STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LEON COUNTY TEACHERS CREDIT )

UNION, et al., )

)

Petitioner, )

)

vs. ) CASE NO. 76-2091

)

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF BANKING, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice final hearing in this cause was held before the undersigned Hearing Officer of the Division of Administrative Hearings, beginning on March 16, 1977, and continuing thereafter on March 17, 18, 21, 22

and 24, 1977.

APPEARANCES

For Petitioners: F. Perry Odom and Dean Bunch

Ervin, Varn, Jacobs, Odom and Kitchen Post Office Box 1170

Tallahassee, Florida 32302

and Charles P. Siebold

Bell, Blake and Metzner Post Office Box 1807 Madison, Wisconsin 53701

For Respondent: Ryland Terry Rigsby

Acting General Counsel Office of the Comptroller The Capitol

Tallahassee, Florida 32304

For Intervenors: J. Thomas Cardwell and

Nicholas Yonclas

Akerman, Senterfitt and Eidson Post Office Box 231

Orlando, Florida 32802

Petitioners in this cause are: Leon County Teachers Credit Union, Pinellas County Teachers Credit Union, Duval County Teachers Credit Union, Publix Employees Credit Union, Florida Credit Union League, and Karen G. Gerrell. The Respondent is the Department of Banking and Finance. The Intervenors are the Florida Bankers Association and the Florida National Bank at Lakeland.

This cause was initiated by the Petitioners' Petition For Hearing filed with the Comptroller on November 12, 1976. Thereafter, the Comptroller transferred the Petition For Hearing to the Division of Administrative Hearings for a formal hearing pursuant to Chapter 120, Florida Statutes. On December 14, 1976, the Intervenors filed a Motion For Leave To Intervene which was granted at a hearing on the motion held on January 3, 1977. On January 10, 1977, a hearing was held on all then pending motions, which included the Intervenors' Motion To Dismiss, Motion To Strike and Alternative Motion For More Definite Statement, and the Respondent's Motion To Strike. These motions, with the exception of the Intervenors' Alternative Motion For More Definite Statement, which was withdrawn, were denied. Thereafter, the Intervenors and the Respondent filed motions for summary judgment which were heard on February 21, 1977 and denied.

At the conclusion of the presentation of testimony, evidence and argument by the parties to this cause at final hearing, opportunity was given to the general public to make comment and present testimony and evidence. There was no such comment or testimony or evidence presented.

Having heard the evidence presented by the parties and having considered the arguments and briefs of counsel the Hearing Officer enters the following:

FINDINGS OF FACT

1. In the United States in the twentieth century credit unions were conceived as cooperative societies incorporated for the two-fold purpose of promoting thrift among their members and creating a source of credit for their members at legitimate rates of interest for provident purposes. This has remained the raison d'etre of credit unions since their proliferation which began in the first third of this century. As such cooperative lending associations they have allowed people with limited means a way of pooling their savings to make a source of funds available for low interest loans.

   
   

2. In Florida there have been several methods of withdrawal traditionally used by members of credit unions to withdraw funds from their deposit or share accounts. The first of these methods has been a direct personal visit by the member to the credit union to execute the withdrawal. Over the years however it has become common for many withdrawals by members to be made pursuant to telephone instructions by the member to the credit union, by letter from the member to the credit union, or by continuing instructions from the member to the credit union ordering the withdrawal of certain sums periodically. Frequently the recipient of these withdrawals has been the member himself or herself. However it is common for these withdrawals to be paid to third parties such as the member's creditors, family members, insurance companies or other financial institutions, at the member's direction.

   
   

3. These withdrawals have usually been paid by a check from the credit union drawn on the credit union's local bank account or in cash. However, credit unions have also utilized methods of payment such as drafts, electronic funds transfer or other internal or external accounting transactions between and among institutions where the credit union may have established accounts.

   
   

4. The Florida Statutes and the Florida Administrative Code are silent with regard to the manner in which a credit union member may withdraw his or her shares or deposits or a part thereof.

   
   

5. Over their years of development credit unions have instituted many programs for their members which have been accepted as furthering the purpose of

   the credit union as a thrift institution. These programs presently include debt proration and automatic payment of bills, financial counsel inn, traveler's checks, money orders, share and deposit accounts, and certificates of deposit.

   
   

6. A share draft is a negotiable or non-negotiable draft which directs a credit union to pay funds from a member's share or deposit account to either the member or a third party designated by the member.

