HOUSE BILL NO. 202

INTRODUCED BY J. COBB

A BILL FOR AN ACT ENTITLED: "AN ACT TRANSFERRING THE REGULATION OF BANKING FROM THE DEPARTMENT OF COMMERCE AND THE COMMISSIONER OF BANKING AND FINANCIAL INSTITUTIONS TO THE OFFICE OF THE STATE AUDITOR; TRANSFERRING THE STATE BANKING BOARD TO THE OFFICE OF THE STATE AUDITOR; AMENDING SECTIONS 2-18-103, 17-5-1529, 17-6-321, 32-1-101, 32-1-109, 32-1-201, 32-1-211, 32-1-212, 32-1-219, 32-1-220, 32-1-307, 32-1-382, 32-1-412, 32-1-452, 32-1-901, 32-1-902, 32-1-903, 32-1-904, 32-1-905, 32-1-906, 32-1-907, 32-1-908, 32-1-909, 32-1-910, 32-1-911, 32-1-912, 32-1-921, 32-1-1005, 32-1-1007, 32-2-101, 32-3-102, 32-3-104, 32-3-201, 32-3-202, 32-3-203, 32-3-204, 32-3-205, 32-3-206, 32-3-301, 32-3-302, 32-3-303, 32-3-307, 32-3-321, 32-3-322, 32-3-323, 32-3-401, 32-3-404, 32-3-412, 32-3-417, 32-3-611, 32-3-703, 32-3-705, 32-4-306, 32-5-102, 32-6-103, 32-7-101, 32-7-102, 32-7-103, 32-7-108, 32-7-109, 32-7-110, 32-7-115, 32-7-122, 32-7-123, 32-8-103, 32-8-104, 32-8-202, 32-8-203, 32-8-204, 32-8-301, 32-8-304, 32-8-308, 32-8-314, AND 32-8-315, MCA, AND SECTION 2, CHAPTER 64, LAWS OF 1995; REPEALING SECTION 2-15-1803, MCA; AND PROVIDING EFFECTIVE DATES."

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. State banking board -- composition -- allocation. (1) There is a state banking board.

(2) The board is composed of six members. The members of the board must be appointed with consideration given to banks of small, medium, and large size and to geographical distribution. Two of the six members must be active officers in state banks of Montana; one member must be an active officer of a national bank doing business in Montana; and three members shall represent the public, none of whom may be an officer, director, or shareholder of any state or national bank. The board shall elect a presiding officer from its members.

(3) The members must be appointed by the governor, with the consent of the senate, for terms of 3 years. Vacancies must be filled by appointment for the unexpired term. A member may not serve more than two consecutive terms.

(4) The board is allocated to the office of the state auditor for administrative purposes only as provided in 2-15-121.

Section 2. Section 2-18-103, MCA, is amended to read:

"2-18-103. (Temporary) Officers and employees excepted. Parts 1 through 3 and 10 do not apply to the following officers and employees in state government:

(1) elected officials;

(2) county assessors and their chief deputies;

(3) employees of the office of consumer counsel;

(4) judges and employees of the judicial branch;

(5) members of boards and commissions appointed by the governor, the legislature, or other elected state officials;

(6) officers or members of the militia;

(7) agency heads appointed by the governor;

(8) academic and professional administrative personnel with individual contracts under the authority of the board of regents of higher education;

(9) academic and professional administrative personnel and live-in houseparents who have entered into individual contracts with the state school for the deaf and blind under the authority of the state board of public education;

(10) investment officer, assistant investment officer, executive director, and three professional staff positions of the board of investments;

(11) four professional staff positions under the board of oil and gas conservation;

(12) assistant director for security of the Montana state lottery;

(13) executive director and senior investment officer of the Montana board of science and technology development;

(14) executive director and employees of the state compensation insurance fund;

(15) state racing stewards employed by the executive secretary of the Montana board of horseracing;

(16) executive director of the Montana wheat and barley committee;

(17) commissioner of banking and financial institutions;

(18) training coordinator for county attorneys;

(19) employees of an entity of the legislative branch consolidated, as provided in 5-2-504.

2-18-103. (Effective July 1, 1999) Officers and employees excepted. Parts 1 through 3 and 10 do not apply to the following officers and employees in state government:

(1) elected officials;

(2) county assessors and their chief deputies;

(3) employees of the office of consumer counsel;

(4) judges and employees of the judicial branch;

(5) members of boards and commissions appointed by the governor, the legislature, or other elected state officials;

(6) officers or members of the militia;

(7) agency heads appointed by the governor;

(8) academic and professional administrative personnel with individual contracts under the authority of the board of regents of higher education;

(9) academic and professional administrative personnel and live-in houseparents who have entered into individual contracts with the state school for the deaf and blind under the authority of the state board of public education;

(10) investment officer, assistant investment officer, executive director, and five professional staff positions of the board of investments;

(11) four professional staff positions under the board of oil and gas conservation;

(12) assistant director for security of the Montana state lottery;

(13) executive director and employees of the state compensation insurance fund;

(14) state racing stewards employed by the executive secretary of the Montana board of horseracing;

(15) executive director of the Montana wheat and barley committee;

(16) training coordinator for county attorneys; and

(17) employees of an entity of the legislative branch consolidated, as provided in 5-2-504."

Section 3. Section 17-5-1529, MCA, is amended to read:

"17-5-1529. Annual audits. (1) At least once each year, the bank examiners of the state auditor shall examine loans and investments of the board. The actual cost of this examination must be paid from the board's funds.

(2) The board's books and records must be audited at least once each fiscal year by or at the direction of the legislative auditor. The actual costs of the audit must be paid from the board's funds."

Section 4. Section 17-6-321, MCA, is amended to read:

"17-6-321. Audits. (1) At least once each year, the bank examiners of the state auditor shall examine loans and investments of the board. The actual cost of this examination must be paid from the board's funds.

(2) The board's books and records must be audited once each fiscal year by or at the direction of the legislative auditor. The actual cost of this audit must be paid from the board's funds."

Section 5. Section 32-1-101, MCA, is amended to read:

"32-1-101. Short title -- application -- purpose. (1) Parts 1 through 5 of this chapter may be known as the "Bank Act".

(2) The Bank Act is applicable to:

(a) all corporations and persons specified in 32-1-102;

(b) corporations that subject themselves to the Bank Act;

(c) persons, partnerships, or corporations that by violating the Bank Act become subject to the penalties provided in the Bank Act; and

(d) foreign capital depositories, but only to the extent that the provisions of the Montana Foreign Capital Depository Act, chapter 8, specifically require foreign capital depositories to be subject to provisions of the Bank Act.

(3) (a) The purpose of the Bank Act is to provide Montana with a sound system of state-chartered banks by providing for and encouraging the development of state-chartered banks while restricting their activities to the extent necessary to protect the interests of depositors. The purpose includes:

(i) the sound conduct of the business of banks;

(ii) the conservation of bank assets;

(iii) the maintenance of adequate reserves against deposits;

(iv) the opportunity for banks to compete with other businesses, including but not limited to other financial organizations existing under the laws of this state, other states, the United States, and foreign countries;

(v) the opportunity for banks to serve the citizens of this state;

(vi) the opportunity for banks to participate in and promote the economic progress of Montana and the United States;

(vii) the opportunity for the management of banks to exercise business judgment in conducting the affairs of their institutions; and

(viii) modernization and simplification of the law governing banking by providing that banks have all the rights and powers granted corporations, except as otherwise provided in this chapter.

(b) The Bank Act does not restrict the activities of banks for the purpose of protecting a person from competition from banks and does not confer any right or cause of action upon a competitor.

(c) The purpose contained in this subsection (3) constitutes the standards to be observed by the state auditor in the exercise of authority under the Bank Act and provides guidelines in the construction and application of the Bank Act."

Section 6. Section 32-1-109, MCA, is amended to read:

"32-1-109. Definitions. As used in this chapter, unless the context requires otherwise, the following definitions apply:

(1) "Affiliate" has the meaning given that term in 12 U.S.C. 1841(k).

(2) "Bank holding company" means a bank holding company registered under the federal Bank Holding Company Act of 1956, as amended.

(3) "Board" means the state banking board provided for in [section 1].

(4) "Branch bank" means:

(a) a banking house, other than the main banking house, maintained and operated by a bank doing business in the state and at which deposits are received, checks are paid, or money is lent, but does not include a satellite terminal, as defined in 32-6-103, or the office of an affiliated depository institution acting as an agent; and

(b) in the case of a trust company, any office at which trust services are provided.

(5) "Capital", "capital stock", and "paid-in capital" mean that fund for which certificates of stock are issued to stockholders.

(6) "Consolidate" and "merge" mean the same thing and may be used interchangeably in this chapter.

(7) "Demand deposits" means all deposits, the payment of which can legally be required when demanded.

(8) "Department" means the office of the state auditor provided for in Title 2, chapter 15, part 6.

(9) "Depository institution" means a bank or savings association organized under the laws of a state or the United States.

(10) "Insured depository institution" means a bank or savings association in which the deposits are insured by the federal deposit insurance corporation.

(11) "Main banking house" means the designated principal place of business of a bank in the state.

(12) "Net earnings" means the excess of the gross earnings of a bank over expenses and losses chargeable against those earnings during any 1 year.

(13) "Principal shareholder" means a person who directly or indirectly owns or controls, individually or through others, more than 10% of any class of voting stock.

(14) "Profit and loss account" or "profit and loss" means that account carried on the books of the bank into which all earnings accounts and recoveries are closed, thus exhibiting "gross earnings", and against which all loss and other disbursement items are charged, revealing "net earnings", which are then properly closed to "undivided profits accounts" or "undivided profits", out of which dividends are paid and reserves set aside.

(15) "Savings association" means a savings association or savings bank organized under the laws of the United States or a building and loan association, savings and loan association, or similar entity organized under the laws of a state.

(16) "Shell bank" means a bank organized solely for the purpose of, and that does not conduct any banking business prior to, acquiring control of, merging with, or acquiring all or substantially all of the assets of an existing bank or savings association.

(17) "Surplus" means a fund paid in or created under this chapter by a bank from its net earnings or undivided profits that, when set apart and designated as surplus, is not available for the payment of dividends and cannot be used for the payment of expenses or losses so long as the bank has undivided profits.

(18) "Time deposits" means all deposits, the payment of which cannot legally be required within 7 days.

(19) "Undivided profits" means the credit balance of the profit and loss account of a bank."

