COSSEC insurance: $100,000 per member

It is the insurance that protects the money you hold in a savings and credit co-operative if the co-op becomes insolvent. It is administered by COSSEC, a public corporation, and covers both the member’s shares and deposits up to a cap the Act sets at one hundred thousand dollars. The same Act gives COSSEC supervisory powers over insured co-ops, including the power to take over their administration when it detects members are at risk.

The coverage protects members and depositors of savings and credit co-operatives insured by COSSEC. Every co-op organised and operating when the Act took effect must remain under the insurance, and every co-op or federation organised afterwards is obliged to join before beginning operations. But there is a fork worth knowing: co-ops which on that date were insured by the National Credit Union Administration could opt to stay under that federal insurance. So it cannot be assumed every co-op in the country is under COSSEC, and the Act publishes no list of which are under which insurance.

• The insurance guarantees members’ and depositors’ shares and deposits against the risk of loss by insolvency up to a maximum limit of one hundred thousand dollars ($100,000) (Article 12).Verified against the official source
• Every co-op organised and operating when the Act took effect must remain under the Corporation’s insurance; those insured by the National Credit Union Administration on that date could opt to continue under it (Article 10).Verified against the official source
• Every co-op or federation organised after the Act’s effective date is obliged to join the insurance before beginning operations (Article 10).Verified against the official source
• Raising the maximum insurance limit requires actuarial studies and prior approval by two thirds of the Board of Directors (Article 12).Verified against the official source

• The statement of condition every insured co-op presents to the Corporation by 30 June each year, with the balance of members’ share and deposit accounts (Article 13).

1. 1

   Step 1: The limit, and the two pieces of fine print it carries

   Article 12 says the Corporation’s share and deposit insurance shall provide to guarantee, against the risk of loss by insolvency, the shares and deposits of members and depositors of the co-ops up to a maximum limit of one hundred thousand dollars. Two precisions come in the same article. The first: as regards the Banco Cooperativo de Puerto Rico, the insurance may guarantee against economic insolvency risk only its deposits, and the Board adopts by regulation the rules of that coverage and the premium computation, avoiding multiple premiums on deposits coming from insured co-ops. The second: the cap may rise. After the corresponding actuarial studies and with prior approval of two thirds of the Board of Directors, the Corporation may increase it.

2. 2

   Step 2: What weighs when raising the cap is decided

   The Act names three factors and they are worth knowing because they explain why the number moves. First, the Corporation’s financial capacity to answer for the increase in coverage. Second, the financial condition of the insured co-ops. Third, the insurance limits in force under the federal deposit or share insurance programmes. That is, COSSEC’s cap keeps an eye on the federal cap. Besides basic coverages matched to the federal programmes, the Corporation may decree supplementary, additional or special coverages for certain types of deposits or shares, and define supplementary premiums for them. Every increase, whether general, supplementary, additional or special, must be founded on actuarial and financial studies showing the Corporation can bear it.

3. 3

   Step 3: Not every co-op is under COSSEC

   This surprises many people and comes straight from Article 10. Every savings and credit co-op organised and operating as such on the Act’s effective date must remain under the Corporation’s share and deposit insurance. However, those which on that date were under the National Credit Union Administration’s share and deposit insurance had the option to continue under that federal entity’s insurance or to join the one in this Act, subject in that case to meeting the Corporation’s requirements. And every co-op or federation organised after the effective date is obliged to join the insurance before beginning operations. The practical consequence: before assuming who insures you, ask your co-op. The Act creates the fork but publishes no list of who is on each side.

4. 4

   Step 4: How COSSEC watches over the co-ops

   Article 13 obliges every insured co-op to present to the Corporation, by 30 June each year, a statement of condition reflecting its financial situation and indicating the balance of members’ share and deposit accounts per the norms the Corporation sets. Those balances must coincide with the report used to determine the premium the co-op pays. The Corporation sets by regulation the dates and frequency of those statements, the forms, who must certify them and what information accompanies them. It may also require any insured co-op to render other financial or other reports to know its full situation and determine the risk of losses it may represent for the insurance, and may require it to publish its annual statements of financial condition.

5. 5

   Step 5: The five signals that make COSSEC step in

   Article 20(a) allows the Corporation to issue a provisional order placing an insured co-op under its administration when, after an audit, investigation, examination or inspection, it is shown in its judgement that the co-op is in one or more of these situations: it lacks a sound economic and financial situation; it lacks effective internal controls for administering its affairs; it has inadequate reserves; its accounting is not up to date nor reasonably correct to continue operations; or it is being administered in such a way that members, or persons or entities with deposits in it, are in danger of being defrauded. That last one matters most to a member, and it is written in those words in the Act.

6. 6

   Step 6: The hearing: before or after, depending on emergency

   That same Article 20 allocates the moment of the hearing according to urgency. No hearing need be held before issuing the order when, in the Corporation’s judgement, the co-op’s situation is an emergency; in that case the Corporation takes immediate possession and control of the administration per the regulation it adopts. But then an administrative hearing must be held within ten days following the date the order was notified, to determine whether it becomes permanent or is revoked. Where there is no emergency, the hearing takes place before the order is issued. In either case, the hearing is governed by the Uniform Administrative Procedure Act.

7. 7

   Step 7: What happens to your money if there is a merger or sale

   The Act says it in a single sentence worth reading in full: “After the merger, consolidation, or sale of assets and liabilities of an insured co-op is carried out and the Corporation complies with the agreed benefits, the insured accounts of the members and depositors of the acquired co-op shall convert into shares and deposits in the acquiring institution.” That is, they do not disappear: they pass to the acquiring institution. Subsection (b) adds that the Corporation may issue an order for the co-op to show cause why liquidation, merger, consolidation or sale should not proceed, where three circumstances coincide: that an emergency requiring rapid action exists; that there is no other reasonable alternative assuring solvency; and that the merger, consolidation or purchase is determined to be the least-cost alternative for the Corporation.

The insurance is administered by the Public Corporation for the Supervision and Insurance of Savings and Credit Co-operatives. The one who pays the premium is the co-op, not the member. If your co-op is insured by the National Credit Union Administration rather than COSSEC, the Act permits that option and the claim would go the federal route. The Act publishes no addresses, telephones, forms or portals, nor a procedure for a member to claim the insurance, and we do not guess government internet addresses.

• Taking for granted that your co-op is insured by COSSEC: Article 10 allowed those with the National Credit Union Administration to stay with the federal insurance.
• Believing the hundred thousand dollars is a figure fixed by statute: the Board may raise it with actuarial studies and a two-thirds vote.
• Thinking the insurance covers any loss: the Act defines it against the risk of loss by insolvency, not against fraud, bad investment or a fall in value.
• Assuming the Banco Cooperativo has the same coverage: for it the insurance may guarantee only its deposits.
• Believing you lose your money if the co-op merges: insured accounts convert into shares and deposits in the acquiring institution.
• Expecting COSSEC to warn before stepping in: if there is an emergency it takes immediate possession and the hearing comes afterwards, within ten days.
• Looking in the Act for how to claim the insurance: it publishes no procedure or form for the member.
• Assuming the cap applies per account: the Act sets the limit for the member’s shares and deposits and does not explain the computation across several accounts.
• Confusing the premium with a charge to the member: the premium is paid by the insured co-op, not the individual member.

These are the government pages this guide is based on.

• Corporación Pública para la Supervisión y Seguro de Cooperativas de Ahorro y Crédito (COSSEC)

  COSSEC

  bvirtualogp.pr.gov