion substituted in lieu thereof.
You have requested the opinion of this office as to the
authority of a credit union incorporated under the provisions
of Article 2463, V.C.S., to engage in business in more than
one place or maintain a branch office.
Article 2463, V.C.S., is in part as follows:
"Ten (10) or more residents of this
State may associate themselves to-
gether by Articles of agreement and
form a credit union and upon approval
of the State Banking Board, may be-
lating State banks as may be applicable
'co the transaction of business as herein
authorized to be done... "(Emphasis
supplied through-out).
Article 2462, V.C.S., provides that a credit union
"may receive the savings of its members in payment for shares
or as de osits It may lend mone to its me%bers within
the +*"
limits an subject to dictions provided by
law...."
Article 2466, V.C.S., provides that the by-laws of the
credit union "shall prescribe...6. The conditions on which
deposits may be made and withdrawn."
.
Hon. J. M. Falkner, page 2 (WW-838-A)
While it is immediately apparent from the above provi-
sions that 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 asso-
ciations are not “banks” as that term Is defined in the Texas
Banking Code of 1943 (Article 342-101 et seq., V.C.S.) or as
that term is commonly used and 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, and in fact, the functi’ns
and underlying concept of a credit union are basically 8,ifferent
from those of a commercial bank. For example, a bank qerves
the general public, whereas a credit union is organized “for
the purpose of promoting thrift among its members” (Art. 2461),
and may lend money to members only (Art. 2462). The by-laws of
a credit union are required to prescribe the conditions of
residence or occupation which qualify persons for membership
(Art. 2466), which is usually employment by or in a specified
corporation or governmental unit. Without going into great de-
tail, commercial banks provide a number of functions and ser-
vices which credit unions cannot, such as the transfer of funds
by drafts or bills of exchange, the providing of checking accoun is,
trust departments and safety deposit boxes.
Banks, of course, serve as depositories for both private
and public funds, whereas the capital, deposits and surplus funds
of a credit association which are not lent to its members must be
deposited in state or national banks or savings and loan asso-
ciations or trust companies approved by the Banking Commissioner,
or Invested in certain government bonds (Art, 2462 and 247.5).
The fact that credit unions do not serve as depositories
for their own funds points up another distinction between banks
and credit unions, namely, ,the location and type of place In
which each transacts its authorized business, A state bank is
authorized by Article 342-501 to invest a specified percentage
of its capital and surplus In a domicile, including land and
building, plus an additional amount In furniture and fixtures.
Additionally, Article 342-903 specifically provides:
“No state, national or private bank shall
engage in business in more than one place,
maintain any branch office or cash checks
or receive deposits except in its own
banking house.. . . ”
There is no provision in the basic legislation estab-
lishin and governing credit unions (Articles 2461 through 2484b,
V.C.S. 7 which specIfIcally authorizes or prohibits a credit
Hon. J. M. Falkner, page 3 (Ww-838-A)
union from engaging In business in more than one place or
maintaining a branch office. The question thus presented f$r
determination Is whether that part of Article 2403 reading ...
may become a corporation upon complying with such provisions
of the law regulating State banks as may be applicable to
the transaction of business as herein authorized to be done"
makes the law prohibiting a State bank from engaging In
business in more than one place or cashing checks or receiving
deposits except in Its own banking house applicable to the trans-
action of business authorized to be done by credit unions. We
have concluded that the restriction against engaging in business
in more than one place contained in the Banking Code is not ap-
plicable to the business transacted by credit unions incorporated
under the provisions of Article 2463.
The statutes and the nature of the business conducted by
commercial banks and credit unions respectively, clearly contem-
plate that a commercial bank will conduct Its functions in a
specific structure{, its banking house, and indeed In everyday
language the word bank" brings to mind the massive columns,
granite or marble facade and austere dignity of the buildings
favored in previous years or the glass and aluminum, the drive-
in windows and contemporary atmosphere of more recent design.
A credit union, on the other hand, ordinarily serves Its members
from an office or space rented or set aside in the plant or pub-
lic building housing its members. Indeed, the instruction sheet
furnished by the State Banking Department to those planning on
organizing a credit union suggests:
"Solicit the assistance of the sponsoring
company or employer, and if possible,
arrange.... for office space or othtr
quarters for your credit union....
It is easy to imagine that a credit union sponsored by a
company with more than one plant would have difficulty serving
its members if it could not maintain some type of facility, or
transact business at the various plants where a part of the
members work. It is difficult to conceive of any such activity
on the part of credit unions resulting In the concentration of
financial power which the provision against branch banking con-
tained in Article 16, Sec. 16 of our Constitution was apparently
designed to guard against.
We therefore conclude that the basic differences in the
business transacted by a commercial bank and a credit union make
inapplicable to credit unions that portion of the Banking Code
prohibiting a State bank from engaging in business in more than
one place.
Hon. J. M. Falkner, page 4 (WW-838-A)
SUMMARY:
A credit union is not prohibited from
engaging in business in more than one
place or maintaining a branch office
under provisions of Article 342-903
and Article 2463, V.C.S.
Very truly yours,
WILL WILSON
Attorney General
As'sistant, ':' ,' '.
APPROVED:
OPINION COMMITTEE
W. V. Geppert, Chairman
Arthur Sandlln
W. Ray Scruggs
Robert T. Lewis
REVIEWEDFOR THE ATTORNEYGENERAL
By: Leonard Passmore