May a North Carolina state-chartered credit union match what the National Credit Union Administration now allows federally-chartered credit unions to do, and provide a faithful-performance bond covering only the chief executive officer instead of every officer, employee, and agent?
Plain-English summary
The Deputy Administrator of the Credit Union Division asked the AG a divergence question. The National Credit Union Administration (NCUA) had moved to a model that required "faithful performance insurance coverage" only on the chief executive officer of a federally-chartered credit union. North Carolina had an existing administrative rule, 4 N.C.A.C. 06C .0311, that some thought might permit state-chartered credit unions to follow the same practice. Could they?
The 1989 AG said no, and went further to say the rule itself was void to the extent it purported to allow it.
The reasoning works through two statutory provisions that anchor the bonding regime.
Section 54-109.11(5) requires a blanket bond on everyone. The Administrator must "fix the amount of a blanket surety bond which shall be required of each credit union official, committee member and employee, irrespective of whether such official, committee member and employee receives, pays or has custody of money or other personal property owned by a credit union." The bond covers loss "by reason of acts of fraud or dishonesty including forgery, theft, embezzlement, wrongful abstraction or misapplication." The same subsection requires a separate bond for "the treasurer and all other persons handling credit union funds or records," "in an amount and character to be determined by the board in compliance with regulations."
Section 54-109.44(2) duplicates the directive. Boards of directors of credit unions must "purchase a blanket fidelity bond, in accordance with any such rules and regulations of the Administrator, to protect the credit union against losses caused by occurrences covered therein such as fraud, dishonesty, forgery, embezzlement, misappropriation, misapplication, or unfaithful performance of duty by a director, officer, employee, member of an official committee, attorney-at-law or other agent."
The legislative language is mandatory. Both subsections use "shall." Both extend coverage to "all" officers, employees, committee members, agents, and other persons in positions of trust. The AG read the text to mean that the board of directors has no discretion to narrow the population of insureds. The treasurer-and-others-handling-funds bond is the only place where the board has any meaningful discretion (and even that is bounded by the Administrator's regulations).
The Administrator's role is amount and character, not who. G.S. § 54-109.12 gives the Administrator broad authority to prescribe rules relating to financial records, business practices, and management of credit unions. The AG read that delegated authority as letting the Administrator set the dollar amount and the type of bond, but not letting the Administrator (or the board) determine who must be covered. The "who" was fixed by statute.
The rule is void to the extent of conflict. 4 N.C.A.C. 06C .0311(b) was unclear on its face, but the AG read it as a conflict ruling. If the rule actually meant to let one individual's bond substitute for the blanket bond, the rule was void. If the rule meant to extend an individual's bond to cover persons other than those specified in § 54-109.11(5), it was equally void. The statutes were not avoidable through rulemaking.
Section 54-109.21(25) was raised in passing but the AG concluded it had no relevance to the question.
The bottom line for North Carolina state-chartered credit unions: keep the blanket bond. The federal alternative is not available without a legislative change.
Currency note
This opinion was issued in 1989. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The North Carolina Credit Union Act in Chapter 54 has been amended multiple times since 1989, and the administrative rules in 4 N.C.A.C. 06C have also evolved. Anyone setting up or reviewing a state-chartered credit union's bonding program should consult current Chapter 54, current Title 4, Chapter 6, of the N.C. Administrative Code, and the NCUA bonding requirements that have continued to evolve at the federal level.
Historical context: what the AG concluded
The opinion is an early example of state regulators being asked to harmonize with a federal counterpart. NCUA had been streamlining its federal-credit-union bonding rule on the theory that the institutional bond would catch the broad fraud risk and that a separate individual bond on the CEO would address single-officer exposure. Some North Carolina credit union boards saw the same logic and wanted to drop the population coverage. The AG's role was to say: state law has not made that move.
