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Banking Interpretations

Banking Law 451

Jay Kane 

7/13/2004 via email 

Dear [ ] 

Your e-mail of April 8, 2004 to Deputy Calabrese, in which you pose several questions with respect to the qualifications for membership in New York State-chartered credit unions, has been referred to me for reply. Banking Law Section 451(2)(a) provides that the qualifications for membership shall be limited to:

(1) persons having a common employer;

(2) persons and organizations who are members of the same trade, industry, profession, club, union, society or other association;

(3) in the case of a credit union incorporated under this chapter as of the effective date of this subdivision, and with the approval of the superintendent, which approval shall not be given if it would be destructive of competition within a municipality, more than one common employer; provided, however, that an employer group with under three thousand employees may be added upon receipt of a notice as provided ins subdivision two of section four hundred seventy-eight of this article;

(4) with the approval of the superintendent, and subject to the provisions of paragraph (b) of this subdivision, more than one group each of which has, within the group, a common bond of occupation, including a common employer, or association; provided, however, that a group of less than three thousand members, which is within reasonable proximity to the credit union's service area or areas, may be added upon receipt of a notice as provided in subdivision two of section four hundred seventy -eight of this article; or

(5) persons and organizations within a well-defined local community, neighborhood or rural district and who in the judgment of the superintendent have such a community of interest as will insure proper administration.

1. Banking Law Section 451(2)(a)(5) --"Well-Defined Local Community, Neighborhood or Rural District"

In 2000 the Legislature amended Banking Law Section 451(2)(a)(5) so that State-chartered credit unions, like Federal credit unions, would be allowed to extend membership to persons and organizations in underserved low income areas, provided the credit union establishes and maintains an office of facility in such area. The State-community charter option, which formerly applied to persons who resided in the same town, village or other political subdivision, and had such a community of interest as to insure proper administration was broadened to allow membership by persons and organizations within a well-defined local community, neighborhood or rural district, to ensure consistency with Federal law. (Ch. 530, Memorandum in Support, New York State Senate, 2000 Session Laws). Accordingly, membership in a State-chartered credit union under Banking Law Section 451(a)(5), like its Federally chartered counterparts, would be restricted to individuals and organizations within a single community.

2. Banking Law Section 451(2)(a)(4) -- Mixed Affiliation Membership

Banking Law Section 451(2)(a) was amended in 2000 by adding subdivision (4) which expanded the field of membership opportunities for State-chartered credit unions by allowing multiple group association credit unions and multiple group credit unions which combine both occupational/employer groups with association groups. The provisions set forth therein track the standards contained in Federal law for such additions to a multiple group credit union. (Ch. 530, Memorandum in Support, New York State Senate, 2000 Session Laws).

3. State Residency Requirement

Banking Law Section 450 provides, in relevant part: "When authorized by the superintendent as provided in article two of this chapter, seven or more persons employed or residing in the state of New York may form a corporation to be known as a credit union, which may include a corporate credit union or a credit union." Thus, if one is either employed or residing in the state of New York, he is eligible for membership in a credit union, such membership being subject to the provisions set forth in Section 451(2)(a). The Banking Law does not contain as broad a definition as the Federal Law which provides for community charters to serve anyone who "lives, works, worships or attends school" in the community.

4. "Open Charter Credit Unions"

Prior to 1929, Banking Law Section 451(2) permitted the New York State Banking Department to issue organization certificates to credit unions whose by-laws permitted any person membership in such credit union without regard to the existence of any specified common bond. Based on the nature of their membership criteria, these credit unions are referred to as "Open Charter Credit Unions". Prior to 1929, Banking Law Section 451(2) did not limit membership in a credit union and only required that the by-laws of the credit union state the qualifications for membership.

In 1929 the Legislature amended Banking Law Section 451(2) to require that the by-laws of a credit union reflect that membership was limited to persons having a common bond. However, the Legislature did not require Open Charter Credit Unions to amend their by-laws to comply with the common bond requirements. In 1996, Article XI of the Banking Law was recodified, "[i)n order to remove outdated language, consolidate existing provisions, and to conform the structure and powers of state-chartered credit unions to federal credit unions." (Ch. 608, Memorandum in Support, New York State Senate, 1996 Session Laws). Under the recodification, Banking Law Section 451(2) retained the common bond membership requirement instituted pursuant to the 1929 amendment. However, the recodified statute is silent as to the status of the remaining Open Charter Credit Unions.

I trust the foregoing is responsive to your inquiry. Should you have any additional questions, please feel free to contact me at (212) 709-1649.

Sincerely yours,

Jay Kane 
Assistant Counsel

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