Section 7. Section 32-1-201, MCA, is amended to read:

"32-1-201. State banking board -- secretary -- meetings -- per diem. (1) The state banking board, created in [section 1], shall elect a secretary from its members to serve at the pleasure of the board.

(2) In performing its functions, the board must have use of the offices, equipment, and personnel of the department as it requires.

(3) The board shall hold meetings at the office of the department at dates and times set by the department. Special meetings may be called by the presiding officer at any time upon 3 days' notice to the members.

(4) A quorum for all meetings is a majority of the board members, and a majority of the quorum present at any meeting may take action.

(5) A board member may be removed by the governor without cause in any case.

(6) The board members must receive $50 a day compensation and travel expenses, as provided for in 2-18-501 through 2-18-503, for each day spent on official board business. Board members who conduct official board business in their city of residence are entitled to receive a midday meal allowance as provided in 2-18-502. The costs and expenses of the board are legitimate charges of the department."

Section 8. Section 32-1-211, MCA, is amended to read:

"32-1-211. Examination and supervision by department . (1) The department shall exercise constant supervision over the books and affairs of all banks and trust companies doing business in this state.

(2) Except as provided in subsection (8), the department shall:

(a) examine, at least once every 24 months, each bank or trust company and verify the assets and liabilities of each and investigate the character and value of the assets of each as to ascertain with reasonable certainty that the values are correctly carried on the books; and

(b) submit in writing to the examined bank or trust company a report of the examination's findings no later than 60 days after the completion of the examination.

(3) The department shall investigate the methods of operation and conduct of business of the banks and trust companies and their systems of accounting to ascertain whether the methods and systems are in accordance with law and sound banking principles.

(4) The department may examine under oath any of the officers, directors, agents, clerks, customers, or depositors of a bank or trust company regarding the affairs and business of the bank or trust company.

(5) The department may, in the performance of its official duties, issue subpoenas and administer oaths. In case of a refusal to obey a subpoena issued by the department, the refusal may be reported to the district court of the district in which the bank or trust company is located. The court shall enforce obedience to the subpoena in the manner provided by law for enforcing obedience to the process of the court.

(6) In all matters relating to its official duties, the department has the same power possessed by courts of law to issue subpoenas and have them served and enforced.

(7) All officers, directors, agents, and employees of banks or trust companies doing business under this chapter and all persons having dealings with or knowledge of the affairs or methods of a bank or trust company shall at all times afford reasonable facilities for the examinations and make returns and reports to the department as it may require. They shall also attend hearings and answer under oath the department's inquiries, produce and exhibit any books, accounts, documents, and property that the department desires to inspect, and in all things aid the department in the performance of its duty.

(8) The department may accept as the examination required by this section the findings or results of an examination of a bank or trust company that were made by a regulatory or insuring agency of the United States authorized to make the examination."

Section 9. Section 32-1-212, MCA, is amended to read:

"32-1-212. State auditor and employees not to be interested in banks. The state auditor and any bank examiner may not have an interest in or be a borrower from any state bank, directly or indirectly."

Section 10. Section 32-1-219, MCA, is amended to read:

"32-1-219. Reliance on order -- limit on liability. A person acting in good faith reliance upon a rule, order, or declaratory statement issued by the department is not subject to any criminal, civil, or administrative liability for the action if a subsequent decision by a court of competent jurisdiction invalidates the rule, order, or declaratory statement. In the case of an order or declaratory statement that is not of general application, only the person to whom the order or declaratory statement was issued is entitled to rely upon it, unless a third person is dealing with material facts or circumstances that are substantially the same as those upon which the order or declaratory statement was based."

Section 11. Section 32-1-220, MCA, is amended to read:

"32-1-220. Access to holding companies and affiliated entities. The department may review the books and affairs of a bank holding company operating under the Bank Holding Company Act of 1956 during the course of a regularly scheduled safety and soundness examination whenever serious regulatory concerns arise that could jeopardize the safety and soundness of the particular subsidiary being examined. The purpose of the authority granted in this section is to resolve serious regulatory concerns that arise during the examination from bank holding company transactions with the subsidiary being examined. The authority granted in this section does not authorize a review of the holding company as a standard procedure when the department does not have any serious regulatory concerns over transactions with the subsidiary being examined."

Section 12. Section 32-1-307, MCA, is amended to read:

"32-1-307. Amount of capital. The department, in consultation with the board, shall determine the appropriate level of capitalization of the proposed corporation prior to the issuance of the certificate of authorization."

Section 13. Section 32-1-382, MCA, is amended to read:

"32-1-382. Definitions. As used in 32-1-381 through 32-1-384, unless the context requires otherwise, the following definitions apply:

(1) "Acquire" means:

(a) the direct or indirect purchase or exchange of stock;

(b) the direct or indirect purchase of assets and liabilities; or

(c) a merger.

(2) "Bank" means a commercial bank, as defined in 32-1-105, or a national banking association as designated by 12 U.S.C. 24.

(3) "Bank holding company" means a bank holding company that is registered under the Bank Holding Company Act of 1956, as amended, regardless of where it is located or has its headquarters.

(4) "Control" means:

(a) ownership of, authority over, or power to vote, directly or indirectly, 25% or more of any class of voting security;

(b) authority in any manner over the election of a majority of directors; or

(c) power to exercise, directly or indirectly, a controlling influence over management and policies.

(5) "Department" means the office of the state auditor provided for in Title 2, chapter 15, part 6.

(6) "Financial institution" means a bank or bank holding company.

(7) "Headquarters" means the state in which the activities of a bank holding company or a company controlling the bank holding company are "principally conducted" within the meaning of the Bank Holding Company Act of 1956, as amended.

(8) "Located in this state" means:

(a) in the case of a bank, that the organizational certificate identifies an address in this state as the principal place of conducting its business; and

(b) in the case of a bank holding company, an entity, partnership, or trust organized under the laws of this state."

Section 14. Section 32-1-412, MCA, is amended to read:

"32-1-412. Borrowing money -- limitations. (1) Except as provided in subsection (3), a bank may not borrow money except to meet its seasonal requirements or unexpected withdrawals. The bills payable and rediscounts of a bank may not be permitted to exceed in the aggregate an amount equal to the capital and surplus of the bank, except with the written consent of the department. Security instruments sold under an agreement to repurchase do not apply to the limit on borrowing contained in this section. The department may prohibit excessive amounts of borrowing structured as a security instrument sold under an agreement to repurchase to a single customer or within the bank. When it appears to the department that a bank is borrowing money in excess of the limitation provided by this section or for the purposes other than as specified in this section, the department may require it to reduce the borrowing within a time to be fixed by the department.

(2) Subject to subsections (1) and (3), a bank may not at any time become indebted, either directly or indirectly, for borrowed money or rediscounts in an amount in excess of its paid-up capital and surplus, without first obtaining written authority from the department. Debentures or certificates of indebtedness issued by an investment company to run for a period of 3 years or more may not be included in the deposit liabilities of that investment company, as affected by the provisions of this section.

(3) A bank may borrow funds from a federal home loan bank for use in financing home ownership, in financing affordable housing programs, or in interest rate risk management. The department may prevent excessive borrowing by an institution."

Section 15. Section 32-1-452, MCA, is amended to read:

"32-1-452. Dividends, surplus, losses, and bad debts. (1) The directors of a bank may, at certain times and in the manner as its bylaws prescribe, declare and pay dividends to the stockholders of so much of the net undivided profits of the banks as may be appropriated for that purpose, but each bank shall, before declaring any dividend, carry at least 25% of its net earnings for the period covered by the dividend to its surplus, until the surplus is 50% of its paid-up capital stock. The whole or any part of the surplus may at any time be converted into paid-in capital, but the surplus must be restored as provided in this subsection until it amounts to 50% of the aggregate paid-up capital stock. A larger surplus may be created.

(2) A dividend larger than the previous 2 years' net earnings may not be declared without giving notice to the department.

(3) Losses sustained by a bank in excess of its undivided profits may be charged to and paid from the surplus, but the surplus must be restored in the manner provided in subsection (1) in the amount required by this chapter."

Section 16. Section 32-1-901, MCA, is amended to read:

"32-1-901. Definitions. For purposes of this part, the following definitions apply:

(1) "Board member" means a member of the board of directors of the institution.

(2) "Cease and desist order that has become final" and "order that has become final" mean a cease and desist order or an order issued by the state auditor with the consent of the institution or the board member, officer, or other person concerned, with respect to which timely petition for review of the action of the state auditor has not been filed in a district court as specified in 32-1-908(2) or with respect to which the action of the court in which a petition for review has been filed is not subject to further review by the courts of the state.

(3) "Institution" means a commercial bank, savings bank, trust company, or investment company chartered under Title 32, chapter 1.

(4) "Violation" includes without limitation any action, alone or with others, causing, counseling, aiding, or abetting a violation."

Section 17. Section 32-1-902, MCA, is amended to read:

"32-1-902. Notice of charges -- hearing -- cease and desist order -- effective date. (1) If the state auditor has reasonable cause to believe that an institution is engaging or has engaged or is about to engage in an unsafe or unsound practice in conducting the business of the institution or is violating, has violated, or is about to violate a law or rule, the state auditor may issue and serve upon the institution a notice of charges . The notice must contain a statement of the facts constituting the alleged unsafe or unsound practice or violation and must fix a time and place at which a hearing will be held to determine whether an order to cease and desist should issue against the institution.

(2) The hearing may not be earlier than 30 days or later than 60 days after service of the notice unless an earlier or a later date is set by the state auditor at the request of the institution. Unless the institution appears at the hearing by an authorized representative, it must be considered to have consented to the issuance of the cease and desist order. In the event of consent or if upon the record made at the hearing the state auditor finds that an unsafe or unsound practice or violation specified in the notice of charges has been established by the preponderance of the evidence, the state auditor may issue and serve upon the institution an order to cease and desist from that practice or violation. By provisions that may be mandatory or otherwise, the order may require the institution and its board members, officers, employees, and agents to cease and desist from a practice or violation and to take affirmative action to correct the conditions resulting from that practice or violation.

(3) A cease and desist order becomes effective at the expiration of 45 days after the service of the order upon the institution, except in the case of an order issued upon consent that is effective at the time specified in the order, and remains effective and enforceable as provided in the order, except to the extent that it is stayed, modified, terminated, or set aside by the action of the state auditor or a reviewing court."

