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Credit Union Practices practice questions

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Question 1Credit Union Structure, Governance, and Regulatory Framework

Which federal agency charters and supervises credit unions at the national level in the United States?

  1. The Federal Deposit Insurance Corporation
  2. The National Credit Union Administration Correct answer.
  3. The Consumer Financial Protection Bureau
  4. The Office of the Comptroller of the Currency

Explanation

The National Credit Union Administration (NCUA) is the independent federal agency that charters federal credit unions and administers the National Credit Union Share Insurance Fund. The FDIC and OCC supervise banks, and the CFPB enforces consumer protection rules across many institutions.

Question 2Credit Union Structure, Governance, and Regulatory Framework

The federal statute that governs the organization and operation of federal credit unions is the:

  1. Community Reinvestment Act
  2. Bank Holding Company Act
  3. Federal Credit Union Act Correct answer.
  4. Securities Exchange Act

Explanation

The Federal Credit Union Act, enacted in 1934, is the foundational law authorizing federal credit union charters and defining their powers and governance. The other statutes address bank holding companies, community lending obligations, and securities markets.

Question 3Credit Union Structure, Governance, and Regulatory Framework

Federal credit unions are insured through which fund?

  1. The Deposit Insurance Fund
  2. The Federal Savings Association Insurance Fund
  3. The National Credit Union Share Insurance Fund Correct answer.
  4. The Securities Investor Protection Corporation

Explanation

The National Credit Union Share Insurance Fund (NCUSIF) insures member share accounts at federally insured credit unions and is administered by the NCUA. The Deposit Insurance Fund and the former savings association fund insure banks and thrifts, while SIPC protects brokerage customers.

Question 4Credit Union Structure, Governance, and Regulatory Framework

A credit union's field of membership defines:

  1. The maximum interest rate the credit union may charge
  2. The geographic locations where branches may operate
  3. The groups of persons eligible to become members Correct answer.
  4. The range of loan products the credit union may offer

Explanation

Field of membership is the charter-based definition of who is eligible for membership, typically based on a common bond such as employment, association, or community. It does not set product menus, branch locations, or rate ceilings.

Question 5Credit Union Structure, Governance, and Regulatory Framework

Credit unions differ from banks in their fundamental ownership structure because credit unions are:

  1. Not-for-profit cooperatives owned by their members Correct answer.
  2. Subsidiaries of larger bank holding companies
  3. Government-owned entities controlled by regulators
  4. Publicly traded corporations owned by shareholders

Explanation

Credit unions are member-owned, not-for-profit cooperatives in which each member typically has one vote regardless of share balance. Banks are for-profit entities owned by shareholders.

Question 6Credit Union Structure, Governance, and Regulatory Framework

In a typical credit union, each member's voting rights at the annual meeting are:

  1. One vote per share of deposits held
  2. Proportional to the member's loan balances
  3. Limited to members who serve on the board
  4. One vote per member, regardless of share balance Correct answer.

Explanation

The cooperative principle of one member, one vote applies regardless of the amount a member has on deposit. This distinguishes credit union governance from shareholder corporations where votes track shares owned.

Question 7Credit Union Structure, Governance, and Regulatory Framework

The board of directors of a federal credit union is generally elected by:

  1. The NCUA Board
  2. The credit union's management team
  3. The membership at large Correct answer.
  4. The credit union's supervisory committee

Explanation

Members elect the volunteer board of directors, which then sets policy and hires management. The NCUA does not appoint credit union boards, and the supervisory committee is itself elected by members.

Question 8Credit Union Structure, Governance, and Regulatory Framework

Which body within a federal credit union is responsible for conducting the annual audit or overseeing the audit function?

  1. The board of directors
  2. The supervisory committee Correct answer.
  3. The credit committee
  4. The asset-liability committee

Explanation

The supervisory committee is an elected body charged with oversight of the audit function and internal controls, reporting to the membership. The credit committee handles lending, while the board sets overall policy.

Question 9Credit Union Structure, Governance, and Regulatory Framework

A member of a federal credit union wants to know the maximum share insurance coverage for a single ownership account. Under standard NCUSIF rules, that limit is:

  1. $500,000 per member
  2. Unlimited coverage
  3. $100,000 per member
  4. $250,000 per member Correct answer.

