Credit Union Legal Update – Summer 2004

    By Credit Union

    Joint Accounts And Voting Rights

    On January 29, 2004, Region V issued a letter to Columbia Credit Union of the State of Washington. The letter addressed many issues, but is apparently not deemed by NCUAs Office of General Counsel as a formal opinion letter. However, the letter can be of great benefit to credit unions as they review and evaluate their joint account signature cards and the current policies regarding joint account owners.

    Based upon a review of 4,689 joint account owner cards, NCUA determined that since some joint owners of Columbia Credit Union were not provided a ballot, and the conversion vote was unfair and illegal. The members were denied voting rights. NCUA concluded both individuals to a joint account are entitled to vote.

    This could raise many issues for credit unions. It is recommended that credit unions take certain steps to avoid challenges in the future to any of their election procedures. Credit unions should carefully examine their bylaws and membership requirements and policies. They should review their account cards and data systems to confirm that membership criteria and procedures are consistent among all the documents. If inconsistencies are discovered, develop a plan. If appropriate, credit unions may wish to obtain a legal review of field of membership practices and documentation. Because credit unions strive to treat members and joint owners with the same high level of service and attention, there are probably some joint account owners who may feel as though they are members. Credit unions may consider sending a letter to joint owners explaining membership rights and encouraging their membership.

    There is much to be learned from the events of Columbia Credit Union. A copy of the January 29, 2004, letter can be downloaded in PDF format by clicking here.

    CUMIS Risk Assessment Management Program

    All credit unions will probably receive the scrutiny of CUMIS as CUMIS undertakes an annual risk assessment management review. In many respects, CUMIS is conducting what Kaufman & Canoles calls an employment practices liability analysis. Some of the areas that CUMIS has been reviewing are an anti-harassment policy and whether or not the policy has been reviewed by an attorney and approved by the Board of Directors. They are encouraging an anti-discrimination policy since they believe a comprehensive board approved anti-discrimination policy is critical to the defense of discrimination lawsuits which can result in significant damage awards. They review written personnel policies. They encourage regular anti-discrimination training for all employees. They encourage regular training to insure that all employees have a clear understanding of the credit unions expectations and policies. They encourage all board members and volunteers to receive regular anti-harassment and anti-discrimination training.
    Lastly, CUMIS notes that the policies and manuals need to be reviewed by an employment attorney on an annual basis for compliance with the law. They remind credit unions that new court decisions and legislative changes can effect the credit unions workplace. Updated policies and manuals are critical to the defense of employment lawsuits.

    For over two decades, Kaufman & Canoles has conducted an annual seminar to provide area employers with practical employment law advice from all perspectives. Information on these seminars can be found here. Additionally, these specialists provide an annual employment practices liability analysis and this review would probably satisfy any questions that CUMIS might raise.

    U.S. Supreme Court Eases Evidentiary Burden For Employees In Discrimination Cases

    This past June, the U.S. Supreme Court made it easier for employees with any evidence of discrimination to prevail against their employer despite the existence of some valid reason for their discipline. As a result of this case, where the employee claims an employer had mixed motives in administering discipline, the Court ruled that even with only circumstantial evidence of an inappropriate motive, the employee may recover. To avoid liability, the employer may have to prove that it would have made the employment decision for lawful reasons in any event.

    In Desert Palace, Inc. v. Costa, Catherina Costa was the only female warehouse worker in the union local at Caesars Palace in Las Vegas. After she was involved in a fist fight with a male coworker in a freight elevator, Caesars fired her, but only suspended the male participant in the fight for five days. Caesars explained that the unequal treatment was due to a long history of disciplinary problems for Ms. Costa as compared to no past history of disciplinary problems for the male employee involved in the fight. Ms. Costa did not have any direct evidence of discrimination, but she had circumstantial evidence that, as the only female employee, she had been a victim of discrimination.

    The Supreme Court ruled that Ms. Costa was entitled to have the jury in her case instructed that if it found that discrimination was a motivating factor for the employment decision, it could find for Ms. Costa despite the existence of a valid reason for the discharge decision. This ruling resulted in reinstatement of a large verdict for Ms. Costa even though her employer had a valid reason for disciplining her and she only had circumstantial evidence that discrimination may have been involved.

    Practical Pointer

    As a practical matter, this case will cause employers to take even greater care to investigate and document any employment decisions where some circumstantial evidence of discrimination exists. Even if there is a valid reason for disciplinary action such as insubordination or unexcused absenteeism, if the employee happens to be the only member of a particular protected class in the work group or there is some other possible indirect evidence of discrimination, the decision to discipline may be riskier. Employers reviewing such potential disciplinary action are well advised to not only document the valid reason, but review past disciplinary actions for related reasons to be able to show that discrimination had nothing to do with the discipline in question.

    Charitable Contributions to Credit Unions

    Recently NCUA was asked if a Federal Credit Union could make a donation to another credit union. NCUA acknowledged that credit unions have a long tradition of helping credit unions through such means as nonmember deposits, correspondent services and contributions of staff, equipment and money. NCUA has also recognized the Federal Credit Unions authority to make charitable contributions and donations under its incidental powers authority. NCUA concluded that while their charitable contributions and donation rule expressly recognizes the permissibility of donations to tax-exempt entities that support credit union development, it does not preclude Federal Credit Unions from making donations directly to credit unions. To view the opinion letter, please click here.

