Rule2023-15715
Federal Credit Union Bylaws
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 26, 2023
Effective
August 25, 2023
Issuing agencies
National Credit Union Administration
Abstract
On March 15, 2022, Congress enacted the Credit Union Governance Modernization Act of 2022 (Governance Modernization Act). Under the statute, the NCUA has 18 months following the date of enactment to develop a policy by which a Federal credit union (FCU) member may be expelled for cause by a two-thirds vote of a quorum of the FCU's board of directors. The NCUA Board (Board) is issuing this final rule to amend the standard FCU bylaws (FCU Bylaws) to adopt such a policy.
Full Text
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<title>Federal Register, Volume 88 Issue 142 (Wednesday, July 26, 2023)</title>
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[Federal Register Volume 88, Number 142 (Wednesday, July 26, 2023)]
[Rules and Regulations]
[Pages 48055-48067]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-15715]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AF51
Federal Credit Union Bylaws
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: On March 15, 2022, Congress enacted the Credit Union
Governance Modernization Act of 2022 (Governance Modernization Act).
Under the statute, the NCUA has 18 months following the date of
enactment to develop a policy by which a Federal credit union (FCU)
member may be expelled for cause by a two-thirds vote of a quorum of
the FCU's board of directors. The NCUA Board (Board) is issuing this
final rule to amend the standard FCU bylaws (FCU Bylaws) to adopt such
a policy.
DATES: The final rule is effective August 25, 2023.
FOR FURTHER INFORMATION CONTACT: John Tamashiro, Director, Division of
Consumer Access; Paul Dibble, Consumer Access Program Officer, Office
of Credit Union Resources and Expansion; Lisa Roberson, Deputy
Director, Office of Consumer Financial Protection; Rachel Ackmann,
Senior Staff Attorney; or Ian Marenna, Associate General Counsel,
Office of General Counsel; 1775 Duke Street, Alexandria, VA 22314-3428.
John Tamashiro can be reached at (703) 548-2577, Paul Dibble can be
reached at (703) 664-3164, Lisa Roberson can be reached at (703) 548-
2466, Rachel Ackmann can be reached at (703) 548-2601, and Ian Marenna
can be reached at (703) 518-6554.
SUPPLEMENTARY INFORMATION:
I. Background
Under the Federal Credit Union Act (FCU Act) and standard FCU
Bylaws prior to the effective date of this final rule, there were two
ways a member may be expelled, namely: (1) by a two-thirds vote of the
membership present at a special meeting called for that purpose, and
only after the individual is provided an opportunity to be heard; and
(2) for non-participation in the affairs of the credit union, as
specified in a policy adopted and enforced by the board.\1\ These
requirements were set out in the standard FCU Bylaws in appendix A to
part 701 of the NCUA's regulations.\2\
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\1\ 12 U.S.C. 1764.
\2\ 12 CFR part 701, appendix A. Section 108 of the FCU Act
requires the Board to prepare periodically a form of bylaws for use
by FCU incorporators and to provide that form to FCU incorporators
upon request. 12 U.S.C. 1758. FCU incorporators must submit proposed
bylaws to the NCUA as part of the chartering process. Once the NCUA
has approved an FCU's proposed bylaws, the FCU must operate
according to its approved bylaws or seek agency approval for a bylaw
amendment that is not among permissible options in the standard FCU
Bylaws. 12 CFR 701.2(a).
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The FCU Bylaws were last amended by the NCUA Board in 2019 (2019
FCU Bylaws Final Rule).\3\ The 2019 FCU Bylaws Final Rule was a
comprehensive update that sought to modernize, clarify, and simplify
the FCU Bylaws and was the culmination of several years of engagement
between the NCUA and factoring in an assessment of stakeholder input.
During the 2019 FCU Bylaws Final Rule rulemaking, several commenters
expressed concern that the FCU Act expulsion provisions discussed
previously made it difficult to proactively limit security threats or
financial harm caused by violent, belligerent, disruptive, or abusive
credit union members. Specifically, commenters were concerned about the
burden from requiring members to call a special meeting to seek to
expel such members.