Section 18. Section 32-1-903, MCA, is amended to read:

"32-1-903. Informal conferences -- time for application. Within 15 days after service of the notice of charges, either the institution or department may request an informal conference to discuss the charges and the possible disposition of them without a formal hearing process. The conference must be carried out in accordance with the provisions of 2-4-603. Upon a proper showing, the state auditor may withdraw charges and proceedings for a cease and desist order."

Section 19. Section 32-1-904, MCA, is amended to read:

"32-1-904. Temporary cease and desist order -- grounds for issuance -- effective date -- injunctive relief. (1) Whenever the state auditor determines that a violation or threatened violation or an unsafe or unsound practice specified in the notice of charges served upon the institution pursuant to 32-1-902(1) or the continuation of the practice is likely to cause insolvency or substantial dissipation of assets or earnings of the institution or is likely to otherwise seriously prejudice the interests of its depositors, the state auditor may issue a temporary order requiring the institution to cease and desist from the violation or practice. The order must contain a statement of the facts constituting the alleged violation or unsafe or unsound practice. The order is effective upon service upon the institution unless set aside, limited, or suspended by a court in proceedings authorized by subsection (2) and remains effective and enforceable until the completion of the administrative proceedings undertaken pursuant to the notice of charges, until the state auditor dismisses the charges specified in the notice, or until a cease and desist order issued against the institution after the hearing becomes effective.

(2) Within 10 days after the institution has been served with a temporary cease and desist order, the institution may apply to the district court for the county in which the home office of the institution is located for an injunction setting aside, limiting, or suspending the enforcement, operation, or effectiveness of the order pending the completion of the administrative proceedings held pursuant to the notice of charges served upon the institution under 32-1-902(1). The court has jurisdiction to issue the injunction."

Section 20. Section 32-1-905, MCA, is amended to read:

"32-1-905. Notice of intention to remove board member or officer or to prohibit participation -- suspension. (1) The state auditor may serve upon a board member or officer of an institution a written notice of intention to remove the board member or officer from office whenever the state auditor has reasonable cause to believe:

(a) the board member or officer has:

(i) committed any violation of law involving dishonesty or breach of trust;

(ii) violated a cease and desist order that has become final;

(iii) engaged or participated in any unsafe or unsound practice in connection with the institution; or

(iv) committed or engaged in any act, omission, or practice constituting a breach of a fiduciary duty as a board member or officer of the institution; and

(b) (i) the institution has suffered or will probably suffer substantial financial loss or other damage; or

(ii) the interest of its depositors could be seriously prejudiced by reason of the violation, practice, or breach of fiduciary duty involving personal dishonesty on the part of the board member or officer.

(2) Whenever in the opinion of the state auditor any board member or officer of an institution has, by conduct or practice with respect to another institution or business organization that has resulted in substantial financial loss or other damage to that institution or business organization, evidenced the member's or officer's personal disability and unfitness to continue as a board member or officer of the institution or whenever the state auditor has reasonable cause to believe that any other person participating in the conduct of the affairs of an institution has, by conduct or practice with respect to that institution, another institution, or other business organization that has resulted in substantial financial loss or other damage to the institution or business organization, evidenced personal disability and unfitness to participate in the conduct of the affairs of that institution, the state auditor may serve upon the board member, officer, or other person a written notice of intention to remove the board member, officer, or person from office or to prohibit further participation in the conduct of the affairs of the institution.

(3) A notice of intention to remove a board member, officer, or other person from office or to prohibit participation in the conduct of the affairs of an institution must contain a statement of the facts and must fix a time and place at which a hearing will be held . The hearing must be held not earlier than 30 days or later than 60 days after the date of service of the notice, unless an earlier or later date is set by the state auditor at the request of the board member, officer, or other person and for good cause shown.

(4) Unless the board member, officer, or other person appears at the hearing in person or by an authorized representative, the board member, officer, or other person is considered to have consented to the issuance of an order of removal or prohibition. In the event of consent or if upon the record made at the hearing the state auditor finds that any of the grounds specified in the notice have been established by the preponderance of the evidence, the state auditor may issue orders of suspension, removal from office, or prohibition from participation in the conduct of the affairs of the institution as considered appropriate. The order becomes effective 30 days after service upon the institution and the board member, officer, or other person concerned, except in the case of an order issued upon consent that becomes effective at the time specified in the order. The order remains effective and enforceable until it is stayed, modified, terminated, or set aside by action of the state auditor or a reviewing court."

Section 21. Section 32-1-906, MCA, is amended to read:

"32-1-906. Informal conferences -- time for application. Within 15 days after service of the notice of charges, the board member, officer, or other person may request an informal conference to discuss the charges and the possible disposition of them without formal hearing process. The conference must be carried out in accordance with the provisions of 2-4-603. Upon a proper showing, the state auditor may withdraw charges and proceedings for a cease and desist order."

Section 22. Section 32-1-907, MCA, is amended to read:

"32-1-907. Suspension or prohibition effective upon service -- stay. (1) If, with respect to any board member or officer of an institution or any other person to whom notice is sent pursuant to 32-1-905, the state auditor considers it necessary for the protection of the institution or the interests of its depositors that the board member, officer, or other person be suspended from office or be prohibited from further participation in the conduct of the affairs of the institution, the state auditor may serve upon the board member, officer, or other person a written notice suspending or prohibiting the board member, officer, or other person from further participation in any manner in the conduct of the affairs of the institution. The notice must contain a statement of the facts constituting grounds for the order and must fix a time, not later than 10 days from the date of the service of the notice, at which a hearing must be held to afford the board member, officer, or other person the opportunity to respond. The suspension or prohibition is effective upon service of the notice and, unless stayed by a court in proceedings authorized by subsection (2), remains in effect until the completion of the administrative proceedings pursuant to the notice served under 32-1-904, until the state auditor dismisses the charges specified in the notice, or until the order of removal or prohibition that is issued against the board member, officer, or other person becomes effective. Copies of the notice must also be served upon the institution of which the person is a director or officer or in the conduct of whose affairs the board member, officer, or other person has participated.

(2) Within 10 days after the hearing provided for in subsection (1) , the board member, officer, or other person may apply to the district court for the county in which the home office of the institution is located for a stay of the suspension or prohibition pending the completion of the administrative proceedings pursuant to the notice served upon the board member, officer, or other person under 32-1-904. The court has jurisdiction to stay the suspension or prohibition."

Section 23. Section 32-1-908, MCA, is amended to read:

"32-1-908. Felony charges -- suspension or prohibition. (1) Whenever a board member or officer of an institution or other person participating in the conduct of the affairs of an institution is charged in any information, indictment, warrant, or complaint authorized by a county, state, or federal authority with the commission of or participation in a felony involving dishonesty or breach of trust, the state auditor by written notice served upon the board member, officer, or other person may suspend the board member, officer, or other person from office or prohibit further participation in the conduct of the affairs of the institution. Suspension is effective upon service upon the individual. The notice must contain a statement of the facts constituting the grounds for the order and must fix a place and time, not later than 10 days from the date of the notice, at which a hearing must be held to afford the board member, officer, or other person the opportunity to respond. A copy of the notice must also be served upon the institution. The suspension or prohibition remains in effect until the information, indictment, warrant, or complaint is finally disposed of or until terminated by the state auditor.

(2) Within 10 days after the hearing provided for in subsection (1) , the board member, officer, or other person may apply to the district court for the county in which the home office of the institution is located for a stay of the suspension or prohibition pending the completion of the criminal proceedings initiated by the information, indictment, warrant, or complaint. The court has jurisdiction to stay the suspension or prohibition.

(3) If a conviction with respect to the offense is entered against the board member, officer, or other person and if at the time the conviction is not subject to further appellate review, the state auditor may issue and serve upon the board member, officer, or other person an order removing the individual from office or prohibiting further participation in the conduct of the affairs of the institution except with the consent of the state auditor. A copy of the order must also be served upon the institution. Upon receipt of service, the board member, officer, or other person ceases to be a board member, officer, or other person participating in the affairs of the institution. A finding of not guilty or other disposition of the charge does not preclude the state auditor from instituting proceedings to suspend or remove the board member, officer, or other person from office or to prohibit further participation in the affairs of the institution pursuant to 32-1-905 or 32-1-906."

Section 24. Section 32-1-909, MCA, is amended to read:

"32-1-909. Board of directors -- lack of quorum -- temporary board members. If at any time because of the suspension or removal of one or more board members pursuant to this part the board of directors of an institution has less than a quorum of board members not suspended or removed, all powers and functions vested in or exercisable by the board vest in and are exercisable by the board members not suspended or removed until there is a quorum of board members. If all of the board members have been suspended or removed, the state auditor shall appoint persons to serve temporarily as board members, pending the termination of the suspensions or removals or until the time that the appointees' successors are elected and take office."

Section 25. Section 32-1-910, MCA, is amended to read:

"32-1-910. Hearings -- decision -- review, modification, termination, or stay of orders. (1) Any hearing provided for in this part must be conducted in accordance with the provisions of the Montana Administrative Procedure Act. The hearing must be private unless the state auditor, after fully considering the views of the party afforded the hearing, determines that a public hearing is necessary to protect the public interest. After the hearing and within 90 days after the state auditor has notified the parties that the case has been submitted for final decision, the state auditor shall render a decision, which must include findings of fact upon which the decision is predicated, and the state auditor shall issue and serve upon each party to the proceeding an order consistent with the provisions of this section.

(2) A party to the hearing or a person required by an order issued under this part to cease and desist from any of the violations or practices stated in the order or a person suspended, removed, or prohibited from participation in the conduct of the affairs of an institution may obtain a review of that order, except for a consent order. The review must be conducted pursuant to the Montana Administrative Procedure Act. Unless a petition for review is timely filed as provided in the Montana Administrative Procedure Act, the state auditor, at any time, upon notice and in a manner that the state auditor considers proper, may modify, terminate, or set aside the order. Upon the timely filing of a petition for review, the state auditor may modify, terminate, or set aside the order with the permission of the court."

Section 26. Section 32-1-911, MCA, is amended to read:

"32-1-911. Notices and orders -- manner of service -- copies to federal authorities. Any service required or authorized to be made by the state auditor pursuant to this part must be made upon individual board members and officers by personal service and may be made upon institutions by certified mail or in any other manner reasonably calculated to give actual notice as the state auditor by rule or otherwise may provide. Copies of a notice or order served by the state auditor pursuant to the provisions of this part upon any institution or any board member or officer of the institution or other person participating in the conduct of the institution's affairs may also be sent to the appropriate federal supervisory authorities."

