By the Division of Banks

September 14, 2012

To the Chief Executive Officer Addressed:

This letter serves to state the Division of Banks' (the "Division") position on credit union field of membership requirements as it relates to indirect automobile lending activity by Massachusetts state-chartered credit unions. The purpose of this letter is to ensure that credit unions are abiding by their by-laws, as approved by the Division, as well as Massachusetts General Laws chapter 171, section 57 as it pertains to making loans to members.

The Division is aware of circumstances where a credit union will enter into a contractual agreement with a vehicle dealership for the purpose of financing the purchase of a vehicle and related services. The Division has determined that some credit unions engaged in indirect automobile lending may not have implemented sufficient internal controls to ensure that loans are made to individuals who qualify for membership in the credit union. Under this scenario, the credit union has made a determination that, because the vehicle dealership falls within the credit union's field of membership, anyone who does business with the dealership automatically meets the credit union's field of membership eligibility and therefore could qualify for a vehicle loan. The Division has found such determinations by a credit union to be in violation of chapter 171 and inconsistent with the credit union's by-laws.

Pursuant to Massachusetts General Laws chapter 171, section 57, credit unions must make loans to its members, and, as such, indirect vehicle loan applicants must also meet the field of membership requirements included in the credit union's by-laws and must become members of the credit union. Evidence of the borrower opening a credit union membership account must be retained, along with all other pertinent documentation. As a reminder, credit unions must obtain all necessary information and follow all procedures for opening accounts as required under applicable law, including the Bank Secrecy Act, as amended by the USA PATRIOT Act, its implementing regulations, and any directives that may be issued. These requirements are in addition to the documents and disclosures required to be given or done in conjunction with the loan transaction.

As indicated above, this guidance reiterates the Division's position that all approved indirect vehicle loan applicants, including co-makers, must qualify for membership under the by-laws, and must become members of the credit union.

Should you have any questions relative to this matter, please contact Chief Director Andrea Cipolla at (617)956-1532 or


David J. Cotney
Commissioner of Banks