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\3\ 84 FR 53278 (Oct. 4, 2019).
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The 2019 FCU Bylaws Final Rule, however, did not modify the
procedures for expelling an FCU member as the procedures for expelling
a member are governed by the FCU Act. Instead, the 2019 FCU Bylaws
Final Rule added a new section to the FCU Bylaws on limiting services
for certain members. The 2019 FCU Bylaws Final Rule created the concept
of a ``member in good standing.'' \4\ So long as a member remains in
good standing, that member retains all the rights and privileges
associated with FCU membership. A member not in good standing, however,
may be subject to an FCU's limitation of services policy. For example,
an FCU may limit all or most credit union services, such as ATM
services, credit cards, loans, share draft privileges, preauthorized
transfers, and access to credit union facilities, to a member who has
engaged in conduct that has caused a loss to the FCU or that threatens
the safety of credit union staff, facilities, or other members in the
FCU or its surrounding property.
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\4\ 12 CFR part 701, appendix A, Art. II, sec. 5.
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The 2019 FCU Bylaws Final Rule was clear that certain actions
warrant immediate limitation of services or access to credit union
facilities, such as violence against other credit union members or
credit union staff in the credit union facility or the surrounding
property. The Board also stated clearly that an FCU may immediately
take actions such as contacting local law enforcement, seeking a
restraining order, or pursuing other lawful means to protect the credit
union, credit union members, and staff. Nothing in the FCU Act or the
FCU Bylaws prevents an FCU from using whatever lawful means it deems
necessary to address circumstances in which a member poses a risk of
harm to the FCU, its property, its members, or its staff and officials.
Even a member deemed not in good standing, however, retains
fundamental rights as a credit union member. For example, a member not
in good standing has the right to attend, participate in, and vote at
the annual and special meetings of the members and the right to
maintain a share account.\5\ Those rights may be terminated only
through a member's expulsion, and the Board explained in the 2019 FCU
Bylaws Final Rule that it cannot amend the statutorily prescribed
expulsion procedures for members.
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\5\ The Board understands that a restraining or protective order
from a court would bar a member from attending such meetings in
person.
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In March 2022, however, Congress enacted the Governance
Modernization Act to revise the FCU Act procedures for expelling
members.\6\ The legislative history of the Governance Modernization Act
focused on FCUs' concerns that their ability to address violent and
aggressive behaviors of certain members was inadequate. Like comments
raised during the 2019 FCU Bylaws Final Rule rulemaking, the
legislative history included concerns that FCUs lacked the tools to
adequately protect employees and other members
[[Page 48056]]
from violent and abusive members and included concerns that members had
threatened the life of an employee or in another case physically
attacked a service representative. To address these concerns, Congress
modified the FCU Act to provide FCUs with an option for expelling a
member for cause by a two-thirds vote of a quorum of the board of
directors. The legislative history also described the need for using
this authority as a rare option and focused on more extreme examples of
member behavior. This statutory authority, however, is not self-
executing. The legislation gave the Board 18 months following the date
of enactment of the statute to develop and promulgate pursuant to a
rulemaking a policy that FCUs may adopt to expel members for cause.
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\6\ Public Law 117-103 (Mar. 15, 2022).
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The Board notes that it is focused on improving access to financial
services, in part, through its Advancing Communities through Credit,
Education, Stability and Support (ACCESS) initiative.\7\ As part of
this initiative, the NCUA is working to expand the availability of
credit to stimulate economic growth and improve the financial well-
being of all Americans. This work also aims to ensure that the credit
union system achieves its statutory mission of meeting the credit and
savings needs of people, especially those of modest means.\8\
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\7\ <a href="https://www.ncua.gov/support-services/access">https://www.ncua.gov/support-services/access</a>.
\8\ Public Law 105-218, 112 Stat. 912 (Aug. 7, 1998).
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The Board believes the expulsion of members is an extreme remedy
that may have the effect of denying individuals access to financial
services. In addition, as financial cooperatives, a credit union's
expulsion of a member-owner is a particularly significant action
resulting in financial exclusion. Therefore, consistent with certain
statements in the legislative history, use of the authority under the
Governance Modernization Act should be rare and used only for egregious
member behavior.
