(a) Definitions.

1. (1) As used in this section, “share account” means:

   1. (A) Regular share account. An account which does not require the holder to maintain a minimum balance greater than the par value of a share or to give notice of intent to withdraw, except as may be imposed in accordance with the credit union's bylaws;
   2. (B) Notice account. An account which, in addition to any notice which may be imposed pursuant to the credit union's bylaws, requires the holder to give written notice of the intent to withdraw;
   3. (C) Minimum balance account. An account which requires the holder to maintain a specified balance in the account for at least an entire dividend period; and
   4. (D) Split-rate account. An account which earns dividends at a different rate on the portion of the balance above a certain minimum requirement; and

2. (2) Share certificate account. An account that:

   1. (A) Will earn dividends at a particular rate if held to maturity; and
   2. (B) On which a penalty shall be assessed for the withdrawal of all or any portion of the principal amount prior to maturity.

(b) Issuance of share accounts and share certificate accounts.

1. (1) The board of directors, by amendment to the bylaws, may establish:

   1. (A) Regular share accounts, notice accounts, minimum balance accounts, split-rate accounts, or any of those types of share accounts at varying dividend rates, and share certificate accounts at varying dividend rates and maturities, in conformance with this section;
   2. (B) Additional terms and conditions concerning the issuance and maintenance of share accounts and share certificate accounts not inconsistent with the requirements of this part; and
   3. (C) Penalties, in addition to those required by this part, to be imposed for failure to comply with any:

(i) Minimum balance, notice, or time requirement; or

1. (ii) Additional terms and conditions.

2. (2)

   1. (A) Share accounts and share certificate accounts offered shall be made available to all members on an equal basis.
   2. (B) Special share certificate accounts may be established for funds deposited to the credit of, or in which the entire beneficial interest is held by, an individual pursuant to an individual retirement account agreement or Keogh plan as provided for by 23 CAR § 304-124.
   3. (C) Such special share certificate accounts shall be made available on an equal basis to all members who qualify.
   4. (D) No officer, director, member of the credit or supervisory committees, employee, or other official appointed or elected, shall be the holder of a share account or any type of share certificate account unless all qualifying members of the credit union are given an equal opportunity to become holders of such accounts.

3. (3) Share accounts and share certificate accounts shall be subject to any notice which may be imposed pursuant to the credit union's bylaws.

   1. (c) Limitations on share accounts and share certificate accounts.

4. (1)

   1. (A) In addition to the general provisions of this part, the terms and conditions established by the board of directors concerning the issuance and maintenance of share accounts and share certificate accounts shall take into account the requirements set forth below.
   2. (B) See also 23 CAR § 304-107.

5. (2) Share accounts.

   1. (A) Notice accounts shall require a minimum of ninety (90) days’ written notice of intent to withdraw except, however, the board of directors may provide that the written notice requirement for all similar type notice accounts may be waived at the end of the dividend period, but only if the funds withdrawn pursuant to this waiver have remained in the account for at least the required notice period.
   2. (B) Minimum balance accounts must be maintained at or above the minimum balance established for an entire dividend period.
   3. (C) Split-rate accounts shall have one (1) or more minimum balance requirements.

6. (3) Share certificate accounts.

   1. (A) In determining the dividend rate to be paid, different qualifying periods and minimum amount requirements shall be taken into account.
   2. (B) Qualifying periods shall not be less than ninety (90) days nor more than six (6) years.
   3. (C) The lowest minimum amount requirement for share certificates shall be five hundred dollars ($500) or more.

   4. (D)

      1. (i) Upon maturity, share certificate accounts may be automatically renewed at the same terms and conditions as initially issued, or as may be otherwise provided for in accordance with a written agreement between the holder and the credit union.
      2. (ii) Notice of any such renewal, changes in the terms and conditions, or expiration of the qualifying period, in addition to the disclosure requirements set forth in subsection (k), shall be provided at least ten (10) days prior to the expiration of the qualifying period.

   5. (E)

      1. (i) In case of early withdrawal of the principal amount which reduces the balance below the minimum amount requirement, the account shall be canceled and a penalty pursuant to subsection (d) of this section shall be imposed upon the entire amount evidenced by the share certificate account.
      2. (ii) If the minimum amount requirement continues to be met, a penalty pursuant to subsection (d) of this section shall be imposed upon the amount withdrawn, and not upon the remaining balance, and either:

(b) (b) The account may be canceled and a new account issued.