The reasoning is uncomplicated statutory reading. The Legislature wrote "each official, committee member and employee" and meant it. The Legislature added "irrespective of whether" the person handles money or property, which is text designed precisely to prevent narrowing the population to cash handlers. The redundant directive in § 54-109.44(2) underlines the same point: blanket means blanket.
The AG also drew a tidy line between the Administrator's rule-making power and the rule's outer limit. The Administrator gets to write the rules. The rules cannot conflict with the statute. If the rule would have to be read as conflicting, it is void to that extent. That is a familiar administrative-law principle, but stating it clearly mattered because the rule's text in this case was ambiguous enough that a credit union board might have read it as a green light.
For credit union officials in 1989, the practical effect was straightforward: the federal change did not bleed through to state charters. State-chartered credit unions in North Carolina kept paying for blanket coverage on directors, officers, employees, committee members, and agents.
Common questions
Why does the statute require bonds on people who do not handle money?
The legislative judgment in § 54-109.11(5) was that fraud and dishonesty risk extends to people in positions of trust regardless of whether they touch cash on a given day. The text "irrespective of whether" is the clearest signal of that judgment. A board member who never handles a teller drawer can still authorize a transaction or sign a document that creates loss exposure.
What is the difference between the blanket bond and the additional bond?
The blanket bond under § 54-109.11(5) and § 54-109.44(2) is a fidelity bond covering the institution against losses from fraud, dishonesty, forgery, embezzlement, and similar acts by any person in a position of trust. The additional bond under § 54-109.11(5) is more like a faithful-performance bond covering the treasurer and others who actually handle funds or records.
Could the Administrator change the rule to align with the federal NCUA approach?
No, not by rule alone. The AG read § 54-109.11(5) as setting the population of insureds by statute. A rule narrowing that population would conflict with the statute and would be void. The Legislature would have to amend the statute.
Was 4 N.C.A.C. 06C .0311 entirely void?
The AG read it as void only to the extent it purported to permit substitution of an individual bond for the blanket bond or to extend an individual bond to cover persons other than those specified in § 54-109.11(5). The rest of the rule (to the extent it implemented amount and character determinations) remained in force.
Did this opinion affect federally-chartered credit unions in North Carolina?
No. Federal credit unions are governed by federal law and NCUA rules. The opinion addressed only state-chartered credit unions operating under Chapter 54.
Background and statutory framework
The Credit Union Act. Chapter 54 of the General Statutes governed state-chartered credit unions in North Carolina. G.S. § 54-109.11(5) (Administrator authority to set blanket bond amount, mandatory coverage of officials/committee members/employees, additional bond for treasurer and others handling funds or records). G.S. § 54-109.12 (Administrator's general rulemaking authority for financial records, business practices, and management). G.S. § 54-109.21(25) (raised but found irrelevant). G.S. § 54-109.44(2) (board duty to purchase blanket fidelity bond).
The administrative rule. 4 N.C.A.C. 06C .0311 (the Credit Union Division's bonding rule). Subsection (b) was the focus of the question; the AG read it as void to the extent of conflict.
The federal context. The National Credit Union Administration had moved federally-chartered credit unions to a model requiring "faithful performance insurance coverage" only on the chief executive officer.
Citations
- G.S. § 54-109.11(5)
- G.S. § 54-109.12
- G.S. § 54-109.21(25)
- G.S. § 54-109.44(2)
- 4 N.C.A.C. 06C .0311, 4 N.C.A.C. 06C .0311(b)
Source
Original opinion text
Requested By: Stanley W. Brown, Jr., Deputy Administrator, Credit Union Division, Department of Commerce
Questions:
- May a State-chartered credit union, acting pursuant to 4 N.C.A.C. 06C .0311, provide a performance bond for its chief executive officer only and not for any other officer, employee, or agent?
- Is 4 N.C.A.C. 06C .0311 consistent with applicable statutes?
Conclusions:
- No.