II. The Proposed Rule
At its September 22, 2022, meeting, the Board issued a proposed
rule to amend the FCU Bylaws to adopt an expulsion policy consistent
with the Governance Modernization Act.\9\ The proposal provided for a
60-day comment period, which ended on December 2, 2022. The Board
received 26 comments from FCUs, credit union leagues and trade
associations, and a law firm. All commenters were generally supportive
of increased flexibility for FCU boards of directors to expel members
for cause. Almost all commenters, however, raised additional
considerations for the Board, and several commenters recommended
specific changes to the proposed rule. The comments are discussed in
detail in the next section.
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\9\ 87 FR 59740 (Oct. 3, 2022).
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III. The Final Rule
The NCUA Board is now issuing a final rule to adopt a policy by
which an FCU member may be expelled for cause by a vote of two-thirds
of a quorum of an FCU's board of directors. The final rule also makes
conforming changes to Article II of the FCU Bylaws regarding members in
good standing.
Member in Good Standing
As discussed previously, the 2019 FCU Bylaws Final Rule codified
the concept of a ``member in good standing.'' So long as a member
remains in good standing, that member retains all the rights and
privileges associated with FCU membership.\10\ A member not in good
standing, however, may be subject to an FCU's limitation of services
policy. The primary reason for permitting FCUs to adopt a limitation of
services policy was to provide FCUs with an alternative to holding a
special meeting to address certain egregious member behavior.\11\ The
enactment of the Governance Modernization Act, however, has provided
FCUs' boards of directors with direct authority (subject to the NCUA
Board promulgating a rule, described in the legislation as a policy) to
expel a member for cause.
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\10\ 12 CFR part 701, appendix A, Art. II, sec. 5.
\11\ 84 FR 53278 (Oct. 4, 2019).
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The proposed rule retained the provisions on limitation of
services. The proposed rule discussed several reasons for retaining
these provisions, including additional flexibility for FCUs to address
certain disruptive member behaviors through less severe restrictions,
the ability of FCU boards to restrict access and services in the case
of a violent or abusive member who has yet to be expelled,\12\ and to
provide FCUs an easier and more expeditious tool to address abusive and
disruptive members. A board vote is not required under the limitation
of services policy. All commenters who discussed the issue supported
retaining the limitation of services policy in the FCU Bylaws. The
Board agrees and continues to believe retaining the limitation of
services policy provides important flexibility to FCU boards, and the
final rule includes the limitation of services policy as proposed.
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\12\ An FCU may immediately take actions such as contacting
local law enforcement, seeking a restraining order, or pursuing
other lawful means to protect the FCU, its members, and staff, and
nothing in the FCU Act nor the FCU Bylaws prevents an FCU from using
whatever lawful means it deems necessary to address circumstances in
which a member poses a risk of harm to the FCU, its property, its
members, or its staff or officials.
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The proposed rule also included a few substantive changes to the
limitation of services provisions. Specifically, the definition of a
member not in good standing was removed. This definition included a
list of behaviors that if engaged in by a member could trigger
limitation of FCU services. However, the Governance Modernization Act
also includes a list of behaviors that may warrant termination of
membership. Instead of including two separate lists of disruptive,
abusive, or violent behaviors, the proposed rule defined a member not
in good standing as a member who has engaged in any of the conduct
listed in the Governance Modernization Act, as implemented in Article
XIV of the FCU Bylaws.
Commenters differed on whether the final rule should include the
same set of ``for cause'' behaviors for both expulsion and limitation
of services. Many commenters thought the same behaviors should be used
for both actions. Other commenters recommended a more expansive list of
behaviors available to trigger a limitation of services. For these
commenters, expulsion is a more extreme remedy than the limitation of
services and the conduct triggering each remedy should not be
synonymous. The Board has not made changes in response to these
commenters. The Board believes the list of ``for cause'' behaviors is
already expansive and includes the types of actions that are reasonable
grounds for limiting services or expulsion.