   
   

7. The four credit union Petitioners have share draft programs which function in essentially the same manner, their distinctions being slight. A share draft is payable through a bank and is similar to other forms of payable through drafts drawn against other non-bank institutions such as money order companies and insurance companies. A member of one of the four Petitioner credit unions who desires to use share drafts must first establish a separate share or deposit account with the credit union. The member contracts with the credit union for participation in the program. All share drafts are paid out of that account. The member receives a book of drafts with the member's name pre- printed on each draft. To the layman these drafts look like checks. However, they are not checks. A share draft can be made payable to cash or any payee in any amount, provided the draft does not exceed the available balance in the member's share draft account. A share draft may be presented directly to the credit union by a member to withdraw cash from the member's share draft account, or, a payee who has received a share draft from a member may bring it to the credit union for payment from the member's share draft account. Ordinarily, however, a payee who has received a share draft from a member will deposit the draft in the payee's own bank account. The draft will then be delivered to the credit union's payable through bank through the normal bank clearing channels used also for checks. The information on the draft is extracted by the payable through bank and converted either to an electronic medium or some other form of communication medium which is then used to deliver a request to the credit union for payment of the draft.

   
   

8. Three of the credit union Petitioners in this cause, Pinellas County Teachers' Credit Union, Duval County Teachers' Credit Union, and Publix Employees' Credit Union participate in the share draft program originated and sponsored by ICU Service Corporation, and use the Chase Manhattan Bank as the payable through bank. The fourth credit union Petitioner, Leon County Teachers' Credit Union, is not a part of the ICU Service Program, and utilizes the Capital City First National Bank of Tallahassee as its payable through bank. One of the differences between the ICU program and that utilized by the Leon County Teachers' Credit Union is the manner in which the payable through banks collect from the credit unions the money they paid out each day on drafts delivered to them. In the ICU program, the payable through bank (Chase) collects by the issuance of a pre-authorized draft drawn on the involved credit union's regular bank. In the Leon County Teachers' Credit Union there is no such draft and the collection is effected by debit entries on the credit union's account at the payable through bank (Capital City).

   
   

9. Unlike the other three credit union Petitioners, Leon County Teachers' Credit Union, Petitioner herein, refers to its program as a "thrift account program" and refers to the instruments used by the members as "withdrawal checks", as opposed to share drafts. However, these are differences of form and not substance. The programs of all four credit union Petitioners are herein referred to as "share draft programs" and the payment instruments used in those programs are referred to as "share drafts". The instruments are, in their design, drafts and not checks. Drafts are a common instrument of commerce and are drawn on, and paid by, a wide variety of organizations other than banks.

10. The share draft programs of the credit union Petitioners were instituted to allow credit unions to provide a contemporary means of withdrawing funds maintained in a member's share or deposit account and to offer a transaction account, i.e. an account into which funds could be deposited and on which a payment instrument could be drawn for the depositor to pay his obligations to third parties.

    
    

11. Without regard to the share draft programs many members of credit unions, at least in recent years, have deposited a substantial portion of their pay check in their credit union accounts with the apparent intention of quickly withdrawing the bulk of the deposit to meet their current expenses. Thus, members of credit unions who have so acted have in effect used their share and deposit accounts for transaction purposes on a regular basis.

    
    

12. A program very important to a credit union's performance of its responsibilities is the payroll deduction system whereby a member may authorize his or her employer to deduct from his or her pay check an amount which will automatically be deposited in the credit union each pay day. This payroll deduction system enables members to establish regular patterns of thrift and savings. It further enables members who have previously borrowed money from the credit union to liquidate their debts in a financially prudent and systematic manner. The payroll deduction system also provides a regular and steady flow of funds into members' accounts thus giving credit unions relatively stable assets with which to meet the loan needs of their members. Various governmental agencies have recently attempted to establish for the beneficiaries or employees of their programs direct deposit systems for the transfer of government benefits such as social security, retirement, payroll, and disability compensation into an account at the beneficiary's or employee's chosen financial institution. To maintain the economy of these direct deposit programs, the governmental agencies who disburse the funds have mandated or may reasonably be expected to mandate in the future, that the entire check must go to one financial institution, thus eliminating the possibility that the recipient would direct a portion of the check to his or her credit union with the remainder going to another financial institution. The expansion of this direct deposit concept, with its limitation on dividing the check, to include payroll checks, is a possibility in the near future. The Petitioners herein are seriously concerned that without the ease of withdrawal promoted by the share draft programs, the members who are now depositing a portion of their check in a payroll deduction system will, with the advent of limitations on dividing checks, choose to deposit their funds elsewhere than a credit union, thus depriving the credit union of funds presently available for the meeting of their statutory responsibilities. The share draft programs offer a transaction account which provides a convenient vehicle for the withdrawal of funds by members from their credit union, thereby making the credit union an attractive repository for the entire pay check of its members in a payroll deduction system or other benefits deduction system wherein it is required that the entire check be deposited in one institution.

