Credit Union Alert – FCUs Will Soon be Able to More Easily Expel Problematic Credit Union Members
By Credit Union
For a long time, federal credit unions (FCUs) have requested legislative changes to allow FCUs the ability to expel members who commit fraud or engage in violent or disruptive behavior. It took an act of Congress to get it done, but FCUs will soon be permitted to more easily expel such problematic credit union members once the NCUA finalizes its proposed rule to amend Section 118(a) of the Federal Credit Union Act. In accordance with the Credit Union Governance Modernization Act of 2021 (the “Act”), members may be expelled “for cause,” giving FCUs a safer, less costly means to expel members.
As FCUs are well aware, they currently only have two (2) ways a member may be expelled: 1) with a two-thirds vote of the membership present at a special meeting called for that purpose, and only after the individual is provided an option to he heard; and 2) for non-participation in the affairs of the credit union, as specified in a policy adopted and enforced by the FCU’s board of directors. Even though the FCU bylaws were amended in 2019 codifying the ability for an FCU to limit services for a member who was not “in good standing,” the amendments did not address the burden of FCUs requiring a special meeting to seek expulsion of violent, belligerent, disruptive, or abusive credit union members. The passage of the Act charged the NCUA to develop a policy by which a FCU may expel a member for cause by a two-thirds vote of a quorum of the FCU’s board of directors.
The NCUA’s proposed rule retains the “member in good standing” concept to give FCUs flexibility to address members who are violent, belligerent, disruptive, or abusive versus other members who might be subject to a limitation of services for other reasons, such as causing a small financial loss to the organization or for the abusive member who has not yet been expelled.
In its proposal, the NCUA describes the procedures an FCU must follow to expel a member:
- The FCU must provide its membership with a notice that the board of directors has adopted a policy to expel members;
- If a member is subject to expulsion, the FCU must notify the member giving the reason for expulsion, that the member may submit any expulsion-related complaints to the NCUA’s website, and the member’s right to request a hearing within 60 days of receipt of the notification. If the member does not request a hearing within the 60 days, the member is automatically expelled;
- If the member requests a hearing, the board of directors must hold a vote within 30 calendar days on expelling the member; and
- If the member is ultimately expelled, the FCU must notify the member of the expulsion and the effect of the expulsion, including information related to the member’s accounts and amounts due, that the member may submit any expulsion related complaints to the NCUA’s website, and that the member has the opportunity to request reinstatement.
The term “cause” has been specifically defined for purposes of expulsion, and means a substantial or repeated violation of the FCU’s membership agreement, a substantial or repeated disruption, which includes “dangerous or abusive behavior” to the operations of the FCU, or fraud, attempted fraud, or other illegal conduct that a member has been convicted of in relation to the FCU, including the credit union’s employees conducting business on behalf of the FCU. “Dangerous or abusive behavior” includes violence, intimidation, physical threats, harassment, or physical or verbal abuse of FCU officials, employees, members, or agents. This includes actions while on credit union premises and through use of telephone, mail, email, or other electronic method, behavior that causes or threatens damage to credit union property, or unauthorized use or access of credit union property. The proposal further explains that expressions of frustration with the credit union or its employees through elevated volume and tone, expressions of intent to seek lawful recourse, regardless of perceived merit, or repeated interactions with FCU employees is not sufficient to constitute dangerous or abusive behavior.
For repeated non-substantial violations of the membership agreement or repeated disruptions to the FCU’s operations, the FCU must provide written notice to the member at least one time prior to the notice of expulsion, and the member must repeat the violation or conduct after being notified.
Two important take-ways to keep in mind: 1) member expulsion does not relieve the member of any liability to the FCU; and 2) expulsion must be done on a case-by-case basis and by no means may an FCU expel a class of members.
If an FCU is going to use repeated violations of the membership agreement as a means for expulsion, it may want to review its membership agreement to determine if any provisions need to be clarified so that members fully understand what constitutes a violation of the membership agreement.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2023.