The proposed rule also made other technical conforming changes. For
example, the proposed rule amended the requirement that the disruptive,
violent, or abusive behavior have a logical relationship between the
objectionable activities and the services to be suspended. This
provision was removed because it is not included in the Governance
Modernization Act. The Board sought comment on whether it should retain
the existing language regarding a logical relationship between the
``for cause'' behavior and limitation of services. Many commenters
recommended removing this qualification as it is not included in the
Governance Modernization Act. The final rule does not include the
express provision related to the nexus between the behavior and the
limitation of services; however, the Board expects each FCU's board of
directors to use
[[Page 48057]]
appropriate discretion and only limit services when necessary.
The proposed rule also included a question on whether the abusive
or disruptive conduct must occur at the FCU. Many commenters objected
to limiting expulsion to behaviors that occur at the FCU. Some of these
commenters discussed electronic communications. For example, one
commenter stated in an increasingly digital world with more channels
for members to interact with an FCU, abusive behavior can occur over
the phone, on social media, or through other channels that may not fit
this physical location definition. These communications would likely be
covered under the proposed rule, which stated dangerous or abusive
behavior includes conduct while on credit union premises and through
the use of telephone, mail, email, or other electronic method.
Other commenters raised concerns about certain abuses that would
not likely be covered under the proposed definition. Some examples of
behavior that would not likely be included under the proposed rule
include threats made at a location other than the credit union (such as
a community event), stalking or assaulting of an employee that occurs
at another location, or a violent crime committed by a member. The
Board agrees with the commenters that these behaviors should be grounds
for expulsion, and the final rule includes a catchall category of other
behaviors related to credit union activities. Therefore, any conduct
that is dangerous or abusive and related to a credit union's
activities, regardless of the location of the conduct, may be grounds
for limitation of services or expulsion. The catchall category would
not include violent crime or dangerous or abusive behavior that is
unrelated to the credit union's activities. The Board believes conduct
that is unrelated to credit union activities should not be grounds for
limitations of services or expulsion and is more appropriately handled
through law enforcement.
Finally, a few commenters suggested the final rule should clarify
that limitation of services does not require a notice or hearing. The
Board is clarifying that use of the limitation of services policy does
not require notice or a hearing.
Expulsion and Withdrawal
Under the Governance Modernization Act, a member may be expelled
for cause by a two-thirds vote of a quorum of the FCU's board of
directors. An FCU may only use this process to expel a member after the
NCUA Board has developed a corresponding policy for expulsion and
implemented such policy through rulemaking within 18 months following
the date of enactment (March 15, 2022), and the FCU has adopted the
related standard Bylaw amendment. The final policy for member expulsion
is discussed below.
Notice of the Expulsion Policy
Under the Governance Modernization Act, an 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. The proposed rule sought comment on whether the final rule
should include a standard disclosure form of the NCUA expulsion policy
outside of the language in Article XIV of the FCU Bylaws. Many
commenters stated the final rule should include an optional model
standard disclosure. A few commenters characterized a potential model
as a safe harbor. In response to commenters' request, the Board has
provided an optional standard disclosure. The disclosure is provided at
the end of the standard FCU Bylaws.\13\
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\13\ The optional standard disclosure has been added for FCUs'
convenience. However, it may not serve as a ``safe harbor'' as
requested by commenters in all cases. Use of the standard disclosure
would provide a ``safe harbor'' from potential NCUA action; however,
members may have rights and potential remedies they could pursue
under other laws than the Governance Modernization Act.
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A few commenters also requested that the Board clarify that FCUs
may add the expulsion policy notice to the membership/account terms and
conditions. The Board has no objection to FCUs adding the policy to
membership and account terms and conditions.
One commenter stated that the final rule should specify that the
requirement for ``each'' member to receive a copy of the expulsion
policy does not permit members to avoid expulsion by an operational
error as to whether another member has received a copy of the policy.
However, the requirement for ``each'' member to receive the policy is
from the Governance Modernization Act, and the Board may not modify the
requirement.