Section 27. Section 32-1-912, MCA, is amended to read:

"32-1-912. Enforcement of notices or orders. The state auditor may apply to the district court of the county in which the home office of the institution is located or to the district court for Lewis and Clark County for the enforcement of any effective and outstanding notice or order issued under this part. "

Section 28. Section 32-1-921, MCA, is amended to read:

"32-1-921. Violation of notice or final order -- penalties. (1) A present or former board member or officer of an institution or other person against whom there is outstanding and effective a notice or final order served upon the board member, officer, or other person pursuant to 32-1-905, 32-1-907, or 32-1-908 who participates in any manner in the conduct of the affairs of the institution; directly or indirectly solicits, procures, transfers, or attempts to transfer votes or attempts to vote any proxies, consents, or authorizations in respect to any voting rights in the institution; or without the prior written approval of the state auditor, votes for a board member or serves as a board member, officer, or employee of the institution is guilty of a misdemeanor.

(2) An individual convicted of a violation of subsection (1) may be fined not more than $1,000 or imprisoned for not more than 6 months, or both."

Section 29. Section 32-1-1005, MCA, is amended to read:

"32-1-1005. Bond. Before accepting an appointment or acting as a trustee, guardian, or conservator, a foreign trust company shall file a bond with a court of competent jurisdiction in an amount that the court directs, with sufficient sureties, conditioned on the faithful discharge of its duties as trustee, guardian, or conservator. In lieu of the bond, the foreign trust company shall certify, in a manner acceptable to the office of the state auditor, that the capital stock of the foreign trust company is fully paid in cash, is on deposit with an appropriate bank, and is of a sufficient amount to meet the requirements of 32-1-307 for a trust company organized under the laws of this state. The deposit must be maintained until the foreign trust company ceases to act as trustee, guardian, or conservator under this part. A foreign trust company is not required to file a bond or certify the deposit of its capital with respect to a trust, created other than a trust created by a will, if the trust instrument requests or directs that a bond is not required of the trustee."

Section 30. Section 32-1-1007, MCA, is amended to read:

"32-1-1007. Solicitation of business. A foreign trust company may conduct business in Montana only in accordance with rules promulgated by the office of the state auditor."

Section 31. Section 32-2-101, MCA, is amended to read:

"32-2-101. Purpose -- definitions. (1) A corporation operated for the purpose of encouraging home ownership and thrift and making substantially all of its loans on real estate mortgage security is known in this chapter as a building and loan association or a savings and loan association and is under the supervision of the department, which shall enforce all laws with respect to it.

(2) The associations have continual succession and must be organized under the provisions of this chapter.

(3) When used in this chapter, the following definitions apply:

(a) "Building and loan association" includes savings and loan associations organized under this chapter.

(b) "Capital stock" means the aggregate of shares of nonwithdrawable capital issues by a capital stock association.

(c) "Department" means the office of the state auditor provided for in Title 2, chapter 15, part 6.

(d) "Member" means:

(i) a person holding a savings account of a mutual association;

(ii) a person borrowing from or assuming or obligated upon a loan or an interest in a loan held by the association;

(iii) a person purchasing property securing a loan or interest in a loan held by the association; or

(iv) any other person obligated to the association.

(e) "Mutual association" means a building and loan association formed without authority to issue stock.

(f) "Savings account" means that part of the savings liability of the association that is credited to the account of the holder of the account and includes any form of withdrawable deposit.

(g) "Stock association" means a building and loan association formed with authority to issue stock.

(h) "Stockholder" means the holder of one or more shares of any class of capital stock of a capital stock association organized and operating pursuant to the provisions of this chapter.

(4) For the purposes of subsection (3)(d), a joint, survivorship, or any other multiple owner or borrower relationship constitutes a single membership."

Section 32. Section 32-3-102, MCA, is amended to read:

"32-3-102. Definitions. For the purposes of this chapter, the following definitions apply:

(1) "Credit union" means a cooperative, nonprofit association incorporated under this chapter for the purposes of encouraging thrift among its members, creating a source of credit at a fair and reasonable rate of interest, and providing an opportunity for its members to use and control their own money in order to improve their economic and social condition.

(2) "Department" means the office of the state auditor provided for in Title 2, chapter 15, part 6."

Section 33. Section 32-3-104, MCA, is amended to read:

"32-3-104. Office facilities. (1) A credit union may change its place of business within this state upon written notice to the department .

(2) A credit union may share office space with one or more credit unions and contract with any person or corporation to provide facilities or personnel.

(3) A credit union may maintain, upon prior written notice to the department, additional offices at locations other than its principal place of business if the purpose of maintaining the additional offices is to furnish service to its members.

(4) The department shall approve any additional office unless a compelling reason for disapproval is found by the department. Competition with other financial institutions is not a sufficiently compelling reason for disapproval.

(5) If the department disapproves an additional office, the credit union must be afforded an opportunity for a hearing according to Title 2, chapter 4, part 6. The purpose of the hearing must be to determine whether a compelling reason exists for disapproval of the additional office."

Section 34. Section 32-3-201, MCA, is amended to read:

"32-3-201. Regulation by state auditor. (1) The state auditor shall administer the laws of this state relating to credit unions and may appoint or employ special assistants, deputies, examiners, or other employees as are necessary for the purpose of administering or enforcing this chapter.

(2) The state auditor may prescribe rules for the administration of this chapter and may establish chartering, supervisory, and examination fees. Fees must be deposited in the state special revenue fund for the use of the department in its supervision function.

(3) The state auditor shall, from time to time, issue rules prescribing the minimum amount of surety bond coverage and casualty, liability, and fire insurance required of credit unions in relation to their assets or to the money and other personal property involved or their exposure to risk."

Section 35. Section 32-3-202, MCA, is amended to read:

"32-3-202. Reports. (1) Credit unions organized under this chapter shall report to the state auditor annually on or before February 1 on forms supplied by the department for that purpose. Additional reports may be required.

(2) A fine of $5 for each day that a report is in arrears must be levied against the offending credit union unless it is excused for cause by the state auditor."

Section 36. Section 32-3-203, MCA, is amended to read:

"32-3-203. Examinations. (1) The department shall annually examine or cause to be examined each credit union. Each credit union and all of its officers and agents shall give to representatives of the department full access to all books, papers, securities, records, and other sources of information under their control. For the purpose of the examination, the representatives may subpoena witnesses, administer oaths, compel the giving of testimony, and require the submission of documents.

(2) A report of the examination must be forwarded to the executive officer of each credit union promptly after completion. The report must contain comments relative to the management of the affairs of the credit union and also as to the general condition of its assets. Within 60 days after the receipt of the report, the directors and committee members shall meet to consider matters contained in the report.

(3) In lieu of making an annual examination of a credit union, the state auditor may accept an audit report of the condition of the credit union made by an auditor approved by the state auditor. The cost of the audit must be paid by the credit union."

Section 37. Section 32-3-204, MCA, is amended to read:

"32-3-204. Records. (1) A credit union shall maintain all books, records, accounting systems, and procedures in accordance with rules that the state auditor prescribes. In prescribing rules, the state auditor shall consider the relative size of a credit union and its reasonable capability of compliance.

(2) A credit union is not liable for destroying records after the expiration of the record retention time prescribed by the state auditor.

(3) A photostatic or photographic reproduction of any credit union records is admissible as evidence of transactions with the credit union."

Section 38. Section 32-3-205, MCA, is amended to read:

"32-3-205. Suspension. (1) If it appears that a credit union is bankrupt or insolvent or that it has willfully violated this chapter or is operating in an unsafe or unsound manner, the state auditor shall issue an order temporarily suspending the credit union's operations for not less than 30 days or more than 60 days. The board of directors must be given notice by certified mail of the suspension. The notice must include a list of the reasons for the suspension and a list of the specific violations of this chapter, if applicable.

(2) Upon receipt of the suspension notice, the credit union shall cease all operations, except those authorized by the state auditor. The credit union shall then file with the state auditor a reply to the suspension notice and may request a hearing to present a plan of corrective actions if it desires to continue operations. The board may request that the credit union be declared insolvent and that a liquidating agent be appointed.

(3) Upon receipt from the suspended credit union of evidence that the conditions causing the order of suspension have been corrected, the state auditor may revoke the suspension notice and permit the credit union to resume normal operations.

(4) If the state auditor, after issuing notice of suspension and providing an opportunity for a hearing, rejects the credit union's plan to continue operations, the state auditor may issue a notice of involuntary liquidation and appoint a liquidating agent. The credit union may request the appropriate court to stay execution of the action. Involuntary liquidation may not be ordered prior to the conclusion of suspension procedures outlined in this section.

(5) If, within the suspension period, the credit union fails to answer the suspension notice or request a hearing, the state auditor may then revoke the credit union's charter, appoint a liquidating agent, and liquidate the credit union."

Section 39. Section 32-3-206, MCA, is amended to read:

"32-3-206. Authorized activities of credit unions. Upon written application to the state auditor, a credit union may engage in any activity in which the credit union could engage if it were operating as a federal chartered credit union at the time that the authority is granted. The activities include, but not by way of limitation, the power to do any act and own, possess, and carry as assets property , including stocks, bonds, or other debentures, that, at the time that the authority is granted, are authorized under federal laws and regulations for transactions by federal credit unions, notwithstanding any restrictions elsewhere contained in the statutes of the state of Montana, except that the state auditor may not charter a credit union not having a common bond of membership as defined in 32-3-304. The state auditor shall approve an activity upon finding that it fosters competitive equality between state and federal credit unions and prevents adverse effects on members of state-chartered credit unions. If the state auditor disapproves an activity, the credit union must be given an opportunity for a hearing pursuant to Title 2, chapter 4, part 6, to determine whether a compelling reason exists for denying approval of the activity for which the credit union applied."

Section 40. Section 32-3-301, MCA, is amended to read:

"32-3-301. Organization procedure. (1) Any seven or more residents of this state, of legal age, who have a common bond defined in 32-3-304, may organize a credit union and become charter members by complying with this section.

