NCUA BOARD ACTS TO FINALIZE A RULE TO IMPLEMENT THE NEW LAW ON EXPULSION OF CREDIT UNION MEMBERS

Back in March 2022 we reported to you that Congress had passed the Credit Union Governance Modernization Act that required NCUA to develop a policy by which a federal credit union may expel a member for cause by a two-thirds vote of a quorum of the federal credit union’s board of directors.

Last week at its September 2022 meeting the NCUA Board took the regulatory action to comply with this new law and to propose a rule authorizing federal credit unions to expel members for cause without the burdensome steps previously required in order to do so – such as requiring a special membership meeting where 2/3rds of the participants must vote to expel the member and only after the individual member was provided a right to be heard at the special membership meeting.

The rules do state that a federal credit union member can be denied services for cause.  However, before this new law was passed by Congress and before it is implemented by NCUA upon final approval of this proposed rule which must be finalized by September 2023, his or her membership could not be terminated by action of the board.  It required the membership of the credit union to do so at a special called general membership meeting.

After cautionary remarks from all three NCUA Board members about how this new proposed authority should be used judiciously and not abused in a manner to deny financial access to members without justification (as if there is any financial or reputational incentive for such abuse that would unnecessarily cost the credit union valuable members), the Board voted unanimously to approve the proposed rule.

The following link will take you to the proposed new member expulsion rule.

https://www.ncua.gov/files/agenda-items/member-expulsion-proposed-rule-20220922.pdf

We encourage you to read the proposed expulsion rule and, if you are so inclined, to comment within the next sixty days in which the public comment period will be open (by November 30, 2022, would be safest with the uncertainty of when the proposed rule will be published in the Federal Register – usually ten days to two weeks after action by the NCUA Board).

Some points to notice in the proposed rule.

The Credit Union Governance Modernization Act, as well as this proposed rule, includes a list of behaviors that may warrant termination of membership and that will become included in the standard federal credit union bylaws once this rule is finalized.  Those actions include what the Act calls disruptive, abusive, or violent behaviors and would allow the member to be considered not in good standing if he or she has engaged in any such behavior.

What will the credit union have to do to put in place the terms of this proposed rule once it becomes final?

Under the Credit Union Governance Modernization Act, a FCU’s directors may expel a member only if the FCU has provided, in written or electronic form, a copy of NCUA’s expulsion policy to each member of the credit union. As such, before an FCU expels a member under these provisions, it must send a copy of its Article XIV to each member. It would be insufficient for an FCU to post a copy of Article XIV on its website, as the Act states the FCU must provide the policy to “each member” and also uses the phrase “distribution of policy to members.”

Additionally, the Credit Union Governance Modernization Act states that the policy has to be provided in written or electronic form and a member has 60 calendar days from the date of receipt of a notification to request a hearing from the board of directors of the FCU.

The credit union board must grant the hearing before final action is taken.  However, if the member does not request a hearing within 60 days, the board may proceed with the expulsion vote which must be approved by 2/3rds of a quorum of the Board.

There are some other nuances included in the proposed rule that you can read for yourselves.  But we have capsulized the proposed rule above and feel that it is very likely to be approved as a final rule well in advance of the September 2023 required action date essentially in the form and format of this proposed rule.

Whether there is any additional action required by the credit union board of directors in order to implement the provisions of the expulsion rule once it is finalized, we will let you know once final action is taken by the NCUA Board.

But it appears that this provision (Article XIV) will be added by NCUA to the standard NCUA Bylaws for every federal credit union.  Thus, it appears at this time that no action will be required by the credit union board of directors other than to follow closely the provisions of Article XIV of their FCU bylaws in the event the board acts to expel a member.

We will continue to follow this and monitor the final regulation when it comes about.  Again, we expect it to closely track the proposed rule because, frankly, the proposed rule tracks the new federal law very closely.

Until next time.

Dennis Dollar