Explanation

NCUSIF provides standard share insurance of up to $250,000 per member for accounts held in a single ownership capacity, mirroring the FDIC standard. Coverage can be higher when members hold accounts in different ownership capacities.

Question 10Credit Union Structure, Governance, and Regulatory Framework

A federal credit union's board wants to change the credit union's field of membership to add a new occupational group. Which step is required?

  1. Receive approval from the Federal Reserve
  2. Obtain NCUA approval of the amended field of membership Correct answer.
  3. File the change with the Securities and Exchange Commission
  4. Obtain a charter from the state banking department

Explanation

Expanding a federal credit union's field of membership requires regulatory approval from the NCUA because the charter defines eligible membership. The Federal Reserve and SEC have no role in this charter change.

Question 11Credit Union Structure, Governance, and Regulatory Framework

A credit union holds a community charter. Which statement best describes the membership it may serve?

  1. Only members of a specific trade association
  2. Only employees of a single named employer
  3. Only persons related to existing members
  4. Persons who live, work, or worship within a defined geographic area Correct answer.

Explanation

A community charter permits service to people within a defined geographic area, such as a county or metropolitan area. Single-employer groups and association groups correspond to different field-of-membership types.

Question 12Credit Union Structure, Governance, and Regulatory Framework

The NCUA is governed by a board whose members are:

  1. A single administrator appointed by Congress
  2. Seven members drawn from state regulators
  3. Three members appointed by the President and confirmed by the Senate Correct answer.
  4. Five members elected by federally insured credit unions

Explanation

The NCUA Board consists of three presidentially appointed, Senate-confirmed members who serve staggered terms, with no more than two from the same political party. This structure provides independent oversight of the agency.

Question 13Credit Union Structure, Governance, and Regulatory Framework

Which law generally prohibits persons who have been convicted of certain crimes involving dishonesty from participating in the affairs of a federally insured credit union without regulatory permission?

  1. The Electronic Fund Transfer Act
  2. The Fair Credit Reporting Act
  3. Section 19 of the Federal Deposit Insurance Act Correct answer.
  4. The Truth in Lending Act

Explanation

Section 19 of the Federal Deposit Insurance Act bars persons convicted of certain dishonesty or breach of trust offenses from working at or controlling insured depository institutions, including credit unions, absent a regulator's written consent. The other laws address lending disclosure, credit reporting, and electronic transfers.

Question 14Credit Union Structure, Governance, and Regulatory Framework

A credit union's board is considering a merger with another credit union. Which consideration is most directly tied to the regulatory framework?

  1. Whether the merger is approved under applicable NCUA or state rules and preserves member interests Correct answer.
  2. Whether the merger converts the credit union into a bank
  3. Whether the merger allows the board to avoid future elections
  4. Whether the merger increases the CEO's salary

Explanation

Mergers of federally insured credit unions require regulatory approval and must serve member interests, including clear disclosure and voting rights where applicable. Personal compensation or avoiding elections are not valid regulatory criteria.

Question 15Credit Union Structure, Governance, and Regulatory Framework

Federal credit union directors serve without compensation for their board service because:

  1. The NCUA pays directors directly
  2. Directors are compensated only through loan discounts
  3. Federal law requires directors to be unpaid employees
  4. Directors are volunteers under the cooperative model Correct answer.

Explanation

Credit union boards are volunteer bodies reflecting the cooperative, member-owned model, although reasonable expense reimbursement is permitted. The NCUA does not pay directors, and compensation is not tied to loan discounts.

Question 16Credit Union Structure, Governance, and Regulatory Framework

Which document primarily establishes a federal credit union's legal existence and defines its powers?

  1. Its annual financial statement
  2. Its federal charter issued by the NCUA Correct answer.
  3. Its member newsletter
  4. Its loan policy manual

Explanation

The federal charter is the legal instrument that creates the credit union and sets out its authorized powers and field of membership. Financial statements, newsletters, and internal policy manuals do not confer legal authority.

Question 17Credit Union Structure, Governance, and Regulatory Framework

A state-chartered credit union is insured by the NCUSIF. Which statement about its supervision is accurate?