    
    

13. As noted above the concept of a share or deposit account being used as a transaction account by credit union members predates share draft programs. Thus, while the share draft programs provide a more convenient method of withdrawal to credit union members, the share draft programs themselves do not introduce the concept of using credit union accounts as transaction accounts. This concept already exists. The share draft programs do, however, offer the opportunity for extensive expansion of this concept.

14. To the extent that the business world readily accepts share drafts as payment of debt in lieu of a check or cash, share draft programs, in their practical effect, are essentially identical to the checking account system of this country which traditionally has been a unique function of commercial banks.

    
    

15. Prior to the commencement of their share draft programs, each of the Petitioner credit unions sought and received the permission of the Office of the Comptroller, State of Florida, for the conduct of the programs. In each case this permission was received, by letter, from Daniel T. Burnette, Director, State Credit Unions, Office of the Comptroller, State of Florida. Beginning prior to the commencement of the share draft programs and continuing to the date of hearing, the Office of the Comptroller has been kept fully informed by the Petitioner credit unions of the institution and conduct of their share draft programs. The Petitioner credit unions have had no reason to believe that the Director of State Credit Unions for the Office of Comptroller did not speak with the authority of that office. By letter dated November 1, 1976, the Comptroller of the State of Florida notified the Petitioner credit unions of his intent to terminate their share draft programs, which termination led to this proceeding.

    
    

16. The By-laws of the Publix Employees' Credit Union, in Article X, Section 5, state that "[a]ll payments or withdrawals of money for any purpose may be made by cash or check." The By-laws of the Pinellas County Teachers' Credit Union, in Article X, Section 5, state that "[a]ll payments or withdrawals of money for any purpose shall be made by check." The By-laws of the Leon County Teachers' Credit Union, in Article X, Section 5, state that "[a]ll payments or withdrawals of money for any purpose shall be made by check, excepting share and deposit withdrawals and loan advances which may be made in cash in accordance with policies set forth by the Board of Directors." The By- laws of the Duval County Teachers' Credit Union do not contain any restrictions or prohibitions on the manner in which payments or withdrawals may be made or allowed by the credit union.

    
    

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction of this proceeding.

    
    

18. The parties to this proceeding were afforded notice as required by law of this proceeding.

    
    

19. Subsection 657.01(1), Florida Statutes, states that:

    
    

    "A 'credit union' is a cooperative society incorporated for the twofold purpose of promoting thrift among its members and creating a source of credit for them at legitimate rates of interest for provident purposes."

    
    

    The powers of a credit union are set forth in Section 657.04, Florida Statutes. Subsection (1) of that section states that a credit union has the power "[t]o receive the savings of its members either as payment on shares or as deposits Subsection 657.04(8), F.S., gives a credit union the power "[t]o exercise such incidental powers as shall be deemed necessary or requisite to carry on effectively the business for which it is incorporated, pursuant to rules of the department." The "department" is the Department of Banking and Finance, State of Florida, the Respondent herein.

20. Nowhere within Part 1 of Chapter 657, Florida Statutes, wherein there are set forth the general provisions dealing with credit unions, is there found a statement of how withdrawals may be made by a member of a credit union. The statute is absolutely silent on the method of withdrawals. Not only is it silent as to the method or methods by which such withdrawals may be effected, it is silent also as to whether such withdrawals are allowable at all. As to the latter, however, one must infer from the granting of the power to a credit union to receive the savings of its members, the power in a credit union to allow the withdrawal of those savings by its members. This can further be inferred through subparagraph (8) of Section 657.04, F.S., wherein a credit union is granted the right to exercise such incidental powers as shall be deemed necessary or requisite to carry on effectively its business. The permitting of withdrawals by members would certainly be a power incidental to the receipt of the savings of its members and is necessary and requisite to carry on effectively the business of the credit union. It is plain that if a credit union did not have the power to allow withdrawals, it could not accomplish its purpose because people would not deposit money in the institution knowing they could not receive it back. Thus, the power in a credit union to allow withdrawals must necessarily be inferred from the general intent and purpose of Chapter 657, Part 1, F.S. There remains the question of how that power to allow withdrawals may be exercised.