The proposed rule also sought comment on whether FCUs should be
required to get NCUA approval for all bylaw amendments related to
expulsion procedures. Specifically, should certain modifications be
considered fill-in-the-blank type provisions and therefore not require
NCUA approval. Most commenters who discussed this issue believed the
final rule should include some fill-in-the-blank type options for FCUs
to customize their expulsion procedures without receiving NCUA
approval. For example, a few commenters stated that if an FCU decides
to allow an in-person hearing, NCUA approval should not be required.
The final rule does not require NCUA approval to require an in-
person hearing. Additionally, as discussed subsequently, the NCUA will
not consider hearing procedures such as the order of speakers or the
length of the hearing as amendments to an expulsion policy. Therefore,
hearing procedures do not require NCUA approval, provided the
procedures are not inconsistent with the terms of NCUA's expulsion
policy. Any variation to the express terms of NCUA's expulsion policy,
or Article XIV, constitutes a bylaw amendment and is subject to NCUA
approval.
Finally, the Board sought comment on whether it should require both
mail and electronic delivery of notices, even if the member has elected
to receive electronic communications. No commenters who discussed this
issue supported both mail and electronic delivery of notices, and the
final rule does not require both mail and electronic delivery of
notices for those members electing to receive electronic
communications.
Expulsion Vote and Notice of Pending Expulsion
The Governance Modernization Act provides that an FCU's board of
directors may vote to expel a member for cause by a two-thirds vote of
a quorum of the directors of the credit union. If a member will be
subject to expulsion, the member shall be notified of the pending
expulsion, along with the reason for such expulsion. The Board sought
comment on how prescriptive the final rule should be regarding the
content of the pending expulsion notice. A few commenters stated the
proposed requirements are too prescriptive or vague and may lead to
conflict with examiners, and a few commenters requested the Board
provide a standard disclosure for the notice of pending expulsion. One
commenter stated that the Board should outline the categories of
information required to be included in a pending expulsion notice and
do so by a published form document.
The Board does not believe a standard disclosure is appropriate for
the notice of pending expulsion as the Board expects each notice to be
tailored to the specific member and their pending expulsion. In
response to commenters, however, the final rule does include additional
clarifying information on
[[Page 48058]]
what is expected in the notice. Specifically, the final rule provides
that relevant dates, sufficient detail for the member to understand the
grounds for expulsion, how to request a hearing, the procedures related
to the hearing and, if applicable, a general statement on the effect of
expulsion related to the member's accounts or loans at the credit union
must be included in the pending expulsion notice.
The proposed rule required that the reason for the pending
expulsion be specific and not just include conclusory statements. For
example, a general statement saying the member's behavior has been
deemed abusive and the member is being subject to expulsion procedures
is insufficient as an explanation. Instead, the FCU should include the
date(s) of the interaction(s) and specific information describing the
interaction(s), including a description of the member's conduct.
Likewise, a notice stating the member violated the membership agreement
also is insufficient as an explanation for the pending expulsion.
One commenter stated that the pending expulsion notice should not
require the identification of any specific FCU employee and instead
generic terms such as ``loan officer'' should be sufficient. The Board
agrees and is clarifying that FCUs do not need to identify any employee
by name or branch location and generic terms such as ``customer service
representative,'' ``loan officer,'' or ``teller'' are sufficient.
The notice should, however, include specific information about how
the member violated the agreement or engaged in dangerous or abusive
behavior and include other relevant information as appropriate. The
member is relying on the provided notice if a hearing is requested. As
such, the notice must include sufficient detail for the member to
understand why he or she is being subject to expulsion so that the
member has a meaningful opportunity to present their case against
expulsion and an opportunity to respond to the FCU's concerns in a
requested hearing.
The notice must also tell the member that any complaints related to
their potential expulsion should be submitted to NCUA's website if the
complaint cannot be resolved directly by the credit union.\14\ Several
commenters expressed concerns with this proposed requirement. One
commenter questioned how this process would align with the general
process to forward certain complaints to the Consumer Financial
Protection Bureau, or CFPB. One commenter questioned the NCUA's
authority for this requirement. One commenter requested specific
timelines for when the NCUA receives the complaint compared to the
hearing date and whether the NCUA would share the complaint with the
FCU. One commenter asked that the NCUA only accept complaints after the
hearing.