1. (iii) A share certificate account holder may withdraw any and all dividends previously paid on the share certificate account without incurring a penalty.

   1. (d) Penalty provisions.

2. (1)

   1. (A) Penalties imposed shall be on the actual dividends earned, and shall not be imposed on the principal amount held in a share account or share certificate account.
   2. (B) In assessing any applicable penalty, however, the amount of the penalty may be deducted from the principal amount if the dividends upon which the penalty is assessed have been previously withdrawn.
3. (2) The board of directors may establish a penalty to be imposed for failure to comply with any balance or notice requirement of a share account other than a regular share account.
4. (3) If a penalty is imposed, the penalty shall require that the dividend rate paid on the remaining balance in the share account be reduced to at least the rate paid on regular share accounts for the same period.
5. (4) The board of directors shall establish a penalty to be imposed on the withdrawal of funds from a share certificate account before maturity.

6. (5) The penalty shall require:

   1. (A) A reduction in the dividend rate to an amount not in excess of the rate paid on regular share accounts from the date of issuance or, if the share certificate account has been renewed, from the date of renewal on the amount withdrawn; and

   2. (B) A forfeiture in an amount at least equal to the lesser of:

      1. (i) All dividends for ninety (90) days on the amount withdrawn; or
      2. (ii) All dividends on the amount withdrawn since the date of issuance or renewal.

(e) Exceptions to the penalties. Penalties shall not be applied if:

1. (1) The withdrawal is made subsequent to the death of any owner of the share account or share certificate account;

2. (2) The share account or share certificate account is:

   1. (A) Part of a pension plan which qualified or qualified for specific tax treatment under Sections 401(d) or 408(a) of the Internal Revenue Code of 1954; and
   2. (B) Withdrawal is made to effect distribution of the funds evidenced by such account following the participant's death or disability or upon attaining not less than fifty-nine and one-half (59 1/2) years of age; or
3. (3) Such withdrawal is made as a result of the voluntary or involuntary liquidation of the credit union issuing the account.

(f) Rate specified or contracted for in advance.

1. (1) A credit union may specify or contract for the dividend rate expected to be paid on share accounts and share certificate accounts.
2. (2) Any such agreement shall provide that dividends will be paid at the specified or contracted rate only in the event there are sufficient earnings available for that dividend period.
3. (3) Credit unions shall not pay dividends in excess of available earnings.

4. (4) If specified or contracted for, the dividend rate shall:

   1. (A) For regular share accounts, be expressed as a single dividend rate; and

   2. (B) For the remaining types of share accounts and share certificate accounts, be expressed as:

      1. (i) A percentage, or part thereof, above or below the dividend rate declared for regular share accounts; or
      2. (ii) A single dividend rate.

(g) Maximum dividend rates.

1. (1) A credit union may pay a maximum dividend, expressed as annual rate, as follows:

   1. (A) Seven percent (7%) on a share account;
   2. (B) Seven and three-quarters percent (7 3/4%) on a share certificate account except as provided for below;
   3. (C) Eight percent (8%) on a share certificate account which represents an investment of retirement accounts funds pursuant to 23 CAR § 304-124;
   4. (D) A rate determined by money market conditions on a share certificate account of one hundred thousand dollars ($100,000) or more; or

   5. (E) In the case of a share certificate account of ten thousand dollars ($10,000) or more having a fixed or minimum term or qualifying period of twenty-six (26) weeks, the maximum dividend rate, which shall not be compounded during the term or qualifying period and may be rounded off only by rounding down, shall be:

      1. (i) One quarter of one percent (.25%) above the discount rate, auction average on a discount basis, for twenty-six (26) weeks United States Treasury bills issued on or immediately prior to the date of the purchase of the share certificate if such discount rate is less than eight and three-quarters percent (8 3/4%);
      2. (ii) Nine percent (9%) if such discount rate is not less than eight and three-quarters percent (8 3/4%) and not more than nine percent (9%); or
      3. (iii) Equal to the discount rate if such discount rate exceeds nine percent (9%).
2. (2) No rate shall exceed that allowed by the Arkansas Constitution.