    
    

21. The administrative rules of the department are of little help in answering that question. Those rules do not address either the question of whether a credit union may allow any withdrawal or, assuming such a power, how such withdrawals may be effected. As noted in the Findings of Fact above, not only have withdrawals been allowed since the inception of credit unions in Florida, several methods of withdrawal have developed over the years. Apparently, the Department of Banking and Finance and its predecessors have felt these methods of withdrawal to be legitimate and authorized by law. No evidence was presented to show that the department or its predecessors have ever attempted, except for the matters which are the subject of this proceeding, to prohibit withdrawals or the methods by which they were occurring or to otherwise prescribe in any way, the methods which a member could withdraw his savings from a credit union. This action, by inaction, on the part of the department indicates a longstanding interpretation of the statute by the department which would give to credit unions the authority to allow withdrawals, at least in the manner in which they have occurred in the past. The actions of the agency would further indicate its interpretation of the statute to be that administrative rules for such withdrawals are not necessary, for, while being aware of the various withdrawal programs, the agency has never required withdrawal programs to be based upon administrative rules. The fact that the department has not seen fit in the past to adopt rules regulating the methods of withdrawals utilized by credit unions does not negate its present authority to do so now. Within the parameters of its regulatory discretion as defined in Chapter 657, Part 1, F.S., the department may impose any regulation it deems necessary on withdrawals and the methods used therefor.

    
    

22. Having inferred from the statute the power in a credit union to allow withdrawal by a member of his or her savings, and in the absence of agency rules on the subject, it must then be determined from the statute how that withdrawal may be effected. As noted above, the statute makes no explicit statement on the point. Therefore, it is necessary to look to Subsection 657.04(8), F.S., and a credit union's incidental powers. Just as it may be inferred that the power to allow withdrawals is an incidental power of a credit union, it can reasonably be inferred that the power to choose the method by which such withdrawals may be

    effected is also an incidental power necessary and requisite to the effective conduct of a credit union's business. Thus, the statute gives the credit union the power to establish methods by which it will allow its members to withdraw their savings. Subsection 657.04(8), F.S., includes the requirements that the exercise of such incidental powers be ". . . pursuant to rules of the department."

    
    

23. It can be argued that, in light of the foregoing language, rules of the department are pre-requisites to the exercise by a credit union of its incidental powers. The better interpretation of that language however, is that credit unions are given the right to exercise such incidental powers, but that exercise may be subjected to regulation by the department who can adopt rules setting forth such regulation pursuant to which the credit unions must adhere in the exercise of their incidental powers. The department, by its actions over many years, has apparently so interpreted the statute. The department has allowed credit unions to grant withdrawals and to establish many different methods of withdrawal without requiring, and without adopting, any administrative rules on the subject. Thus, absent regulation by the department, credit unions have the power to adopt those methods of withdrawal deemed necessary or requisite to carry on effectively the business for which they are incorporated. The department has no administrative rules pertaining to the methods by which credit unions may allow withdrawals. Therefore, the choice of methods has been left to the credit unions.

    
    

24. There is a legal distinction between drafts, generally, and checks. Checks by definition are drafts drawn on a bank and payable on demand. Subsection 673.104(2)(b), F.S. A share draft is a negotiable or non-negotiable draft which directs a credit union to pay funds from a member's share or deposit account to either the member or a third party designated by the member. A share draft as utilized by Petitioner credit unions is not a check. While the share draft programs engaged in by the Petitioner credit unions have essentially the same practical effect as the checking account system engaged in by commercial banks, this similarity of effect cannot override the legal distinction in the two programs. In legal effect a share draft is nothing more than another method of withdrawal of savings from a credit union by a member, albeit a sophisticated method and one which, by its very sophistication, is new to the credit union industry. A share draft in its legal form, is a direction to the credit union to pay an identified Person. Such withdrawals by draft or order have been allowed for several years. Credit unions have allowed withdrawals by a letter from the member to the credit union directing the credit union to pay the member or a third person and by telephone requests from a member to the credit union directing the credit union to pay the member or a third person. The share draft, in its legal effect, is a more sophisticated way of doing the same thing. Obviously, in its practical effect share drafts make it much easier for a member to withdraw money from a credit union and provide an instrument more readily acceptable by the business community for the payment of a debt than a mere letter from a member to his credit union.

    
    

25. The Petitioner credit unions have demonstrated that they deem the share draft program method of withdrawal necessary to carry on effectively the business for which they are incorporated.

26. Subsection 659.52(1), F.S., states that

    
    

    "No person other than banks shall:

    1. . . . make payments on checks . . . or transact business in the way or manner of a commercial bank or trust company . . .