(2) The subscribers shall execute in duplicate articles of incorporation, which conform to the applicable Montana corporation law, and shall agree to the terms of the articles. The articles must state:

(a) the name, which must include the words "credit union" and which may not be the same as that of any other existing credit union in this state;

(b) the location where the proposed credit union is to have its principal place of business;

(c) that the existence of the credit union is perpetual;

(d) the par value of the shares of the credit union, which must be in $5 multiples of not less than $5 or more than $25;

(e) that the credit union is organized under this chapter for the purposes set forth in this chapter;

(f) the names and addresses of the subscribers to the articles of incorporation and the value of shares subscribed to by each, which may not be less than $5; and

(g) that the credit union may exercise incidental powers as are necessary or requisite to enable it to carry on effectively the business for which it is incorporated and those powers that are inherent in the credit union as a legal entity.

(3) The subscribers shall prepare and adopt bylaws for the general government of the credit union, consistent with this chapter, and execute the bylaws in duplicate.

(4) The subscribers shall select at least five qualified persons who agree to serve on the board of directors and at least three qualified persons who agree to serve on the supervisory committee. A signed agreement to serve in these capacities until the first annual meeting or until the election of their successors, whichever is later, must be executed by those who so agree. This agreement must be submitted to the state auditor.

(5) The subscribers shall forward the articles of incorporation and the bylaws to the state auditor. The state auditor may issue a certificate of approval if the articles and the bylaws are in conformity with this chapter and if the state auditor is satisfied that the proposed field of operation is favorable to the success of the credit union and that the standing of the proposed organizers ensures that its affairs will be properly administered. The state auditor shall return a copy of the bylaws and the articles to the applicants or their representatives, which must be preserved in the permanent files of the credit union. The application must be acted upon within 30 days. The articles of incorporation must then be filed with the secretary of state who, upon payment of the filing fees , shall issue a certificate of incorporation.

(6) The subscribers for a credit union charter may not transact any business until formal approval of the charter has been received."

Section 41. Section 32-3-302, MCA, is amended to read:

"32-3-302. Form of articles and bylaws. In order to simplify the organization of credit unions, the state auditor shall prepare a form of articles of incorporation and a form of bylaws, consistent with this chapter, that may be used by credit union incorporators for their guidance. The articles of incorporation and bylaws must be available without charge to persons desiring to organize a credit union."

Section 42. Section 32-3-303, MCA, is amended to read:

"32-3-303. Amendments. (1) The articles of incorporation or the bylaws may be amended as provided in the bylaws. Amendments to the articles of incorporation or bylaws must be submitted to the state auditor who shall approve or disapprove the amendments within 60 days.

(2) Amendments become effective upon:

(a) approval in writing by the state auditor, for which a fee may not be charged; and

(b) in the case of articles of incorporation, filing with the secretary of state."

Section 43. Section 32-3-307, MCA, is amended to read:

"32-3-307. Limited-income persons. Existing credit unions may include within their field of membership limited-income persons, as defined by the state auditor, for whom credit union services are otherwise unavailable."

Section 44. Section 32-3-321, MCA, is amended to read:

"32-3-321. Liquidation. (1) A credit union may elect to dissolve voluntarily and liquidate its affairs in the manner prescribed in this section and the applicable Montana corporation laws.

(2) The board of directors shall adopt a resolution recommending that the credit union be dissolved voluntarily and directing that the question of liquidation be submitted to the members.

(3) Within 10 days after the board of directors decides to submit the question of liquidation to the members, the president shall notify the state auditor in writing, setting forth the reasons for the proposed action. Within 10 days after the members act on the question of liquidation, the president shall notify the state auditor in writing as to whether or not the members approved the proposed liquidation.

(4) As soon as the board of directors decides to submit the question of liquidation to the members, payment on shares, withdrawal of shares, making any transfer of shares to loans and interest, making investments of any kind, and granting loans must be suspended pending action by members on the proposal to liquidate. On approval by the members of the proposal, all of the business transactions listed in this subsection must be permanently discontinued. Necessary expenses of operation must, however, continue to be paid on authorization of the board of directors or liquidating agent during the period of liquidation.

(5) For a credit union to enter voluntary liquidation, approval by a majority of the members in writing or by a two-thirds majority of the members present at a regular or special meeting of the members is required. If authorization for liquidation is to be obtained at a meeting of the members, notice in writing must be given to each member, by first-class mail, at least 10 days prior to the meeting.

(6) A liquidating credit union shall continue in existence for the purpose of discharging its debts, collecting and distributing its assets, and doing all acts required in order to wind up its business and may sue and be sued for the purpose of enforcing its debts and obligations until its affairs are fully adjusted.

(7) The board of directors or the liquidating agent shall use the assets of the credit union to pay:

(a) expenses incidental to liquidating, including any surety bond that may be required;

(b) any liability due nonmembers; and

(c) special purpose thrift accounts as provided in this chapter. Assets then remaining must be distributed to the members proportionately to the shares held by each member as of the date dissolution was voted.

(8) As soon as the board of directors or the liquidating agent determines that all assets from which there is a reasonable expectancy of realization have been liquidated and distributed as set forth in this section, the board or agent shall execute a certificate of dissolution on a form prescribed by the department and file the form with the state auditor, together with all pertinent books and records of the liquidating credit union. The credit union is dissolved when all documents are properly filed."

Section 45. Section 32-3-322, MCA, is amended to read:

"32-3-322. Merger. (1) A credit union may, with the approval of the state auditor and compliance with the applicable Montana corporation law, merge with another credit union under the existing charter of the other credit union, pursuant to any plan agreed upon by the majority of each board of directors of each credit union joining in the merger and approved by the affirmative vote of a majority of the members of the merging credit union present at a meeting of its members called for that purpose.

(2) After agreement by the directors and approval by the members of the merging credit union, the president and secretary of the credit union shall execute a certificate of merger, which must set forth all of the following:

(a) the time and place of the meeting of the board of directors at which the plan was agreed upon;

(b) the vote in favor of the adoption of the plan;

(c) a copy of the resolution or other action by which the plan was agreed upon;

(d) the time and place of the meeting of the members at which the plan was approved; and

(e) the vote by which the plan was approved by the members.

(3) The certificate and a copy of the plan of merger must be forwarded to the state auditor, certified by the state auditor, and returned to both credit unions within 30 days.

(4) Upon return of the certificate from the state auditor, all property rights and members' interest of the merged credit union vest in the surviving credit union without deed, endorsement, or other instrument of transfer, and all debts, obligations, and liabilities of the merged credit union are considered assumed by the surviving credit union under whose charter the merger was effected. The rights and privileges of the members of the merged credit union remain intact.

(5) This section must be construed whenever possible to permit a credit union chartered under any other law to merge with one chartered under this chapter or to permit one chartered under this chapter to merge with one chartered under any other law."

Section 46. Section 32-3-323, MCA, is amended to read:

"32-3-323. Conversion of charter. (1) A credit union chartered under the laws of this state may be converted to a credit union chartered under the laws of any other state or under the laws of the United States, subject to regulations issued by the state auditor.

(2) A credit union chartered under the laws of the United States or of any other state may convert to a credit union chartered under the laws of this state. To effect the conversion, a credit union shall comply with all the requirements of the jurisdiction under which it was originally chartered and the requirements of the state auditor and shall file proof of compliance with the state auditor."

Section 47. Section 32-3-401, MCA, is amended to read:

"32-3-401. General powers. A credit union may:

(1) make contracts as provided for in this chapter;

(2) sue and be sued;

(3) adopt and use a common seal and alter the seal;

(4) acquire, lease, hold, and dispose of property, either in whole or in part, necessary or incidental to its operations;

(5) at the discretion of the board of directors, require the payment of an entrance fee or annual membership fee, or both, of any person admitted to membership;

(6) receive savings from its members in the form of shares or special-purpose thrift accounts;

(7) lend its funds to its members as provided in this part;

(8) borrow from any source up to 50% of total assets, after deduction of the notes payable account;

(9) discount and sell any eligible obligations, subject to rules prescribed by the state auditor;

(10) sell all or substantially all of its assets or purchase all or substantially all of the assets of another credit union, subject to the approval of the state auditor;

(11) invest surplus funds as provided in this chapter;

(12) make deposits in legally chartered banks, savings banks, building and loan associations, savings and loan associations, trust companies, and central type credit union organizations;

(13) assess charges to members in accordance with the bylaws for failure to meet promptly their obligations to the credit union;

(14) hold membership in other credit unions organized under this chapter or other laws and in other associations and organizations composed of credit unions;

(15) declare dividends and pay interest refunds to borrowers as provided in this chapter;

(16) collect, receive, and disburse money in connection with the sale of negotiable checks, money orders, and other money type instruments and for other purposes as may provide benefit or convenience to its members and charge a reasonable fee for those services;

(17) perform tasks and missions as requested by the federal government or this state or any agency or political subdivision of the federal government or this state, when approved by the board of directors and not inconsistent with this chapter;

(18) contribute to, support, or participate in any nonprofit service facility whose services will benefit the credit union or its membership, subject to regulations prescribed by the state auditor;

(19) make donations or contributions to any civic, charitable, or community organizations as authorized by the board of directors, subject to regulations prescribed by the state auditor;

(20) purchase or make available insurance for its directors, officers, agents, employees, and members;

(21) act as custodian or trustee of individual retirement accounts, as custodian or trustee of pension funds of self-employed individuals or of the sponsor of the credit union, or as custodian or trustee under any other pension or profit-sharing plan if the funds of the accounts are invested in shares of the credit union; or

(22) act as fiscal agent for and receive deposits from the federal government, this state, or any agency or political subdivision of the federal government or this state."

Section 48. Section 32-3-404, MCA, is amended to read:

"32-3-404. Record of board and committee members. Within 15 days after election or appointment, a record of the names and addresses of the members of the board, committees, and all officers of the credit union must be filed with the state auditor on forms provided by the state auditor."

Section 49. Section 32-3-412, MCA, is amended to read:

"32-3-412. Duties of directors. The directors shall:

(1) act upon applications for membership or appoint one or more membership officers to approve applications for membership under conditions prescribed by the board . A record of a membership officer's approval or denial of membership must be available to the board of directors for inspection. A person denied membership by a membership officer may appeal the denial to the board.

(2) purchase a blanket fidelity bond, in accordance with any rules of the state auditor, to protect the credit union against losses caused by such things as fraud, dishonesty, forgery, theft, misappropriation, misapplication, or unfaithful performance of duty by a director, officer, employee, member of an official committee, or other agent. However, the directors have the option of providing coverage under this subsection for only the treasurer elected by the board.