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\14\ Currently complaints can be submitted to the NCUA at either
<a href="https://mycreditunion.gov/consumer-assistance-center">https://mycreditunion.gov/consumer-assistance-center</a> or <a href="https://ncua.gov/consumers">https://ncua.gov/consumers</a>.
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The Board has made two changes in response to these comments. The
final rule provides that complaints should be raised with the NCUA only
if the member has first tried to resolve the complaint directly with
the credit union and clarified complaints should be sent to NCUA's
Consumer Assistance Center. The Board believes credit unions should
have an opportunity to address members' complaints first. However, the
Board believes contacting the NCUA is an appropriate avenue for
members' concerns or complaints. Therefore, the Board has not removed
the requirement to notify the members of their right to complain to the
NCUA. Additionally, the Board notes that notifying members of their
right to complain is not providing members any new rights, and the
notice is intended solely to remind members of their existing rights.
Additionally, the Board does not believe notification of the right
to file complaints is novel when considering routine FCU activity. For
example, loan denial notices also include similar language regarding
member complaints. The Board also does not believe including the
statement on complaints presents a burden to FCUs. Finally, the NCUA
generally has the right to remedy violations of laws, rules, or
regulations, which would include the Governance Modernization Act and
this rule, under 12 U.S.C. 1786.
Hearing
Under the Governance Modernization Act, a member has 60 calendar
days from the date of receipt of a notification of pending expulsion to
request a hearing from the board of directors of the FCU. The proposed
rule discussed that the member has 60 calendar days from the date of
receipt, not the date the FCU provides the notice. Further, the
proposed rule stated that the member has 60 calendar days to provide
the FCU with a request for a hearing. Therefore, the member may mail
the notice 60 days after receiving the notice. As such, the FCU may not
receive the notice within 60 calendar days, and the Board recommended
that FCUs provide sufficient time for both the member's receipt and the
FCU's receipt before expelling a member.
Many commenters had concerns about these provisions and requested
that the Board incorporate a presumption of receipt by the member.
Suggestions for this presumption ranged from three to five business
days after the FCU mailed the expulsion letter to the address on file.
One FCU expressed concerns about situations in which the FCU does not
have a current address on file. Another commenter raised concerns if
the member denied receipt of a mailing, and another recommended that a
Certificate of Mailing should satisfy this requirement.
The Board has not amended the final rule to add a presumption of
receipt. A member who objects to an expulsion due to the lack of
receipt of a notice may either file a complaint with the NCUA or pursue
a private right of action in court.\15\ The NCUA would consider a
letter that was properly addressed and mailed as received by its
intended recipient absent conclusive evidence it was not received, but
local jurisdictions may have their own procedures regarding
presumptions of receipt. These are evidentiary issues related to due
process that the Board encourages FCUs to consider in developing their
procedures, to reasonably ensure they withstand potential legal
challenges.\16\
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\15\ The NCUA will not investigate matters that are the subject
of a pending lawsuit or offer legal assistance. Additionally, the
NCUA will not represent consumers in settling claims or recovering
damages.
\16\ The FCUs have the option of sending notices by certified or
registered mail as an additional step to preemptively address
potential legal challenges from a member on the adequacy of notice.
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Another commenter objected to the proposed policy to provide the
member 60 days to mail a hearing request, instead of 60 days for the
FCU to receive a hearing request. This commenter recommended the final
rule provide that the deadline for requesting a hearing is past if the
FCU has not received the notice within 60 days after the member's
receipt of the notice. The Board has not made any changes to the final
rule in response to this comment.
While rules in each jurisdiction may vary, often items postmarked
by deadlines are considered timely. Further, any formal appeal by the
member would likely be in the form of a private right of action and not
to the NCUA, as the Governance Modernization Act does not include
appeal rights to the NCUA. The Board suggests FCUs consider consulting
with local counsel regarding the requirements in their jurisdiction
[[Page 48059]]
regarding receipt and timeliness of mailings.