       
       

       Even if the share draft programs are not technically checking accounts they do smack of the transaction of business in the way or manner of commercial banks because of the similarity in operation between share draft programs and the checking account system. However, Subsection 659.52(2), F.S., states:

       
       

       "This subsection shall in nowise restrict or impair any right, authority, or power granted . . . credit unions organized and operated under the laws of the state."

       
       

       Since it has been concluded that, absent regulation by the department, credit unions have the power and authority to allow withdrawals via share draft programs, credit unions are removed from the prohibition found in Subsection 659.52(1), F.S., by the above quoted language of Subsection 659.52(2), F.S.

       
       

27. The By-laws of the Pinellas County Teachers' Credit Union require that all payments or withdrawals "shall" be by check. The By-laws of the Leon County Teacher's Credit Union contain the same mandatory requirement except that they also allow share and deposit withdrawals and loan advances to be made in cash. The foregoing requirements are mandatory and, by their language, exclude other methods of payment. In the share draft program of the Pinellas County Teachers' Credit Union the withdrawals are paid by a pre-authorized draft which is not technically a check. In the share draft program of the Leon County Teachers' Credit Union the withdrawals are paid by the pay through bank debiting the credit union's checking account. The effect of these two methods of payment may fall within the spirit of the respective by-law requirements, but the methods do not fall within the letter of the requirement. The language on payments and withdrawals in the By-laws of the Publix Employees' Credit Union is not mandatory. It states that payments or withdrawals "may" be made by cash or check. The By-laws of the Duval County Teachers' Credit Union contain no restrictions on how payments or withdrawals may be made.

    
    

28. The Department of Banking and Finance is charged with the supervision and regulation of the credit unions of this state. Chapter 657, Part I, Florida Statutes. In the exercise of that regulatory and supervisory authority the department is given the power to adopt rules regulating the incidental powers exercised by credit unions. Subsection 657.04(8), F.S. Thus, the department has the authority to determine by rule whether an incidental power is one deemed necessary or requisite to carry on effectively the business for which a credit union is incorporated. If the department determines that an incidental power, such as share draft programs, are not deemed necessary or requisite as required by statute, the department may, in accordance with Chapter 120, F.S., adopt rules restricting or proscribing such programs. However, until such time as the department sees fit to adopt such rules, the credit unions have the authority by statute to exercise those incidental powers as they deem necessary or requisite.

RECOMMENDED ORDER

Therefore, the Hearing Officer RECOMMENDS that:

Until such time as the Department of Banking and Finance, in the exercise of its regulatory authority, properly determines by rule that share draft programs are not deemed necessary or requisite to carry on effectively the business for which credit unions are incorporated, the share draft programs of the Petitioner credit unions are allowed by law and the letter of the Comptroller of November 1, 1976, should be withdrawn. The department, in its discretion, may require the Pinellas County Teachers' Credit Union and the Leon County Teachers' Credit Union to amend their respective By-laws to clearly allow the method of payment used by the credit unions to reimburse the payable through banks for disbursements made on share drafts.

ENTERED this 6th day of June, 1977, in Tallahassee, Florida.

CHRIS H. BENTLEY, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

COPIES FURNISHED:

F. Perry Odom, Esquire Dean Bunch, Esquire Post Office Box 1170

Tallahassee, Florida 32302

Charles P. Siebold, Esquire Post Office Box 1807 Madison, Wisconsin 53701

Ryland Terry Rigsby, Esquire Acting General Counsel Office of the Comptroller The Capitol

Tallahassee, Florida 32304

J. Thomas Cardwell, Esquire Nicholas Yonclas, Esquire Post Office Box 231 Orlando, Florida 32802

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LEON COUNTY TEACHERS CREDIT

UNION, et al.,

Petitioners,

vs. CASE NO. 76-2091

DEPARTMENT OF BANKING AND FINANCE, DIVISION OF BANKING,

Respondent.

/

FINDINGS OF FACT, CONCLUSIONS OF LAW AND FINAL ORDER

Pursuant to notice, final hearing was held before Chris H. Bentley, Hearing Officer of the Division of Administrative Hearings, in Tallahassee, Florida, beginning on March 16, 1977, and continuing thereafter on March 17, 18, 21, 22

and 24, 1977.