(3) determine from time to time the interest rate or rates consistent with this chapter to be charged on loans and authorize interest refunds, if any, to members from income earned and received in proportion to the interest paid by them on classes of loans and under conditions prescribed by the board ;

(4) fix from time to time the maximum amount that may be loaned to any one member;

(5) declare dividends on shares in the manner and form provided in the bylaws;

(6) limit the number of shares that may be owned by a member, the limitation to apply alike to all members;

(7) have charge of the investment of surplus funds, except that the board of directors may designate an investment committee or any qualified individual to have charge of making investments under controls established by the board of directors;

(8) authorize the employment of persons necessary to carry on the business of the credit union, including the credit manager, loan officers, and auditing assistants requested by the supervisory committee, and fix the compensation, if any, of the treasurer and the general manager and provide for compensation for other employees within guidelines predetermined by the board of directors;

(9) authorize the conveyance of property;

(10) borrow or lend money to carry on the functions of the credit union;

(11) designate a depository or depositories for the funds of the credit union;

(12) suspend any members of the credit or supervisory committee for failure to perform their duties;

(13) appoint any special committees considered necessary; and

(14) perform any other duties as the members from time to time direct and perform or authorize any action not inconsistent with this chapter and not specifically reserved by the bylaws for the members."

Section 50. Section 32-3-417, MCA, is amended to read:

"32-3-417. Duties of supervisory committee or board. (1) The board of directors or supervisory committee shall make or cause to be made a comprehensive annual audit of the books and affairs of the credit union and shall submit a report of that audit to the board of directors and a summary of that report to the members at the next annual meeting of the credit union. The supervisory committee shall make or cause to be made supplementary audits or examinations as it considers necessary or as are required by the state auditor or by the board of directors and shall submit reports of these supplementary audits to the board of directors.

(2) The board of directors or supervisory committee shall cause the accounts of the members to be verified with the records of the credit union from time to time and not less frequently than every 2 years."

Section 51. Section 32-3-611, MCA, is amended to read:

"32-3-611. Share insurance. (1) Each credit union shall maintain insurance on its share accounts under the provisions of Title II of the Federal Credit Union Act or through a legally constituted insurance plan approved by the state auditor.

(2) A credit union may not begin operation or transact any business until proof that it has obtained insurance under the provisions of Title II of the Federal Credit Union Act or under an approved insurance plan has been furnished to the state auditor.

(3) A credit union operating in violation of this section is subject to an order of suspension as provided for in 32-3-205.

(4) The state auditor shall make available condition and examination reports to the administrator of the national credit union administration or any official of an insurance plan and may accept any report of examination made on behalf of those administrators or officials. The state auditor may appoint the administrator of the national credit union administration or any official of an insurance plan as liquidating agent of an insured credit union."

Section 52. Section 32-3-703, MCA, is amended to read:

"32-3-703. Use of regular reserve. The regular reserve belongs to the credit union and must be used to meet losses, including, with prior approval of the state auditor, losses from the sale of investments or securities. The regular reserve may not be used to meet losses resulting from an excess of expenses over income and may not be distributed except on liquidation of the credit union or in accordance with a plan approved by the state auditor."

Section 53. Section 32-3-705, MCA, is amended to read:

"32-3-705. Special reserves. In addition to the regular reserve, special reserves to protect the interest of members must be established:

(1) when required by regulation; or

(2) when found by the board of directors of the credit union or by the state auditor, in any special case, to be necessary for that purpose."

Section 54. Section 32-4-306, MCA, is amended to read:

"32-4-306. Control -- supervision -- reports. The corporation is subject to the examination of the state auditor and shall make reports of its condition not less than annually to the state auditor, who in turn shall retain a copy for insurance regulatory purposes and shall send a copy to the governor. The corporation shall also file an annual statement required by Title 35."

Section 55. Section 32-5-102, MCA, is amended to read:

"32-5-102. Definitions. Unless the context requires otherwise, in this chapter, the following definitions apply:

(1) (a) "Consumer loan" means credit offered or extended to an individual primarily for personal, family, or household purposes, including loans for personal, family, or household purposes that are secured by a mortgage, deed of trust, trust indenture, or other security interest in real estate.

(b) Consumer loans do not include loan transactions that are governed by 12 U.S.C. 1735f-7a, but a consumer loan business may engage in transactions that are governed by 12 U.S.C. 1735f-7a.

(2) "Consumer loan business" means the business of making consumer loans as a licensee under this chapter.

(3) "Department" means the office of the state auditor provided for in Title 2, chapter 15, part 6.

(4) "License" means one or both of the licenses provided for by this chapter.

(5) "Licensee" means the person holding a license.

(6) "Person" means individuals, partnerships, associations, corporations, and all legal entities in the loaning business."

Section 56. Section 32-6-103, MCA, is amended to read:

"32-6-103. Definitions. As used in this chapter, unless the context otherwise requires, the following definitions apply:

(1) "Customer", in relation to a financial institution, means a holder of a demand or time account or a membership share in the institution or a person who is a borrower or a mortgagor; in relation to a merchant, customer means a purchaser of goods or services.

(2) "Department" means the office of the state auditor.

(3) "Electronic funds transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit an account. The term includes but is not limited to point-of-sale transfers, automated teller machine transfers, direct deposits or withdrawals of funds, and transfers initiated by telephone. It also includes a transfer resulting from a debit card transaction, including a transaction that does not involve an electronic terminal at the time of the transaction. The term does not include payments made by check, draft, or similar paper instrument at an electronic terminal.

(4) "Electronic terminal" means an electronic device, other than a telephone operated by a consumer, through which a consumer may initiate an electronic funds transfer. The term includes but is not limited to point-of-sale terminals, automated teller machines, and cash dispensing machines.

(5) "Financial institution" means a bank chartered under chapter 1 of this title, a bank chartered under the National Banking Acts in Title 12 of the United States Code, a building and loan association chartered under chapter 2 of this title, a savings and loan association chartered under the Home Owners' Loan Act in Title 12 of the United States Code, a credit union chartered under chapter 3 of this title, or a credit union chartered under the Federal Credit Union Act in Title 12 of the United States Code. For purposes of this chapter only, a consumer loan company licensed under chapter 5 is considered a financial institution.

(6) "Merchant" means a natural person, corporation, partnership, or association engaged in buying and selling goods or services, except that a financial institution is not a merchant.

(7) "Person" means an individual, partnership, corporation, association, or any other business organization.

(8) "Premises" means those locations where, by applicable law, financial institutions are authorized to maintain a principal place of business and other offices for the conduct of their respective businesses. The term includes a detached drive-in or walk-up facility approved under 32-1-372.

(9) (a) "Satellite terminal" means any machine or device that is located off the premises of a financial institution and that a financial institution or its customers may use to carry out electronic funds transfers.

(b) Satellite terminal includes:

(i) an automated teller machine, which means a satellite terminal to make electronic funds transfers, located off the premises of financial institutions, operated by customers of financial institutions without assistance, and activated by a unique identification device and personal identification number;

(ii) a point-of-sale terminal, which means a satellite terminal located on the premises of a merchant, operated by a customer, a merchant, or the merchant's employees solely to debit or credit a customer's deposit or share account in a financial institution and solely to credit or debit the merchant's account commensurately for transactions in goods or services. A point-of-sale terminal need not be activated by a unique personal identification device. A merchant has the option, if the necessary computer capability exists at a reasonable cost, of selling goods or services by point-of-sale terminals with the electronic funds transfer taking effect at the time of the transaction or at a stated time after the transaction.

(c) The definition of satellite terminal does not include and nothing in this chapter may be construed to apply to:

(i) an automated teller machine located on the premises of a financial institution;

(ii) an automated clearinghouse or any equivalent system designed to transfer funds between financial institutions; or

(iii) a point-of-sale terminal that is used by a merchant in the merchant's business only and does not provide access to a financial institution.

(10) "Unique identification device" means a magnetic encoded plastic card or equivalent device that contains either a number or a dollar balance, or both, that is unique to a customer and that is issued by a financial institution, merchant, or other person."

Section 57. Section 32-7-101, MCA, is amended to read:

"32-7-101. Title and purpose. (1) This part must be known and may be cited as the "Regulation of Escrow Businesses Act".

(2) It is the intent of the legislature that the escrow industry be supervised and regulated by the state auditor in order to protect the citizens of the state and to provide that the business practices of the escrow industry are fair and orderly among the members of the escrow industry, with due regard to the ultimate consumers in this important area of property protection."

Section 58. Section 32-7-102, MCA, is amended to read:

"32-7-102. Definitions. As used in this part, unless the context requires otherwise, the following definitions apply:

(1) "Department" means the office of the state auditor as provided for in Title 2, chapter 15, part 6.

(2) "Escrow" means any transaction in which one person, for the purpose of effecting the sale, transfer, encumbrance, or lease of real or personal property to another person or for the purpose of making payments under any encumbrance of the property, delivers any written instrument, money, evidence, title to real or personal property, or other thing of value to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when the instrument, money, evidence, title, or thing of value is to be delivered by the third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, or bailor or to any of the person's agents or employees pursuant to the written escrow instructions.

(3) "Escrow business" means a commercial activity characterized by the regular and continuous carrying on of escrow transactions.

(4) "Licensee" means a person holding a valid license under this part as an escrow business.

(5) "Person" means an individual, cooperative, association, company, firm, partnership, corporation, or other legal entity."

Section 59. Section 32-7-103, MCA, is amended to read:

"32-7-103. Exemptions. (1) The provisions of this part do not apply to the following:

(a) a person licensed by this state pursuant to Title 37, chapter 61, as an attorney at law who is not actively engaged in the escrow business;

(b) a person licensed by this state pursuant to Title 37, chapter 50, as a public accountant who is not actively engaged in the escrow business;

(c) a person whose principal business is that of preparing abstracts or making searches of title that are used as a basis for the issuance of any title insurance policy by a company doing business under the laws of this state relating to insurance companies and the person is regulated by the commissioner of insurance;

(d) a financial institution, as defined in 32-6-103, that has its escrow accounts regularly audited or examined. The financial institution shall supply a copy of the most recently prepared audit or examination to the state auditor upon request.

(e) except as provided in subsection (2), any broker licensed by the Montana board of realty regulation if the broker is performing an act:

(i) in the course of or incidental to a single real estate transaction; and

(ii) for which a real estate license is required; and

(f) a person furnishing escrow services under the order of a court.