    Recent Regulation B Changes Require Loan Co-Signers Proof of Intent

    The Federal Reserve Board recently issued a final rule on Regulation B implementing an interpretation or provision of the Equal Credit Opportunity Act. Credit unions will now be required to obtain evidence of a co-signers intent to sign a loan at the time of the application. Signatures on a promissory note are no longer enough to prove intent to co-sign a loan. What is now being required by the Federal Reserve Board is that credit unions obtain proof of ones intent to act as a co signer. A box could be checked on the loan application. The co-signer could send an email or a notation of intent could be made by the credit union in the loan file. An approved form has been included in the regulation. Not all issues were addressed by the Federal Reserve Board in the final regulation. There are clearly still some practical concerns to iron out with telephone or internet applications. The bottom line for credit unions is that at the time of the application would probably be interpreted by the Federal Reserve Board as at some time before the closing of the loan or the issuance of the loan proceeds, evidence of a co-signers intent to sign is required.

    The effective date of this new regulation was April 15, 2004. A copy of the regulation and suggested Federal Reserve Board form can be downloaded by clicking here.

    Its a New Year: Time For Your FMLA Compliance Check Up

    The Family and Medical Leave Act (FMLA) requires employers with 50 or more employees within 75 miles of the work site to provide 12 weeks of unpaid leave during a 12-month period to eligible employees for certain medical and family related reasons. You should periodically do a check up on your companys FMLA compliance just as you would with your own health. This is an important step in reducing the risk of being sued for failing to provide this federally mandated leave. To reduce FMLA risks, here are some important points to consider:

    1. Does it apply? The FMLA does not cover all employers, and even if it applies, it does not necessarily cover all employees. Before granting FMLA leave, make sure you know whether your company is covered, and if so, whether a requesting employee is even eligible for the leave.
    2. Have you included a description of your FMLA policy in your employee handbook? The FMLA requires an employer who is covered under the law to include a provision in its employee handbook detailing its FMLA policies if the handbook also provides other employee benefit descriptions. If the handbook does not contain other employee benefit descriptions, then a separate written notice must be provided to employees. Employers covered by the FMLA are also required to post a sign in the workplace describing FMLAs protections.
    3. Do you have a uniform procedure for handling leave requests? You might think about designating one FMLA compliance officer to handle all FMLA requests to make sure that FMLA leave requests are always handled the same way each time. This will prevent any claims that certain employees have received different treatment.
    4. Do you require proper notice for FMLA requests? The FMLA allows an employer to require 30-days notice for foreseeable leave requests. An employer is not required to grant leave to eligible employees who do not follow this rule. You may need to be flexible for emergency medical or family care needs.
    5. Do you require medical certifications? You are permitted to require medical certifications from your employees who want to take FMLA leave for either their own or a family members serious health condition. If you want a second opinion, you may require it, but you must also pay for it. If there is a disagreement about the medical issues, then you can send the employee to a mutually agreed upon third health care provider for a binding opinion at the companys cost.
    6. Do you have employees that request intermittent FMLA leave? The FMLA allows leave for approved medical reasons for as little as one hour, but you dont need to grant such short leaves if your payroll system uses larger increments (e.g., 1/2 days). Also, someone on intermittent leave can be shifted to a different position that can accommodate intermittent absences. Finally, you can reduce an employees salary %u2013 but not his/her hourly wage %u2013 while he/she is on intermittent FMLA leave.
    7. Do you maintain the employees job while he/she is on FMLA leave? The FMLA requires an employer to restore an employee who has been on FMLA leave to his/her prior position or an equivalent one. If the employee would have been terminated regardless of being on leave (e.g, in a reduction in force), job restoration is not required.
    8. Do you require the use of vacation and/or sick days while an employee is on FMLA leave? The FMLA allows an employer to require, with few exceptions, employees to take their vacation or sick days while they are out on FMLA leave.

    These are but some of the areas into which you should look when considering how well your FMLA leave program is running. The K&C Employment Team has prepared a FMLA package to assist employers with these, and other requirements of the law. For a FMLA package, please contact Rick Mapp at 757.624.3285.

    Transactions of Note

    As many of the readers of this newsletter know, Andy Keeney takes pride in representing credit unions and has a unique credit union subspecialty of assisting credit unions with complex real estate matters. The following are a few of our success stories. All of this information is now public knowledge:

      • ABNB Federal Credit Union purchased 7.4 acres in Chesapeake, Virginia, and is now in the process of developing plans to build a new headquarters building. Contact: Mary Fehrs (Email:
      • Educational Systems Employees Federal Credit Union had acquired land in Bladensburg, Maryland, and is in the process of constructing a state-of-the-art branch. Contact: Chris Conway (
      • Guardian Federal Credit Union has purchased a commercial office building in Portsmouth, Virginia, and is proceeding with renovations to accommodate what will soon be their main branch and new headquarters location. Contact: Chris Anuswith (Email:
      • Montgomery County Teachers Federal Credit Union, after selling and leasing back their headquarters building, is in the final stages of construction of their new headquarters building in Gaithersburg, Maryland. Contact: Joe Bressi (Email:
      • State Department Federal Credit Union in Alexanderia, Virginia, acquired a 62,804 sq. ft. commercial office building adjacent to their current headquarters for future growth and expansion opportunities of the credit union. Contact: Alfie Bruno (Email:
    • Langley Financial Services LLC, a wholly owned CUSO of Langley Federal Credit Union, has elected Andy Keeney to its Board of Directors. Contact: Victor Puliafico (Email:

    Privacy Issues Regarding Board/Member Accounts

    All credit unions are reminded of the fundamental requirement that information regarding member accounts is private and all efforts should be made to protect the privacy of the members. Board members are also credit union members and information regarding their accounts receives the same privacy protection. This issue received considerable attention in the press regarding the failed conversion of Columbia Credit Union.

    All are reminded, at least annually, to review credit union policies and evaluate privacy protection safeguards. This not only applies to member accounts but also employment handbooks, employment applications, supervisory committee policies, printed manuals and board practices and policies. This review may be one that all credit unions want to consider as part of their annual employment practices liability analysis and CUMIS risk assessment management program.

    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 2022.