Other commenters generally objected to the Governance Modernization
Act's requirement that a member has 60 days to request a hearing. A few
commenters recommended this period be reduced. Some commenters
recommended 30 days. Other commenters recommended the Board allow FCUs
to expel certain members immediately. Another commenter recommended the
Board interpret the Governance Modernization Act to allow for an
immediate expulsion and then a 60-day period after expulsion to request
a hearing.
The Governance Modernization Act provides that the FCU must provide
``Notification of pending expulsion.'' The statute also uses the term
``in advance of the expulsion'' and then provides for expulsion after
60 days if the member does not request a hearing. Therefore, the Board
finds no authority in the statute to permit immediate expulsions or to
allow a shorter timeframe than 60 days to request a hearing.
The proposed rule provided that the FCU must maintain a copy of the
notice provided for its records. The Board sought comment on whether
this requirement is burdensome. In response, two credit unions stated
that this requirement is not a burden, one commenter stated state law
should determine this requirement, and one commenter generally stated
if the notice is not retained, then the FCU should maintain a written
record of the facts. The Board has not made any changes to the final
rule in response to commenters as it believes the requirement
represents only a small burden to credit unions and would assist
examiners in any review of an FCU's expulsions. It also ensures an FCU
has records available in the event of legal disputes over an expulsion.
Form of the Hearing
Under the Governance Modernization Act, if a member does not
request a hearing, the member is automatically expelled after the end
of the 60-day period. If a member requests a hearing, the board of
directors must provide the member with a hearing. The statute is silent
on whether the hearing must be in person, and the proposed rule
permitted in-person or virtual hearings and permitted members an option
to offer only written testimony. The Board sought comments on whether
fairness, other principles, or other laws may call for an in-person
hearing or other hearing procedures. No commenter expressed support for
mandatory in-person hearings.
Commenters had wide ranging suggestions on the form of the hearing.
Several commenters stated the final rule should permit FCUs to choose
between in-person, virtual, and hearings conducted solely through
written submissions (referred to as on-the-paper hearing), especially
in cases of a violent or abusive member. Some commenters stated that
there should be no hearing, just a written response if the member is
dangerous or abusive. A few commenters recommended permitting
telephonic hearings. For example, if a violent member does not have
access to a computer to conduct a videoconference hearing, then the FCU
should offer a telephonic hearing. One commenter recommended requiring
members to appear virtually (and not permitting only written testimony
as is permitted under the proposed rule). Another commenter, however,
recommended requiring written testimony in addition to any oral
testimony.
In response to commenters, the final rule does not require in-
person hearings, as the Board continues to believe it is not necessary
and may be problematic in cases of expulsion due to violence or
threatened violence. Further, the Board agrees with commenters that a
telephonic hearing would be appropriate if a member cannot participate
by videoconference.\17\ Therefore, the final rule has been amended to
permit the option of a telephonic hearing if the member cannot
participate through a virtual hearing.
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\17\ For clarity, the final rule uses the terms videoconference
and telephonic instead of the term virtual.
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The Board continues to believe that telephonic hearings and written
hearings should not be the primary means of conducting hearings and are
more appropriate forums for a hearing only if a virtual or in-person
hearing is not a viable option. Therefore, the Board is not amending
the rule to permit FCUs to offer members only telephonic hearings or
written hearings. Members who are potentially subject to expulsion
should have the option of orally presenting their case through a
virtual hearing, or in-person if there are no safety concerns.
Hearing Procedures
The proposed rule did not include many prescriptive requirements
related to the structure and procedure for the hearing and included
only general principles related to the fairness of the hearing, such as
the FCU could not raise any reason or rationale for expulsion that is
not explicitly included in the notice to the member. The proposed rule
did not, for example, include provisions for the order of testimony at
the hearing, time limits for members, or whether the member or board
members may ask questions.