(h) Dividend periods.

1. (1) The board of directors may vary dividend periods for share accounts and share certificate accounts.
2. (2) Share certificate accounts which mature between dividend periods shall be entitled to dividends at the rate declared for that type of certificate at the close of the last dividend period before maturity.

3. (3) The board of directors shall set aside sufficient earnings and shall pay those share certificate accounts at maturity.

   1. (i) Dividends calculated on par value or dollar amount. A credit union may calculate dividends to be paid on share accounts and share certificate accounts either upon the:
4. (1) Par value of shares; or
5. (2) Actual value held in the share accounts and share certificate accounts.

(j) Advertising. In addition to the advertising requirements established in the rules and regulations of the National Credit Union Administration, 12 C.F.R. pt. 740, and elsewhere in this part, the following shall apply to every advertisement, announcement, or solicitation relating to share accounts and share certificate accounts:

1. (1) Where a dividend rate is specified or contracted for:

   1. (A) Any terms and conditions concerning required minimum balance, notice, or time period necessary to earn the dividend at the rate shall be stated;

   2. (B)

      1. (i) A clear and conspicuous notice shall be included indicating that the specified or contracted rate shall not be paid if available earnings are insufficient.
      2. (ii) Such notice shall state "Federal and State regulations prohibit payment of dividends in excess of available earnings";
   3. (C) The basis upon which dividends are calculated; and
   4. (D) A clear and conspicuous notice stating that federal and state regulations prohibit the compounding of dividends during the qualifying period shall be included in the case of share certificates issued pursuant to subdivision (g)(1)(E) of this section;

2. (2)

   1. (A) Where a penalty will be imposed for failure to comply with any term or condition, a clear and conspicuous notice shall be included.
   2. (B) Such notice shall state: "A substantial penalty is required for failure to comply with these requirements."; and

3. (3)

   1. (A) Where a percentage yield achieved by compounding dividends during one (1) year is stated, the annual rate of dividends without the effect of compounding shall be stated with equal prominence, together with a reference to the basis of compounding and the basis for calculating dividends, either on par value or actual value.
   2. (B) The percentage yield based on the effect of grace periods shall not be stated.

(k) Disclosures.

1. (1) At the time that a credit union issues any share account or share certificate account, the holder of the account shall be provided, to the extent applicable, with a written statement setting forth the following:

   1. (A) Any minimum balance, notice requirement, or time requirement which must be met for the share account or share certificate account to earn dividends at a particular rate, and any additional terms and conditions;
   2. (B) The basis of compounding, the basis upon which dividends will be paid, and the effect of withdrawal prior to the close of a dividend period;
   3. (C) That federal and state regulations prohibit payment of dividends in excess of available earnings, and in the case of share certificates issued pursuant to subdivision (g)(1)(E) of this section, that federal and state regulations prohibit the compounding of dividends during the qualifying period;
   4. (D) Any penalty imposed for the failure to comply with balance, notice, time requirement, or any additional terms and conditions;
   5. (E) The terms and conditions upon which the funds in the share account or share certificate account may be withdrawn without penalty;
   6. (F) Any provisions relating to automatic renewal of share certificate accounts;
   7. (G) The disposition of a share certificate account if it is not renewed; and
   8. (H) Membership in the credit union will terminate upon maturity of a share certificate account, unless renewed, if the holder does not have, establish, or otherwise make provision for a share account or share certificate account in addition to the share certificate account which is maturing.

2. (2)

   1. (A) A credit union need not provide a written disclosure statement in connection with the renewal of an existing account.
   2. (B) Notice must be sent to affected account holders of any change in any provision required to be disclosed.

3. (3)

   1. (A) A copy of a standard disclosure statement for each class or type of account offered by a credit union shall be provided upon request.

   2. (B) If accounts other than regular share accounts are offered, a listing of the accounts available shall:

      1. (i) Be prominently displayed in the credit union's offices; and
      2. (ii) Indicate that a copy of a standard disclosure statement for each class or type of account is available upon request.
      3. (l) Lien on shares.
4. (1) The lien described in Section 19(2) of the credit union act may be exercised or foreclosed by the board of directors, but only after default by the borrower of his or her obligations to the credit union and after the borrower has been given an opportunity to be heard.