  1. It is supervised only by the state and not by the NCUA
  2. It is supervised by the Federal Reserve under the Bank Holding Company Act
  3. It is supervised by its state regulator and also subject to NCUA oversight as the insurer Correct answer.
  4. It is supervised only by the NCUA and not by any state regulator

Explanation

Federally insured state-chartered credit unions face dual oversight: the state supervisory authority grants the charter, and the NCUA exercises insurer oversight and examination authority. The Federal Reserve does not supervise credit unions.

Question 18Credit Union Structure, Governance, and Regulatory Framework

The primary purpose of the NCUA's examination program is to:

  1. Market credit union services to the public
  2. Assess safety and soundness and compliance with applicable laws and regulations Correct answer.
  3. Set the interest rates credit unions charge members
  4. Appoint credit union boards of directors

Explanation

NCUA examiners evaluate a credit union's financial condition, internal controls, and compliance with laws and regulations to protect the insurance fund and members. The agency does not set rates, appoint boards, or market services.

Question 19Credit Union Structure, Governance, and Regulatory Framework

A credit union director also serves as a paid officer of the same credit union. Which governance concern does this arrangement most directly raise?

  1. A conflict of interest from combining oversight and management roles Correct answer.
  2. An impermissible change to the share insurance limit
  3. A breach of the community reinvestment rules
  4. A violation of the field of membership rules

Explanation

Separating the board's oversight role from management's operational role is a core governance principle; combining them can impair independent oversight and creates conflict-of-interest concerns. It does not affect field of membership, insurance limits, or community reinvestment rules.

Question 20Credit Union Structure, Governance, and Regulatory Framework

A member believes the credit union board has failed to follow its bylaws. Under the cooperative governance model, the most appropriate first step is generally to:

  1. Sell the member's shares on the open market
  2. File a criminal complaint with the NCUA Board
  3. Raise the concern through member channels such as the supervisory committee or the annual meeting Correct answer.
  4. Demand that the NCUA replace the board

Explanation

Members exercise governance rights through voting, attending meetings, and using internal oversight bodies such as the supervisory committee. The NCUA does not replace elected boards, and credit union shares are not traded on open markets.

Question 21Credit Union Structure, Governance, and Regulatory Framework

A credit union's supervisory committee is elected by the membership rather than appointed by the board. What governance objective does this design primarily serve?

  1. Independent oversight of the board and management on behalf of members Correct answer.
  2. Reducing the cost of the annual audit
  3. Simplifying compliance with lending disclosure rules
  4. Increasing the board's control over internal audit

Explanation

Electing the supervisory committee separately from the board creates an independent check on the board and management, consistent with cooperative accountability to members. It is not primarily a cost-saving or board-control measure.

Question 22Credit Union Structure, Governance, and Regulatory Framework

A federal credit union wants to convert to a mutual savings bank charter. Which statement best captures the regulatory significance of such a conversion?

  1. It requires regulatory approval and member voting because it changes the institution's charter and ownership structure Correct answer.
  2. It is prohibited for any federally insured credit union
  3. It occurs automatically once the board passes a resolution
  4. It requires only NCUA Board approval with no member vote

Explanation

Charter conversions change the legal form and governance of the institution and therefore require regulatory approval plus member voting rights under applicable rules. A board resolution alone is insufficient, and such conversions are permitted when properly approved.

Question 23Credit Union Structure, Governance, and Regulatory Framework

A community-chartered federal credit union seeks to serve a nearby underserved area outside its current boundary. Which regulatory concept is most relevant to evaluating whether it may do so?

  1. The share insurance coverage limit
  2. The supervisory committee's audit authority
  3. The one-member one-vote principle
  4. Field of membership expansion rules Correct answer.

Explanation

Serving members outside an existing boundary requires evaluating field of membership rules, which govern who is eligible to join. Insurance limits, audit authority, and voting principles do not determine geographic eligibility.

Question 24Credit Union Structure, Governance, and Regulatory Framework

Which combination best reflects the dual accountability of a federally insured state-chartered credit union?

  1. Federal Reserve supervision plus SEC registration
  2. State chartering authority plus NCUA insurer oversight Correct answer.
  3. OCC chartering plus FDIC insurance
  4. CFPB chartering plus state insurance

Explanation

A state-chartered, federally insured credit union answers to its state regulator for charter matters and to the NCUA as insurer for federal oversight. The Federal Reserve, OCC, and CFPB do not charter credit unions.