APPEARANCES

For Petitioners: F. Perry Odom and Dean Bunch

Ervin, Varn, Jacobs, Odom and Kitchen

P.O. Box 1170

Tallahassee, Florida 32302 and

Charles P. Seibold Bell, Blake and Metzner

P.O. Box 1807

Madison, Wisconsin 53701

For Respondent: Ryland Terry Rigsby

Assistant General Counsel Office of the Comptroller The Capitol

Tallahassee, Florida 32304

For Intervenors: J. Thomas Cardwell and

Nicholas Yonclas

Akerman, Senterfitt and Eidson

P.O. Box 231

Orlando, Florida 32802

Petitioners in this cause are: Leon County Teachers Credit Union, Pinellas County Teachers Credit Union, Duval County Teachers Credit Union, Publix

Employees Credit Union, Florida Credit Union League, and Karen G. Gerrell. The Respondent is the Department of Banking and Finance. The intervenors are the Florida Bankers Association and the Florida National Bank at Lakeland.

This cause was initiated by the Petitioners' Petition for Hearing filed with the Comptroller on November 12, 1976, which requested a hearing under Section 120.57(1), Florida Statutes, seeking a determination as to whether Petitioner credit unions have the authority to engage in a remote withdrawal of shares and deposits program (hereinafter collectively referred to as "share drafts"). Thereafter, the Comptroller transferred the Petition for Hearing to the Division of Administrative Hearings for a formal hearing pursuant to Chapter 120, Florida Statutes. On December 14, 1976, the Intervenors filed a Motion for Leave to Intervene which was subsequently granted on January 3, 1977. On January 10, 1977, a hearing was held on all pending motions, which included the Intervenors' Motion to Dismiss, Motion to Strike and Alternative Motion for More Definite Statement, and the Respondent's Motion to Strike. These motions, with the exception of the Intervenors' Alternative Motion for More Definite Statement, which was withdrawn, were denied. Thereafter, the Intervenors and the Respondent filed motions for summary judgement which were heard on February 21, 1977, and denied. At the conclusion of the presentation of testimony, evidence and argument by the parties to this cause at final hearing, opportunity was given to the general public to make comment and present testimony and evidence. There was no such comment, testimony or evidence presented.

FINDINGS OF FACT

For the purpose of complying with the statutory requirement set forth in Section 120.59(1), Florida Statutes, the findings of fact submitted in the hearing officer's recommended order of June 6, 1977, are hereby adopted by reference as the findings of fact of this final order and made a part hereof.

CONCLUSIONS OF LAW

The Department of Banking and Finance is charged with the supervision and regulation of state chartered credit unions in Florida pursuant to Chapter 657, Part I, Florida Statutes and Chapter 3C-30, Florida Administrative Code. A "credit union" is defined by Florida Statute 657.01(1) to be:

"a cooperative society incorporated for the twofold purpose of promoting thrift among its members and creating a source of credit for them at legitimate rates of interest for provident purposes."

The issue presented in this cause concerns the authority of Petitioner credit unions to sponsor the practice of remote withdrawal of shares or deposits by their respective members. To that end, it is necessary to examine the statutory and regulatory framework within which credit unions exist.

First, however, the nature of share drafts should be more closely examined.

There is a legal distinction between drafts and checks. By definition checks are drafts drawn on a bank and payable on demand. Subsection 673.104(2)(b),

F.S. A share draft is a negotiable or non-negotiable draft which directs a credit union to pay funds from a member's share or deposit account to either the member or a third party designated by the member. A share draft as utilized by Petitioner credit unions is not technically a check. The share draft programs engaged in by the four Petitioner credit unions have essentially the same

practical effect however, as the checking account system engaged in by commercial banks.

Two of Petitioner credit unions, Publix and Leon County Teachers, utilize share drafts which meet the legal requirements of a negotiable "draft" as defined in Section 673.104, Florida Statutes. Those share drafts: (1) are signed by the maker or drawer, (2) contain an unconditional order to pay a sum certain in money and (3) are payable on demand (4) to order or to bearer. The share drafts used by the two remaining Petitioner credit unions, Pinellas County Teachers and Duval County Teachers, are also "drafts", but differ in the respect that they are not "negotiable", as the term is defined in Section 673.104, Florida Statutes. Specifically, these latter forms of share drafts read "Pay to" rather than "Pay to the order of" a named payee and thus do not contain the required terms of negotiability. This distinction is minimized, however, because of Section 673.805, Florida Statutes, which states:

"This chapter applies to any instrument whose terms do not preclude transfer and which is otherwise negotiable within this chapter but which is not payable to order or to bearer, except that there can be no holder in due course of such an instrument."

Thus it is clear that the "Pay to" draft is to be considered a "draft" under the Code, with the only exception being that no holder can be a holder in due course.