5. (2) Thirty (30) days’ written notice of this hearing, setting forth the time, place, and date for such hearing shall be forwarded to the member at his or her last and best known address by the board of directors together with notice that unless the member is present at the hearing, the lien as above described will be foreclosed and the member's shares will be utilized by the credit union to discharge the member's unpaid and defaulted obligations to the credit union.

   1. (m) Share drafts.

6. (1) Definitions as used in this section include:

   1. (A) "Payable through bank" means a bank that has been designated to make presentment of a share draft to the credit union for payment;
   2. (B) "Share draft" means a negotiable or non-negotiable draft used to withdraw shares from a share draft account;
   3. (C) "Share draft account" means any regular account from which the credit union has agreed that shares may be withdrawn by means of a share draft or other order; and
   4. (D) "Truncation" means the original share draft is not returned to the member.

7. (2)

   1. (A) A credit union may provide its members with share drafts.
   2. (B) The board of directors shall determine, prior to requesting approval to implement the share draft program, that the members' use of share drafts is economically and operationally feasible for the credit union.

8. (3)

   1. (A) A credit union must submit a written request to operate a share draft program to the State Credit Union Supervisor at least sixty (60) days prior to the proposed date of implementation.

   2. (B) The request shall include:

      1. (i) An official copy of the minutes of the board of directors authorizing a request for approval to implement the share draft program;
      2. (ii) All background documentation which supports the board of directors' decision that the members' use of share drafts is economically and operationally feasible for the credit union;
      3. (iii) A statement that the forms and procedures to be used have been reviewed by legal counsel;
      4. (iv) A statement that the board of directors has determined appropriate bond coverage is in force; and
      5. (v) A statement of operational specifications which expressly provides for:

(b) (b) Truncation;

1. (c) (c) Establishing a share draft account agreement with each member which outlines the credit union's and member's responsibilities;

   1. (d) (d) Recording of share overdrafts and giving members notification of such overdrafts should they occur;

(h) (h) Submission of a periodic statement of account, no less frequently than quarterly, to each member who has a share draft account which shall include for each share draft processed the serial number, date of payment, and the amount of payment;

1. (i) (i) Establishing responsibility for detection of unauthorized or forged drafts;

(k) (k) Procedures for providing members with copies of paid drafts should copies be requested;

1. (l) (l) Procedures for retaining paid drafts or copies of paid drafts on file for a period of five (5) years or as required by state law, whichever is greater;

   1. (m) (m) The fees, if any, to be charged, provided such fees shall not exceed the direct and indirect costs of providing the service;

(p) (p) The credit union has an adequate accounting system to handle share drafts.

1. (4)

   1. (A) A credit union may not commence operating a share draft program until it has received written approval from the supervisor, which may limit a member participating for a period not to exceed one (1) year.

   2. (B) Approval will not be given if:

      1. (i) The requirements of subdivision (m)(3) of this section have not been met;
      2. (ii) The supervisory committee has not fulfilled its statutory requirements as specified in the act; or
      3. (iii) The management of the credit union has demonstrated through prior performance its inability to handle the additional activity the share draft program will generate.

2. (5)

   1. (A) The credit union shall notify the supervisor, in writing, at least sixty (60) days in advance of its proposed implementation date of any modification relating to:

      1. (i) The payable through bank;
      2. (ii) Truncation procedures;
      3. (iii) The share draft agreement; or
      4. (iv) Any material modification not previously reviewed and approved by the supervisor.
   2. (B) Implementation of a modification is contingent upon written approval of the supervisor.
   3. (C) The credit union shall immediately notify the supervisor as to any matter affecting the information provided pursuant to subdivisions (m)(3)(B)(i) - (iv) of this section.
3. (6) If a share draft program or a request for modification is not approved, or the share draft program is approved for limited member participation, the supervisor will provide to the requester a written notice setting forth the basis for such action.

4. (7) A credit union shall not waive the rights to require notice as set forth in the bylaws, but may guarantee payment of a share draft provided that:

   1. (A) A specific guarantee authorization is obtained for the share draft from the credit union; and
   2. (B) The guarantee authorization is immediately noted on the share draft account to prevent the withdrawal of shares needed to pay the guaranteed share draft.