Question 25Credit Union Structure, Governance, and Regulatory Framework

A federal credit union's board delegates day-to-day lending decisions to a credit committee. Which statement about this delegation is most accurate?

  1. The credit committee may override the board's written lending policy
  2. The board retains ultimate policy responsibility while the committee applies lending policy Correct answer.
  3. The delegation removes the board's responsibility for lending policy
  4. The NCUA appoints the credit committee members

Explanation

Boards may delegate operational lending decisions to a credit committee, but the board remains responsible for setting policy and overseeing results. The committee cannot override board policy, and the NCUA does not appoint committee members.

Question 26Credit Union Structure, Governance, and Regulatory Framework

Which characteristic distinguishes a credit union from a typical for-profit bank?

  1. It is a not-for-profit cooperative owned by its members Correct answer.
  2. It may serve anyone regardless of any membership field
  3. It is owned by private shareholders who receive dividends
  4. It is chartered only by the federal government

Explanation

Credit unions are not-for-profit financial cooperatives in which the members are the owners and each member has a voice in governance. Banks, by contrast, are owned by shareholders seeking a return on investment. This member-ownership structure is the defining feature of the cooperative model.

Question 27Credit Union Structure, Governance, and Regulatory Framework

A credit union's members are best described as which of the following?

  1. Customers with no ownership interest
  2. Regulators overseeing the institution
  3. Creditors holding secured debt
  4. Owners of the institution Correct answer.

Explanation

In a credit union the members hold the ownership interest; they are not merely customers. This ownership is expressed through voting rights and participation in the annual meeting. Ownership is what separates members from ordinary depositors at a bank.

Question 28Credit Union Structure, Governance, and Regulatory Framework

A federal credit union is examining how its three-part structure divides authority. Which statement best describes the intended separation of governance roles?

  1. The supervisory committee sets policy while the board conducts the audit and the credit committee manages investments
  2. The board, supervisory committee, and credit committee all report to a single paid chief executive
  3. The board sets policy, the supervisory committee oversees the board and audit function, and the credit committee handles lending Correct answer.
  4. The credit committee appoints the board, and the supervisory committee manages daily operations

Explanation

The Federal Credit Union Act framework separates policy-making (board), oversight and audit (supervisory committee), and lending (credit committee) so that no single group controls everything. This division of authority is a core internal control of the cooperative structure. The supervisory committee's independence from the board is central to that design.

Question 29Credit Union Structure, Governance, and Regulatory Framework

A credit union's field of membership is defined in its charter. What does this term primarily describe?

  1. The range of loan products the credit union is authorized to offer
  2. The geographic states in which the credit union may open branches
  3. The groups of people the credit union is permitted to serve as members Correct answer.
  4. The maximum deposit amount any one member may hold

Explanation

A field of membership defines the persons or groups a credit union is legally permitted to accept as members. It is a charter-based limit tied to the membership, not to products or deposit amounts. Serving outside the approved field of membership is a compliance problem.

Question 30Credit Union Structure, Governance, and Regulatory Framework

A credit union's board wants to understand why the institution is subject to both its chartering authority and a separate share insurer. Which statement best explains this layered regulatory arrangement?

  1. The chartering authority grants legal existence and powers, while the insurer imposes separate requirements as a condition of insurance Correct answer.
  2. Only the insurer has any authority over a credit union's governance practices
  3. The chartering authority and the insurer are always the same agency, so there is only one supervisor
  4. The insurer grants the charter, and the chartering authority only collects periodic reports

Explanation

Chartering authority and insurance are distinct functions: the charter grants legal existence and defines powers, while federal share insurance carries its own statutory and regulatory conditions. This layering is why a credit union can face more than one source of requirements. The two roles are not interchangeable even when they interact closely.

Question 31Member Services and Account Operations

Which account ownership type gives two or more people equal access to the funds with a right of survivorship in most credit union agreements?

  1. Joint tenancy with right of survivorship Correct answer.
  2. Payable on death designation
  3. Tenancy in common
  4. Individual account with an authorized signer

Explanation

A joint tenancy with right of survivorship passes the deceased owner's share automatically to the surviving co-owner. Tenancy in common and authorized signer arrangements do not carry survivorship rights.

Question 32Member Services and Account Operations

Under the standard share insurance framework administered by the NCUA, what is the basic coverage limit per depositor per insured credit union for most individual accounts?