With share drafts more clearly defined, it is then possible to examine the pertinent charters, statutes and rules to determine if, and to what extent, authority exists for such a program. Chapter 657, Part I, Florida Statutes, sets forth the general provisions relating to state chartered credit unions. A review of that chapter, however, reveals that it is silent as to how withdrawals may be made by a credit union member. Section 657.04(1), Florida Statutes, authorizes credit unions to receive the "savings" of its members as either payment on shares or as deposits. A necessary incidental power must therefore be the ability to permit the withdrawal of those savings by their members.

Thus, the power of a credit union to allow withdrawals must necessarily be inferred from the general intent and purpose of Part I of Chapter 657, Florida Statutes. Left unanswered is the question as to how withdrawals may be effected.

Credit union powers are enumerated in Section 657.04, Florida Statutes.

That section is a specific grant of authority and not a listing of those powers a credit union does not have. This being the case, powers exercised by credit unions must be traceable to this statute, unless possibly grandfathered in by common usage and acceptance over a long period of time.

Subsection 657.04(8), Florida Statutes, provides for credit unions "to exercise such incidental powers as shall be deemed necessary or requisite to carry on effectively the business for which it is incorporated, pursuant to rules of the department." A review of Chapter 3C-30, Florida Administrative Code, reveals that there are no departmental rules which either permit withdrawals or restrict such activity in any way. In his Recommended Order (page 10), the hearing officer concluded that:

"The better interpretation of that language however, is that credit unions are given the

right to exercise such incidental powers, but that exercise may be subjected to regulation by the department who can adopt rules setting forth such regulation pursuant to which the credit unions must adhere in the exercise of their incidental powers. The department, by its actions over many years, has apparently so interpreted the statute. The department

has allowed credit unions to grant withdrawals and to establish many different methods of withdrawal without requiring, and without adopting, any administrative rules on the subject." (E.S.)

This conclusion looses merit, however, when the legislative history of the statute in question reveals that this subsection was not added until 1975, less that a year and a half before the November 1, 1976, letter terminating the programs. While it may be argued that the "traditional" withdrawal methods in existence well before the 1975 amendment should be grandfathered in through their tacit departmental acceptance, withdrawal methods implemented after 1975 are another matter.

No longstanding administrative interpretation exists regarding the relationship between incidental powers and the necessity for rulemaking. An examination of the more recently promulgated credit union rules reveals, however, that of the last four, all four designated Section 657.04(8), Florida Statutes, as the "Law Implemented." Each rule provided for the exercise of incidental powers deemed necessary by the department for credit union's to effectively carry on their business. These rules (3C-30.24-27, F.A.C.) would indicate that the department did not abrogate its authority to adopt rules regulating any incidental powers, including withdrawals. The absence of rules on withdrawals should therefore more properly be interpreted to prohibit any form of withdrawals, other than those well established by tradition and in common usage prior to 1975, unless "pursuant" to rules of the department.

For purposes of maintaining administrative and regulatory control, this department cannot abide by a policy which requires prohibitive rulemaking to restrain a credit union's actions. An agency forced to adopt prohibitive or restrictive rules after the fact will soon find itself at least one step behind the industry it regulates. Administrative regulation would soon grind to a halt if placed under such a burden. If, as the hearing officer suggested in his Recommended Order, the fact that the department has not seen fit in the past to adopt rules regulating the methods of withdrawal utilized by credit unions does not negate its present authority to do so, the question then becomes why tacit approval of one method of withdrawal constitutes automatic approval of all subsequent methods. It does not follow that nonrule approval of one method of withdrawal constitutes automatic approval of all subsequent methods. It does not follow that nonrule approval of one method requires rule denial of the next. Again, negative or restrictive rulemaking is administratively untenable in this instance.

The only other possible source of authority to implement share draft programs would appear in the Petitioner credit unions' respective charters. Credit unions do not file for corporate existence with the Secretary of State but rather, prepare and adopt bylaws that are filed with the department pursuant to Section 657.01, Florida Statutes. The bylaws of the Pinellas County Teachers Credit Union require that all payments or withdrawals "shall" be by check. The

bylaws of the Leon County Teachers Credit Union contain the same mandatory requirement with the exception that they also allow share and deposit withdrawals and loan advances to be made in cash. The foregoing requirements are mandatory and, by their language, exclude other methods of payment. The share draft program of the Pinellas County Teachers Credit Union pays withdrawals by a preauthorized draft which is not technically or legally a check. In the share draft program of the Leon County Teachers Credit Union the withdrawals are paid by the payable-through bank debiting the credit union's checking account. The effect of these two methods of payment may fall within the spirit of the respective bylaw requirements, but the methods do not fall within the letter of the requirement. The language on payments and withdrawals in the bylaws of the Publix Employees Credit Union is not mandatory. It states that payments or withdrawals "may" be made by cash or check. The bylaws of the Duval County Teachers Credit Union contain no restrictions on how payments or withdrawals may be made.

