Par Value Frequently Asked Questions

Today’s blog is going to take a look at a couple of frequently asked questions (FAQs) regarding par value. For a quick refresher on the basics of par value, please see this previous compliance blog post: Par for the Course | America's Credit Unions . As that blog notes, “the par value share can be considered as the member’s ownership share in the credit union.” 

As for this blog, let’s jump right into the two FAQs we’ll be covering. 

FAQ 1: Can a credit union advance payment of the par value to potential members?

As we know, federal credit unions (FCUs) may only lend to members. An FCU may not advance funds or extend a loan to a potential member to fund the initial membership par value share because, until an individual becomes a member of the credit union, the credit union has no authority to extend credit to that individual. An advance of the initial share requirement would, in effect, be an impermissible extension of credit to a nonmember. 

NCUA Legal Opinion 97-0123 provides further clarity:

“Section 109 of the Federal Credit Union Act, in conjunction with Article II, Section 2 of the Federal Credit Union Bylaws, provides that to become a member of a federal credit union (FCU), an individual who is within the FCU's field of membership must complete a membership application, purchase or pay the initial installment on one share of stock, and pay an entrance fee if required . An FCU may engage in activities designed to promote the FCU or its services. 12 U.S.C. §107(17). However, until an individual becomes a member of an FCU, the FCU has no authority to extend credit to that individual. 12 C.F.R. §701.21(a).” (Emphasis added).

That said, NCUA has issued a couple of legal opinions indicating that, to promote membership, a credit union may pay the initial share from its own funds on behalf of a potential member to begin their credit union membership. I have included excerpts below from the relevant NCUA Legal Opinions:

NCUA Legal Opinion 97-0123 :

“[The FCU], however, may pay the initial $5.00 share requirement on behalf of the employees to begin their membership at the credit union. […] Then, the employees interested in becoming members of [the FCU] can do so simply by completing the necessary membership paperwork.” (Emphasis added). 

Next, NCUA Legal Opinion 02-0250 , states that:

“…the FCU itself could pay the initial share in the special account from its own funds or by contributing a portion of the fee from the first wire transfer. Alternatively, the FCU could permit the member to pay the par value in installments as provided in its bylaws.” (Emphasis added).

Regarding any specific scenarios at your own credit union with respect to funding par value, it is always a good idea to consult with legal counsel for specific advice and recommendations. 

FAQ 2: What type of account does the par value have to be held in?

The par value can be held in any type of account (it does not have to be held in a regular share account, but most credit unions do it that way). In other words, a regular share account does not need to be established for a person to become a member of the credit union depending on how the credit union permits its members to maintain par value. 

The Federal Credit Union Act (FCU Act) states that a person must subscribe to a share of stock and pay the initial installment on it (“and a uniform entrance fee if required by the board of directors”). However, it does not require that the share be held in any particular type of account. The board of directors of each credit union determines what best serves the interests of the membership. 

Additionally, NCUA Legal Opinion 92-0522 notes that:

“A regular share account does not have to be established in order for a person to become a member of a credit union. The board of directors of each federal credit union decides what is best for the characteristics of its own membership. For example, the board of directors may decide that […] membership qualification can be accomplished by the establishment of a regular, notice, split-rate, minimum balance, share draft, or share certificate account.”

Furthermore, NCUA’s online Examiner’s Guide also reiterates this point and states that “[g]enerally in FCUs, each credit union member has a regular share account where the member’s par value share is maintained. However, a member is not required to have a regular share account to establish membership. A share, for purposes of establishing membership in an FCU, may be held in an account other than a regular share account, such as a share certificate or share draft account.”

Lastly, just to really hit the point home, NCUA Legal Opinion 92-0828 , provides that “[a]n FCU can determine which type(s) of account the initial share is to be placed in for membership purposes as well as whether or not a regular share account is to be offered.”

There you have it! A couple of fun par value FAQs for your reading enjoyment. Questions? The Compliance Team can be reached at [email protected] .