  1. $500,000
  2. $100,000
  3. $250,000 Correct answer.
  4. $1,000,000

Explanation

The NCUA share insurance standard maximum share insurance amount is $250,000 per depositor, per insured credit union, for each ownership category. Higher coverage can result from separate ownership categories, not a higher base limit.

Question 33Member Services and Account Operations

A member asks why a check deposited on Monday is not immediately available for withdrawal. What is the most accurate explanation of funds availability rules?

  1. All deposited checks are held for ten business days by law
  2. Cash deposits are always held longer than checks
  3. Availability is set individually by the teller at the window
  4. Availability depends on the check type and the credit union's disclosed policy Correct answer.

Explanation

Funds availability is governed by Regulation CC and the institution's disclosed policy, which sets maximum hold periods based on check type, amount, and account history. A blanket ten-day hold would violate those limits.

Question 34Member Services and Account Operations

A member wants a third party to make deposits and withdrawals on an individual account without gaining ownership. Which setup fits?

  1. Add the person as an authorized signer Correct answer.
  2. Add the person as a payable on death beneficiary
  3. Convert the account to a joint account
  4. Open a new account in the third party's name

Explanation

An authorized signer receives transaction authority on the account while ownership remains with the original member. Joint ownership and beneficiary designations change rights to the funds.

Question 35Member Services and Account Operations

What is the primary purpose of the Customer Identification Program required at account opening?

  1. To enroll the member in overdraft protection
  2. To determine the applicant's tax bracket
  3. To check the applicant's credit score
  4. To verify the identity of the person opening the account Correct answer.

Explanation

The Customer Identification Program requires collecting identifying information and verifying identity before an account is opened. It is an anti-money-laundering control, not a credit or tax function.

Question 36Member Services and Account Operations

A member reports that a debit card was used fraudulently and notifies the credit union two business days after discovering the loss. Under Regulation E, what is the member's maximum liability for unauthorized electronic transfers?

  1. $50 Correct answer.
  2. Unlimited
  3. $500
  4. $0

Explanation

When the member notifies the institution within two business days of discovering a lost or stolen access device, liability for unauthorized transfers is capped at $50. Later notification can raise the cap to $500 or more.

Question 37Member Services and Account Operations

Which document typically governs the contractual relationship between a member and a credit union, including fees, rights, and account terms?

  1. The membership share certificate
  2. The account agreement and disclosures Correct answer.
  3. The loan note
  4. The credit union's annual report

Explanation

The account agreement and accompanying disclosures set the terms, fees, and rights for deposit accounts. Other documents address different relationships or reporting.

Question 38Member Services and Account Operations

A member's account shows a transaction they do not recognize. What is the first step a member service representative should take under the error resolution process?

  1. Wait for the member to submit a police report
  2. Advise the member to contact the merchant and close the case
  3. Immediately reverse the transaction
  4. Accept the dispute and begin the investigation timeline Correct answer.

Explanation

Under Regulation E, the institution must accept a timely oral or written notice of error and begin its investigation within the prescribed timelines. Reversing immediately or closing the case prematurely is inconsistent with the process.

Question 39Member Services and Account Operations

What is the effect of a stop payment order on a preauthorized electronic debit under Regulation E?

  1. It requires the member to close the receiving merchant account
  2. It blocks the specified payment when placed at least three business days before the scheduled date Correct answer.
  3. It cancels the member's entire account
  4. It only applies to checks, not electronic debits

Explanation

A member may stop a preauthorized electronic fund transfer by notifying the institution at least three business days before the scheduled transfer. The order targets the specific payment, not the whole account.

Question 40Member Services and Account Operations

Which endorsement is required for a member to deposit a check payable to two people into a joint account held by both?

  1. The credit union endorses on behalf of both
  2. No endorsement is needed for deposit
  3. Both payees must endorse Correct answer.
  4. Only one payee needs to endorse

Explanation

When a check is payable to multiple payees, each payee generally must endorse it unless the instrument or applicable rules allow otherwise. A single endorsement does not satisfy the requirement for jointly payable checks.

Question 41Member Services and Account Operations

A member dies and the account is a payable on death account with a named beneficiary. How are the funds typically handled?

