Compliance Blog

Generally, people die. It happens. It’s something that we all need to prepare for. Even credit unions need to prepare for the death of its members. If a member died today, would your staff know what to do? Unfortunately, the law governing death and the treatment of a deceased’s property is mostly a mish mash of state law. There is no one size fits all for dealing with a deceased member and credit unions may need to rely on local counsel when issues arise. While NAFCU cannot provide a comprehensive guide for credit unions, here are some common issues credit unions face when dealing with a deceased member and their accounts.

Share Accounts

Generally, NCUA is largely silent on issues regarding share accounts and deceased members when compared to the problems that arise from a member’s passing. However, the current model bylaws are clear on how long a credit union should keep a deceased member’s account open. Article III, section 5 of the bylaws permits a share account of a deceased member (no joint owner) to be continued until “the close of the dividend period in which the administration of the deceased’s estate is completed.”

Unfortunately, judging by the number of questions we get regarding the treatment of a deceased’s account, there are many more issues than how long to keep a deceased’s account open. Generally, probate, trust and estate, rights of survivorship, and agency issues are governed under state law. Ultimately, credit unions may need to rely on local counsel as issues arise with a deceased member’s accounts. However, rather than taking a wait and see approach, credit unions may want to proactively head off issues. Here are some issues that NAFCU members have faced:

·       Does a member’s agent have authority to make transactions or withdrawals after the member has died;

·       Does a joint owner have ownership over remaining funds in an account after a joint owner dies (in some states joint owners do not have an automatic right to all remaining funds in an account);

·       Who has authority to obtain information on and/or access to a deceased member’s accounts;

·       What documents, under state law, prove a person has authority to access a deceased member’s accounts; and

·       What is a credit union’s potential liability for mishandling a deceased member’s accounts.

These are just some of the issues that may come up when a member dies. If a credit union is worried about handling deceased accounts it may consider performing a comprehensive review of its policies, procedures, and account agreements followed by a review by their local counsel to ensure compliance with applicable state law. This would allow credit union staff to more easily deal with issues as they arise rather than the credit union dealing with angry relatives and no answers.

Share Insurance

A question that often comes up when a member dies is, are the accounts insured? While NCUA’s Share Insurance regulation discusses share insurance for beneficiaries of a trust or other type of account, what happens when there are no beneficiaries? Fortunately, Section 745.5 discusses this issue. Section 745.5 provides for insurance of accounts held by an executor or administrator of an estate or accounts in the name of the decedent. These accounts are insured, in the aggregate, up to the maximum amount.

Credit Cards

Regulation Z, section 1026.11(c) discusses the timely settlement of a deceased credit card holder’s debt when there is no joint account holder. Section 1026.11(c)(1) requires a card issuer to implement reasonable policies and procedures that enable an estate administrator to determine a deceased’s debts and pay those debts off. These policies must include the following:

1.       Provision of the balance on a deceased’s account to the estate administrator within a reasonable time period (section 1026.11(c)(2)(i);

a.       Generally, provision within 30 days is considered reasonable (section 1026.11(c)(2)(ii)).

2.       Prohibition on the imposition of new fees after receiving a request from the administrator for the account balance (section 1026.11(c)(3)(i)); and

3.       Waiver or rebate of additional interest related finance charge if the account balance is paid off within 30 days of providing the balance to the estate administrator (section 1026.11(c)(3)(ii)).

According to the commentary, the following would be considered reasonable but are not required:

1.       Account termination or refusal of further transaction after notification of consumer’s death;

2.       Crediting of account for fees and charges imposed after date of receiving notice of consumer’s death;

3.       Waiver of estate’s liability for charges made after card issuer received notice of the consumer’s death;

4.       Permit an agent to handle matters;

5.       Require estate administrator to provide documentations indicating an administrator’s authority; and

6.       Designation of a department or communication channel to handle matters;

Loans Secured by Real Property

When a member who has real property secured by a loan dies, their property is usually passed on. Generally, Regulation X and Z extend the same protections the deceased member enjoyed to these successors in interest, especially if they assumed the loan securing the property. For more information on successors in interest, NAFCU members can review this NAFCU article on successors in interest.

Furthermore, while many loan documents contain a “due on sale” clause, credit unions may not be able to exercise the clause based on a transfer due to the death of a member. The Garn St. Germain Act prevents creditors from exercising a due on sales clause when the transfer is made by a devise such as a will or trust agreement, or by the death of the borrower. Under 12 U.S.C. §1701j-3(d) a lender may not exercise a due on sale clause upon:

·       “a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;”

·       “a transfer to a relative resulting from the death of a borrower;”

and

·       “a transfer where the spouse or children of the borrower become an owner of the property.”

While not being able to exercise a due on sales clause and based off of the protections provided by Regulations X and Z, credit unions may want to develop procedures for dealing with a member’s death, the subsequent transfer of their property, and the treatment of any remaining loan balance.