(2) A trust account of a broker licensed by the Montana board of realty regulation is not an escrow account within the meaning of this part."

Section 60. Section 32-7-108, MCA, is amended to read:

"32-7-108. State auditor -- powers and duties. (1) The state auditor shall exercise general supervision and control over persons doing escrow business in this state.

(2) In addition to the other duties imposed by law, the state auditor shall:

(a) adopt reasonable rules necessary to effectuate the purposes of this part;

(b) conduct examinations and investigations that may be necessary to determine whether a person has engaged or is about to engage in any act or practice constituting a violation of any provisions of this part;

(c) conduct examinations, investigations, and hearings necessary and proper for the efficient administration of this part; and

(d) establish fees commensurate with the costs of issuing the license and examining an escrow business."

Section 61. Section 32-7-109, MCA, is amended to read:

"32-7-109. Application for license -- issuance. (1) A person must be licensed pursuant to this part before engaging in an escrow business.

(2) To obtain a license, an applicant shall file with the state auditor an application for an escrow business license. The application must be in writing, verified by oath, and in the form prescribed by the state auditor. The application must set forth:

(a) the location of the applicant's principal office and all branch offices in this state;

(b) the name and form under which the applicant plans to conduct business;

(c) the general plan and character of the business;

(d) the names, residences, and business addresses of any principals, partners, officers, trustees, and directors, specifying as to each that person's capacity and title;

(e) the experience and qualifications of the persons proposed to act as officers and managers;

(f) the length of time that the applicant has been engaged in the escrow business; and

(g) any other relevant information that the state auditor requires.

(3) The state auditor shall grant and issue an escrow business license if:

(a) the state auditor has received and filed the application specified in this section; and

(b) the applicant has complied with all the requirements of this part and any rules promulgated under it.

(4) An escrow business shall immediately notify the department of any material change in the information contained in the application."

Section 62. Section 32-7-110, MCA, is amended to read:

"32-7-110. Fees. (1) (a) An applicant for licensure shall pay a license fee set by the state auditor, commensurate with the costs of licensing the applicant.

(b) A licensee may be charged an examination fee based on the actual costs of the examination.

(2) All fees collected by the department for the licensure and examination of escrow businesses must be paid to the state treasurer to the credit of the state special revenue fund for use by the department in its licensure and examination functions under this part."

Section 63. Section 32-7-115, MCA, is amended to read:

"32-7-115. Maintenance of records. (1) A licensee shall establish and maintain the books, accounts, and records necessary to enable the state auditor at any time to determine whether the escrow transactions performed by the licensee comply with the provisions of this part. The books, accounts, and records must be maintained in accordance with generally accepted accounting principles and good business practice.

(2) A licensee shall establish and maintain the following records concerning general accounts:

(a) a general record reflecting the assets, liabilities, capital, income, and expense of the business, maintained in accordance with generally accepted accounting principles;

(b) a cash receipt and disbursement journal; and

(c) a reconciliation of monthly statements to the general record.

(3) The records referred to in subsections (1) and (2) must be reconciled at least once each month with the bank statements reflecting each escrow account.

(4) A licensee shall preserve for at least 3 years after the close of any escrow:

(a) all bank statements reflecting each escrow account and records of monthly reconciliations of the statements to the general record;

(b) all canceled checks drawn on each escrow account;

(c) any additional records reflecting banking transactions regarding each escrow account, including copies of all receipts for funds transferred from other accounts into each escrow account;

(d) all statements of account;

(e) all escrow instructions and amendments to them; and

(f) all additional records pertinent to each escrow transaction.

(5) A licensee shall perform one of the following:

(a) file annually with the state auditor, on or before April 30, a statement of its financial condition, transactions, and affairs as of the preceding December 31. The state auditor may grant an extension, not to exceed 10 days, on or before the April 30 filing date if the licensee demonstrates good cause for an extension. The financial statement must be certified by an independent public accountant and must be in a form and contain the information prescribed by the state auditor.

(b) request that the state auditor examine the financial condition, transactions, and affairs of the licensee pursuant to procedures prescribed by the state auditor."

Section 64. Section 32-7-122, MCA, is amended to read:

"32-7-122. Investigations by state auditor -- desist order -- injunctions or other actions. (1) The state auditor may investigate, upon complaint or otherwise, if it appears that:

(a) an escrow business is conducting its business in an unsafe and injurious manner or in violation of this part or any rule promulgated pursuant to this part; or

(b) a person is engaging in the escrow business without being licensed under the provisions of this part.

(2) (a) If it appears to the state auditor, upon sufficient grounds or evidence satisfactory to the state auditor, that an escrow business has engaged or is about to engage in any act or practice in violation of this part or any rule or order issued pursuant to this part or that the assets or capital of any escrow business or company is impaired or the licensee's affairs are in an unsafe condition, the state auditor may summarily order the escrow business to cease and desist from the act or practice or the state auditor may apply to the district court of the first judicial district of Lewis and Clark County to enjoin the act or practice and to enforce compliance with this part or for any other appropriate equitable relief.

(b) Upon a proper showing, the court may:

(i) grant a temporary restraining order, followed by a preliminary injunction and a permanent injunction;

(ii) appoint a receiver for the defendant or defendant's assets;

(iii) cancel the licensee's license; and

(iv) order other equitable remedies that the court considers necessary and appropriate.

(3) The court may not require the state auditor to post a bond."

Section 65. Section 32-7-123, MCA, is amended to read:

"32-7-123. Subpoenas -- oaths -- examinations of witness and evidence. (1) In the conduct of an examination, investigation, or hearing, the state auditor may:

(a) compel the attendance of any person or obtain any documents by subpoena;

(b) administer oaths;

(c) examine any person under oath concerning the business and conduct of affairs of any person subject to the provisions of this part; and

(d) require the production of any books, records, or papers relevant to the inquiry.

(2) If a person refuses to obey a subpoena issued by the state auditor, the district court of the first judicial district of Lewis and Clark County or other district court having proper venue, upon application by the state auditor, may order the person to produce documentary evidence or to give evidence relating to the matter under investigation or in question. If a person fails to obey the order of the court, the person may be punished by the court as contempt of court."

Section 66. Section 32-8-103, MCA, is amended to read:

"32-8-103. Definitions. As used in this chapter, unless the context requires otherwise, the following definitions apply:

(1) "Bank holding company" means a company registered under the federal Bank Holding Company Act of 1956, as amended.

(2) "Board" means the state banking board provided for in [section 1].

(3) "Capital" means currency that is convertible to U.S. dollars or personal property, including tangible personal property.

(4) "Cash" means currency, cashier's checks, money orders, and other monetary instruments as defined in the Bank Secrecy Act (Public Law 91-508).

(5) "Charter" means a certificate issued by the board through the state auditor to a corporation verifying that the corporation is authorized to conduct business in Montana as a foreign capital depository.

(6) "Controlling person" means a person who holds 5% or more of the equity in a depository or who is otherwise determined by the board to exercise controlling authority over decisions affecting the management and operation of the depository.

(7) "Customer" means a person who is using or has used the services of a foreign capital depository or for whom a foreign capital depository has acted as a fiduciary.

(8) "Department" means the office of the state auditor as provided for in Title 2, chapter 15, part 6.

(9) "Foreign bank" means a bank that has its primary office outside the jurisdiction of the United States and is licensed under the laws of a foreign country or a political subdivision of a foreign country.

(10) "Foreign capital depository" or "depository" means a financial institution incorporated in Montana and chartered by the board to conduct business as a foreign capital depository in accordance with parts 1 through 5 of this chapter.

(11) "Money laundering" is the process through which the existence, illegal source, true ownership, or unlawful application of illicitly derived funds is concealed or disguised to make the funds appear legitimate, thereby helping to evade detection, prosecution, seizure, or taxation.

(12) "Nonresident alien" means a person who is not a citizen or a resident of the United States.

(13) "Person" means an individual, partnership, corporation, limited liability company, association, trust, or other legal entity.

(14) "Supervisory agency" means any of the following:

(a) the attorney general and the department of justice, established by 2-15-2001, for the purpose of the enforcement of all criminal laws of the state;

(b) the department, for the purposes of:

(i) the administration and enforcement of the state laws relating to the examination and supervision of a foreign capital depository;

(ii) the administration and enforcement of the state laws relating to the chartering and supervision of a foreign capital depository; and

(iii) the administration and enforcement of the state laws relating to the regulation of an insurer of accounts in a foreign capital depository;

(c) the board, for the purposes of chartering a foreign capital depository;

(d) the federal reserve system, when the chartered depository is a subsidiary of a financial institution domiciled outside the jurisdiction of the United States, for the purposes of examining a foreign capital depository;

(e) the legislative audit division, established by 5-13-301, for the purposes of the administration of state laws relating to the audit of state agencies and the collection and disbursement of public funds;

(f) the department of revenue, established by 2-15-1301, for the purposes of the administration and enforcement of laws relating to the collection of taxes or fees from a foreign capital depository

.

(15) "Tangible personal property" includes platinum, palladium, gold, or silver bullion or coins, precious stones, jewelry, works of art, furnishings, and other objects of value that are not legal tender."

Section 67. Section 32-8-104, MCA, is amended to read:

"32-8-104. Charter required -- misrepresentation cause for disqualification. (1) A person may not operate or conduct business as a depository in this state without a charter issued by the board.

(2) A depository shall post the charter certificate in a conspicuous place.

(3) A person who is found by the state auditor to have falsely represented to a customer that a charter had been obtained is permanently disqualified from obtaining a charter."

Section 68. Section 32-8-202, MCA, is amended to read:

"32-8-202. Charter application -- grounds for denial. (1) To safeguard the interests and the reputation of the state, the board shall deny a charter application if it finds that the applicant planning to operate the depository is not of good character or that the applicant is not financially sound.

(2) The board may find that the person planning to own, operate, or manage the depository is not of good character or financial integrity if a director, an executive officer, or a controlling person of the applicant has:

(a) been convicted of or has pleaded guilty or nolo contendere to any crime involving fraud, theft, conspiracy, racketeering, or money laundering;

(b) had a professional or occupational license suspended or revoked based on conduct involving an act of fraud or dishonesty;

(c) willfully made or caused to be made false or misleading statements in an application or report to the state auditor or has willfully omitted facts required in the report;

(d) willfully violated a provision of 32-8-104 or 32-8-201 or aided, abetted, counseled, commanded, induced, or procured the violation by another person of a provision of 32-8-104 or 32-8-201.