  1. They pass directly to the named beneficiary upon proof of death Correct answer.
  2. They become part of the probate estate
  3. They are split equally among the member's heirs at law
  4. They revert to the credit union

Explanation

A payable on death designation directs the funds to the named beneficiary after the owner's death, generally outside probate. The credit union releases funds upon satisfactory proof of death and identification of the beneficiary.

Question 42Member Services and Account Operations

What does a credit union's escheatment process address?

  1. Abandoned accounts transferred to the state Correct answer.
  2. Loans in default
  3. Accounts with negative balances
  4. Accounts with more than one owner

Explanation

Escheatment is the process by which property in dormant or abandoned accounts is remitted to the state under unclaimed property laws. It does not concern delinquent loans or negative balances.

Question 43Member Services and Account Operations

A member wants to set up automatic transfers from checking to savings each payday. Which service should the representative describe?

  1. A recurring internal transfer Correct answer.
  2. A wire transfer
  3. A cashier's check
  4. A stop payment

Explanation

A recurring internal transfer moves funds between the member's own accounts on a set schedule. Wires, cashier's checks, and stop payments serve different purposes.

Question 44Member Services and Account Operations

Which fee disclosure requirement applies when a credit union changes the terms of an account in a way that adversely affects the member?

  1. No notice is required for fee changes
  2. Notice is given after the next statement
  3. Advance written notice is generally required Correct answer.
  4. Notice is required only if the member asks

Explanation

Changes in terms that adversely affect the member generally require advance written notice under truth in savings rules. Retroactive or silent changes are not permitted for adverse terms.

Question 45Member Services and Account Operations

A member deposits a check made payable to a business into a personal account. What is the appropriate action?

  1. Hold the check for thirty days
  2. Endorse it on the member's behalf
  3. Decline or return the item because the payee does not match the account holder Correct answer.
  4. Accept the deposit as presented

Explanation

A check payable to a business cannot generally be deposited into a personal account because the payee and account holder do not match. Accepting it creates liability and potential fraud exposure.

Question 46Member Services and Account Operations

What is the purpose of a signature card at account opening?

  1. To establish the account's interest rate
  2. To authorize automatic overdraft transfers
  3. To record the member's authorized signatures for transaction verification Correct answer.
  4. To serve as the member's tax form

Explanation

The signature card documents the signatures the credit union will use to authenticate the member's instructions. Interest rates and tax reporting are handled through separate disclosures and forms.

Question 47Member Services and Account Operations

A member requests a copy of their monthly statement from two years ago. How should the representative respond?

  1. Provide only the current statement
  2. Refer the member to the merchant
  3. Refuse because statements are never retained
  4. Explain the record retention period and provide the statement if available Correct answer.

Explanation

Credit unions retain records for defined periods, and members are generally entitled to copies of their own statements within retention limits. The representative should confirm availability and provide the record if retained.

Question 48Member Services and Account Operations

Which action best supports the member identification requirement when a new member opens an account online?

  1. Collecting name, address, date of birth, and identification number and verifying them Correct answer.
  2. Accepting the account without any documentation
  3. Requiring only a utility bill
  4. Relying solely on the member's self-reported income

Explanation

The Customer Identification Program requires collecting identifying information and verifying it through documentary or non-documentary methods. Self-reported income or a single document is not sufficient on its own.

Question 49Member Services and Account Operations

A member asks whether funds in a traditional IRA at the credit union are insured separately from their regular shares. What is the correct response?

  1. IRA funds are combined with regular shares for insurance purposes
  2. IRA funds are insured only if held in cash
  3. IRA funds are never insured
  4. IRA funds are insured under a separate retirement account category Correct answer.

Explanation

Retirement accounts such as IRAs are insured under a separate ownership category, which can increase total coverage beyond the individual account limit. They are not aggregated with regular share accounts.

Question 50Member Services and Account Operations

A member calls to report that their debit card was stolen and the thief made purchases yesterday. What should the representative do first?

  1. Close the card, block further transactions, and open an error claim Correct answer.
  2. Advise the member that card losses are not covered
  3. Request that the member repay the disputed amounts
  4. Tell the member to wait for the next statement

Explanation

The immediate priority is to block the access device to prevent additional losses and to document the unauthorized transactions for error resolution. Waiting or requiring repayment exposes the member and the institution to further risk.