- No, to the extent that the rule purports to permit a State-chartered credit union to provide a performance bond for the chief financial officer in lieu of the bonds required by statute for other employees.
We are informed that the National Credit Union Administration now requires that only the chief executive officer of a federally-chartered credit union be covered by "faithful performance insurance coverage." The question has arisen whether the administrative rule appearing at 4 N.C.A.C. 06C .0311 will permit State-chartered credit unions in North Carolina to follow the same practice. It has also been asked whether Rule .0311 complies with applicable law.
It is our opinion that the laws of this State require that persons in addition to the chief executive officer of State-chartered credit unions be covered by surety bonds for faithful performance. The pertinent provisions of G.S. § 54-109.11(5) require that the Administrator of Credit Unions "fix the amount of a blanket surety bond which shall be required of each credit union official, committee member and employee, irrespective of whether such official, committee member and employee receives, pays or has custody of money or other personal property owned by a credit union. . . ." The bond is to provide coverage to the credit union for loss "by reason of acts of fraud or dishonesty including forgery, theft, embezzlement, wrongful abstraction or misapplication on the part of the person, directly or through connivance with others. . . ." Further, "[t]he treasurer and all other persons handling credit union funds or records before entering upon his or their duties shall give a proper bond with good and sufficient surety, in an amount and character to be determined by the [credit union's] board [of directors] in compliance with regulations conditioned upon the faithful performance of his or their trust." The directors are required by G.S. § 54-109.44(2) to "[p]urchase a blanket fidelity bond, in accordance with any such rules and regulations of the Administrator, to protect the credit union against losses caused by occurrences covered therein such as fraud, dishonesty, forgery, embezzlement, misappropriation, misapplication, or unfaithful performance of duty by a director, officer, employee, member of an official committee, attorney-at-law or other agent".
The language of G.S. §§ 54-109.11(5) and 109.44(2) relating to blanket surety bonds is mandatory and extends to all State-chartered credit union officers, employees, agents, and others in a position of trust. The provision for requiring a surety bond of the "treasurer and all other persons handling credit union funds or records" is somewhat less clear. We construe it to mean, however, that the board of directors may require, consistent with administrative rules promulgated by the Administrator, an additional surety bond for those having actual possession of or control over credit union funds or financial records. Since the Administrator has broad discretion and authority under G.S. § 54-109.12 to prescribe rules "relating to financial records, business practices and the conduct and management of credit unions," it is our opinion that the Administrator can promulgate reasonable guidelines for boards of directors to follow in determining the "amount and character" of the bond to be required. It does not appear to be within the discretion of a board of directors or the Administrator to determine who shall be covered by the bond, however, other than to identify "persons handling credit union funds or records."
No court decisions have been found construing the statutes applicable here. The statutes clearly and expressly state what the Legislature intended, however: that adequate surety bonds must be provided to protect credit unions from loss by reason of fraudulent or other dishonest acts by officers, employees, agents, or other persons in positions of trust. Given such legislative intent, no basis or rationale can be found for reducing that protection through eliminating the bonding requirements for most of the persons named in the statutes.
The language of Rule .0311(b) is less than totally clear, but it is our opinion that to the extent the rule may purport to permit an individual's bond to be substituted for the blanket bond or to permit an individual's bond to cover persons other than those specified in G.S. § 54-109.11(5), it is in conflict with controlling law and is void. A blanket surety bond covering the persons specified in G.S. §§ 54-109.11(5) and 54-109.44(2) is mandatory with regard to all State-chartered credit unions. The additional bond provided for in G.S. § 54-109.11(5) must cover "the treasurer and all other persons handling credit union funds or records." Nothing in the statutes permits the chief financial officer or the chief executive officer of a State-chartered credit union to be substituted for the persons specified.
The provisions of G.S. § 54-109.21(25) have also been considered, and we are of the opinion that they have no relevance here.
Lacy H. Thornburg, Attorney General
Henry T. Rosser, Special Deputy Attorney General