(3) Subsections (1) and (2) are not exclusive of other grounds on which the board may determine that an applicant for a depository charter is not of good character and therefore may not receive a charter.

(4) The board may authorize the state auditor to conduct or obtain from a private investigative service a background check on any director, executive officer, or controlling person of the depository for the purposes of determining whether an applicant is of good character.

(5) The board shall adopt rules concerning the method and process for determining whether an applicant for a charter is financially sound."

Section 69. Section 32-8-203, MCA, is amended to read:

"32-8-203. Suspension, revocation, and restoration of charter. (1) The board may suspend or revoke the charter of a depository if the board finds that the depository or any director, executive officer, or controlling person of the depository has:

(a) violated a provision of parts 1 through 5 of this chapter, a rule of the department established pursuant to parts 1 through 5 of this chapter, the Bank Secrecy Act, or any implementing regulation of the Bank Secrecy Act;

(b) failed to comply with an order of the state auditor;

(c) operated in a manner or condition that is unsafe or unsound;

(d) become insolvent in that the depository has ceased to pay its debts in the ordinary course of business, it is unable to pay debts as they come due, or its liabilities exceed its assets;

(e) filed a petition for an adjudication of bankruptcy;

(f) knowingly made a false statement or report to the department;

(g) failed to pay the department of revenue the fee, penalty, or interest owed pursuant to 15-31-803 through 15-31-805 before 5 p.m. on the last day of the 11th month after the date a deficiency assessment is mailed; or

(h) if the depository is a subsidiary of a foreign bank holding company or another type of financial institution, had its operating license suspended or revoked in the country where the parent company is domiciled.

(2) Before suspending or revoking a charter, the board shall conduct a hearing in accordance with the Montana Administrative Procedure Act relating to a contested case.

(3) On the recommendation of the department, the board may reinstate a charter that has been suspended or revoked if the board finds that the depository has restored its integrity and financial soundness.

(4) At no time during or following the suspension, revocation, or reinstatement of a charter may a financial record pertaining to an individual account be disclosed except in accordance with rules for the conduct of examinations in 32-8-303 or in accordance with part 5 of this chapter."

Section 70. Section 32-8-204, MCA, is amended to read:

"32-8-204. Administrative orders by state auditor. (1) In addition to or in lieu of the board's suspending or revoking the charter issued to a foreign capital depository, the state auditor may:

(a) issue a cease and desist order that specifies the activity that the depository may not undertake for the duration of the order;

(b) require a depository to take action as determined by the state auditor; or

(c) order the depository to pay a civil penalty in an amount not to exceed $10,000 for each violation or, in the case of a continuing violation, $10,000 for each day during which the violation continues.

(2) Orders issued by the state auditor pursuant to this section must be issued in compliance with the contested case procedure of the Montana Administrative Procedure Act."

Section 71. Section 32-8-301, MCA, is amended to read:

"32-8-301. Regulation and supervision -- rules. (1) To ensure that the department meets its responsibility for the prudential supervision of a foreign capital depository, the department shall adopt rules that:

(a) determine the processes and procedures necessary to ensure that the controlling persons and employees and the procedures of a depository are in compliance with this chapter;

(b) establish the procedures for the conduct of examinations of a depository by the department, including the means by which the state auditor will verify that the depository's know your customer policy has been implemented;

(c) establish the form of suspicious activity reports and the conditions under which a suspicious activity report must be filed with the department;

(d) require a depository to submit to the department on request a written or electronic record of any transfer or withdrawal of cash from the depository in an amount equal to or greater than $10,000;

(e) require a depository to file an annual report with the department detailing the depository's:

(i) security measures designed to deter and prevent theft, fraud, and corruption;

(ii) procedures for filing suspicious activity reports with the U.S. department of the treasury and for keeping records and filing reports of transactions as required by federal law and regulation to combat money laundering and other criminal activities;

(iii) employee training programs regarding disclosure and other aspects of customer financial privacy; and

(iv) fulfillment of the know your customer policy recommended by the American bankers association or prescribed by federal regulation.

(2) With respect to an action concerning the issuance, suspension, or revocation of a charter or an action pursuant to enforcement in 32-8-601 through 32-8-603, the department shall adopt rules to determine prehearing discovery procedures, including the taking of depositions and the production of documents.

(3) In adopting rules for hearings, the department shall provide for the issuance of subpoenas and for the administration of oaths to witnesses and parties or their representatives to apply both to discovery procedures and to hearings."

Section 72. Section 32-8-304, MCA, is amended to read:

"32-8-304. Special examinations -- costs. (1) Whenever in the judgment of the state auditor the condition of a depository or the actions of a customer necessitate an examination beyond that required by 32-8-303, the department may conduct additional examinations determined to be necessary and in connection with the additional examinations may charge the depository:

(a) an amount not to exceed $400 a day for each examiner engaged in the examination of the depository;

(b) the actual cost of travel expenses of the examiner in the event that travel outside this state is determined necessary by the state auditor; and

(c) a reasonable amount to recover the actual costs of counsel and other department resources.

(2) The money collected by the department pursuant to examination fees must be deposited in the foreign capital depository account established in 32-8-306."

Section 73. Section 32-8-308, MCA, is amended to read:

"32-8-308. Reports -- contents and restrictions. (1) A depository shall make a report to the department in the manner and at the time required by the state auditor.

(2) A report filed with the department must:

(a) contain the information required by rule; and

(b) be verified by two of the depository's executive officers. The verification must state that each of the officers making the verification has a personal knowledge of the matters in the report and that each of them believes that each statement in the report is true.

(3) A depository may not include any financial record, as defined in 32-8-502, of any customer in the report.

(4) The department may provide a copy of the report to another supervisory agency."

Section 74. Section 32-8-314, MCA, is amended to read:

"32-8-314. Depository services -- allowed and mandated. (1) A depository may:

(a) accept deposits in any currency or electronic form convertible to U.S. dollars;

(b) provide safe deposit and other storage services for the purpose of protecting the security of a customer's tangible personal property;

(c) convert cash deposits to purchase orders for platinum, palladium, gold, or silver bullion on behalf of or at the direction of a customer;

(d) purchase, sell, and pay interest to the customer derived from tax-exempt federal, state, county, or municipal bonds on behalf of or at the direction of a customer;

(e) provide a customer with foreign currency in exchange for U.S. dollars in an equivalent monetary amount;

(f) perform trust and related fiduciary services, as provided in 32-1-107, but only if the depository has obtained a certificate from the department authorizing the depository to act as a trust company or the subsidiary of a trust company prior to engaging in trust activities;

(g) issue a debit card or an automatic teller machine card to a customer;

(h) charge interest in relation to a customer's use of a debit or automatic teller machine card;

(i) establish different types of deposit accounts for customers;

(j) offer deposit or safe deposit insurance provided under contract with a financial guaranty insurer approved by the insurance division;

(k) charge fees related to the opening, management, and insuring of deposit accounts, the storage and maintenance of tangible personal property, the establishment and administration of trust accounts, and other lawful investment, legal, or financial services;

(l) set underwriting standards for each type of account that it offers to a customer; and

(m) establish a minimum deposit amount for any type of account as long as the minimum is not less than $200,000.

(2) A depository may in its discretion refuse an application for an account of any type.

(3) A depository shall:

(a) exercise extraordinary diligence in determining the genuine identity of a customer;

(b) protect the privacy of each customer as provided in part 5 of this chapter;

(c) in accordance with Title 25, chapter 9, part 8, provide legal defense of a customer at the customer's request or on the request of the customer's legal representative in the event a civil judgment rendered against the depositor in a jurisdiction outside the United States is registered in Montana;

(d) with respect to precious metals accounts in part 4 of this chapter, comply with the statutory protections against securities fraud under Title 30, chapter 10;

(e) comply with federal reporting and recordkeeping requirements as provided in the Bank Secrecy Act, the Money Laundering Control Act of 1986, the Annunzio-Wylie Anti-Money Laundering Act, and implementing regulations of each of those acts concerning money laundering and other financial crimes."

Section 75. Section 32-8-315, MCA, is amended to read:

"32-8-315. Depository services -- restrictions and prohibitions. (1) A depository may not accept a deposit:

(a) from an individual who is a citizen or a resident of the United States;

(b) from a corporation, trust, or partnership if any shareholder, settlor, member, beneficiary, or partner is a citizen or a resident of the United States;

(c) in an amount valued at less than $200,000 in U.S. dollars.

(2) A depository may not:

(a) provide services to any customer who is not a nonresident alien;

(b) engage in lending or any related commercial banking services as defined in the Bank Act, except:

(i) in a case in which fiduciary lending is necessitated by a trust obligation and the depository has obtained a certificate from the department authorizing the depository to act as a trust company or the subsidiary of a trust company; or

(ii) in relation to a precious metals account as provided in part 4 of this chapter;

(c) transfer $10,000 or more of a customer's cash on deposit to another financial institution inside or outside the jurisdiction of the United States without submitting a record of the transaction to the state auditor and the attorney general that includes the customer's name, last-known address, and, if the customer is an individual, passport number;

(d) accept a deposit from a customer who has been convicted of a state or federal felony in the United States or from a corporation of which a controlling person has been convicted of a state or federal felony in the United States."

Section 76. Section 2, Chapter 64, Laws of 1995, is amended to read:

"Section 2. Contingent termination. [This act] terminates on the date that the state auditor certifies to the governor that federal banking laws require that a nationally chartered bank publish its call report in a newspaper published in the place where the bank is located."

NEW SECTION. Section 77. Repealer. Section 2-15-1803, MCA, is repealed.

NEW SECTION. Section 78. Name change -- directions to code commissioner. Wherever reference to regulation of banking refers to the "department of commerce" or wherever the "commissioner of banking and financial institutions" appears in legislation enacted by the 1999 legislature, the code commissioner is directed to change it to an appropriate reference to the "state auditor".

NEW SECTION. Section 79. Codification instruction. [Section 1] is intended to be codified as an integral part of Title 2, chapter 15, part 6, and the provisions of Title 2, chapter 15, part 6, apply to [section 1].

NEW SECTION. Section 80. Transition. The provisions of 2-15-131 through 2-15-137 apply to [this act].

NEW SECTION. Section 81. Effective dates. (1) Except as provided in subsection (2), [this act] is effective October 1, 1999.

(2) [Sections 78 through 80 and this section] are effective on passage and approval.

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