There can be no doubt that with the advent of the share draft or negotiable order of withdrawal (NOW) type account, the character of credit unions and other traditionally savings oriented institutions is changing. This administration has hone on record in support of share draft and NOW-type accounts as a consumer benefiting idea whose time has come. While endorsing the concept, however, care must be taken to insure that its implementation is proper and equitable to all similarly situated financial institutions. Chapter 657, Part I, Florida Statutes, first adopted in 1929, is unfortunately too much a product of the past. Amendments have been apparently piecemeal in nature. Major corrective legislative surgery is needed to bring the credit union industry up to date. In fact, this department plans to work closely with the credit union industry, and others, during the next several months in an attempt to modernize the laws affecting credit unions. It is our desire that this proposed statutory revision will be considered by the 1978 Legislature. The share draft program, however, has far-reaching effects which are not easily quantifiable, a problem also recognized by Congress in almost identical concerns presently before it.

Congress has been studying the NOW/share draft controversy for some time and has yet to resolve this rather complex matter.

Share drafts, as essentially identical to a checking account, have arguably entered the once sacred realm of commercial banking. Subsection 659.52(1), F.S. states in part:

"No person other than banks shall:

(a). . . make payments on checks . . . or transact business in the way or manner of a commercial bank or trust company "

As determined by the hearing officer on page 11 of the Recommended Order: "Even if the share draft programs are not

technically checking accounts they do smack

of the transaction of business in the way or manner of commercial banks because of the similarity in operation between share draft programs and the checking account system.

However, Subsection 659.52(2), F.S., states: 'This subsection shall in no way restrict or impair any right, authority, or power granted . . .

credit unions organized and operated under the laws of the state.'"

The hearing officer, after concluding that credit unions have the power and authority to allow withdrawals via share draft programs, absent prohibition by the department, determined that credit unions were removed from the prohibition found in subsection 659.52(1), Florida Statutes. This conclusion cannot be totally accepted. The power or authority must be "granted" to the credit unions and absent such a specific grant, at least pursuant to a credit union's incidental powers, it is unlikely that any person or institution can offer those services traditionally thought of as the business of banking.

Several further policy considerations must be made, however. The Petitioner credit unions are involved in ongoing share draft programs ostensibly approved by the department. These programs were introduced at least on partial reliance upon that apparent approval. Furthermore, with the advent of Electronic Funds Transfer System (EFTS), credit unions will be exposed to possible harmful repercussions unless they can adopt to the changing times and offer a wider variety of member services. Representatives of the credit union industry have demonstrated they deem the share draft program a necessary function to carry on effectively the business for which they are incorporated once EFTS takes hold and employers begin to rely heavily on the transfer of the entire paycheck into an employee's account at the financial institution of his or her choosing. To this end, this department will continue to pursue its statutory function as the regulator of state chartered credit unions, while encouraging innovative changes as a result of legislation and rulemaking.

FINAL ORDER

Based upon the findings of fact and conclusions of law recited above, it is hereby ordered that the four Petitioner credit unions are allowed to continue their share draft programs as they presently exist as an extension of the experimental status earlier granted. The department shall closely monitor this activity to insure that adequate protection of members' accounts and the soundness of the credit unions themselves is maintained. This continued experiment will proved additional data and information on which the 1978 Legislature may base its evaluation of the program.

The department further requires the Pinellas County Teachers Credit Union and the Leon County Teachers Credit Union to amend their respective bylaws to clearly allow for the method of payment used by each credit union to reimburse the payable-through banks for disbursements made on share drafts.

DONE AND ORDERED in Tallahassee, Florida, this 6th day of September, 1977.

GERALD A. LEWIS, as State

Comptroller and Head of the Department of Banking and

Finance

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing Final Order was sent to F. Perry Odom, Esquire, of Ervin, Varn, Jacobs, Odom & Kitchen, P.O. Box 1170, Tallahassee, Florida 32302; Charles P. Seibold, Esquire, of Bell, Blake and Metzner, P.O. Box 1807, Madison, Wisconsin 53701; and J. Thomas Cardwell, Esquire, of Akerman, Senterfitt & Eidson, P.O. Box 231, Orlando, Florida 32802, this 6th day of September, 1977.

EUGENE CELLS

Attorney

Docket for Case No: 76-002091

Orders for Case No: 76-002091