Several commenters stated that the Board has provided sufficient
guidance in the proposal regarding the structure and procedure of an
expulsion hearing, and no further guidance is necessary. Other
commenters objected to the proposed requirements not found in the
Governance Modernization Act and characterized these elements as
turning the expulsion process into something closer to the due process
afforded a student facing expulsion at a public university than the
termination of a consumer finance relationship. One commenter requested
that the Board clarify that hearings do not need to follow the
parliamentary procedure noted in Article IV, section 4(k) of the FCU
Bylaws. One commenter suggested that the final rule include time limits
for members at the hearing, such as 15 minutes. This commenter also
requested that the final rule state FCU boards have no evidentiary
burden.
The Board agrees with the commenters who stated the proposed rule
included sufficient guidance regarding the structure and procedure of
an expulsion hearing and no further guidance is necessary. The Board
believes that each FCU should have the flexibility to conduct a hearing
as it deems appropriate and standard procedures across all FCUs are
unnecessary. As requested by a commenter, the Board is clarifying that
the hearings do not need to follow the same procedures as meetings of
the members.
To simplify the requirements for the hearing, the Board has also
removed the proposed requirement that subsequent conduct cannot be
raised at the hearings. Commenters discussed that subsequent conduct is
relevant to the hearing, this requirement is not part of the Governance
Modernization Act, and the hearing is not a criminal trial. Therefore,
subsequent conduct could be discussed at an expulsion hearing; however,
the subsequent conduct must be related to the conduct outlined in the
notice for fairness reasons. For example, if the original conduct and
rationale for proposed expulsion was abusive personal conduct, and the
person repeated abusive conduct after the notice was sent that could be
discussed at the hearing.
But, at the hearing the credit union should not raise a violation
of the membership agreement related to a loan loss as that is a new
unrelated rationale
[[Page 48060]]
for the expulsion and the member would not be on notice of the new
rationale. A member should not be expected to address new rationales
not discussed in the notice of pending expulsion. In adopting their own
hearing procedures, FCUs should do their best to ensure they adopt
procedures they reasonably expect are defensible under any applicable
law and are consistent with the intent of the Governance Modernization
Act.
Additionally, the Board is clarifying that hearing procedures are
not considered amendments to NCUA's expulsion policy and do not require
Board approval. For example, procedures related to the order, amount of
time members have to speak, or whether questions will be asked are not
governed by NCUA's expulsion policy. Each credit union may determine
its own hearing procedures.
The final rule generally only requires that hearings provide
members a meaningful opportunity to present their case to the FCU's
board orally. The Board expects hearings to be held in a fair,
reasonable, and consistent manner that provides members a reasonable
opportunity to present their case, but the final rule does not include
prescriptive procedures. These general principles are intended to guide
credit unions and ensure members are given a fair opportunity to
present their case against expulsion and an opportunity to respond to
the FCU's concerns without limiting FCU boards from determining the
structure of their own hearings. Finally, the Board notes that members
can file complaints with the NCUA if the complaint cannot be resolved
directly with the credit union or consider the possibility of
independent legal action if the FCU does not provide fair and
reasonable hearing procedures.\18\
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\18\ The NCUA will not investigate matters that are the subject
of a pending lawsuit or offer legal assistance. Additionally, the
NCUA will not represent consumers in settling claims or recovering
damages.
---------------------------------------------------------------------------
One commenter also requested that if a member does not attend a
hearing, the final rule should state the FCU may proceed with the
expulsion vote. The Board agrees. If a member requests a hearing and
does not attend, the FCU board may proceed with the expulsion vote.
Appeal Rights
The Board also sought comment on whether the final rule should
include an appeal right for members. No commenters expressed support
for an appeal right, and several stated that a request for
reinstatement is a form of an appeal. A few commenters also explicitly
stated that the final rule should not require supervisory committees to
review records related to expulsion, but it would make sense for the
FCU to review expulsions as part of an internal audit. A few commenters
mentioned that there may be a private right of action related to
expulsion, and therefore, formal appeal rights are unnecessary.
The Board has not adopted formal appeal rights in the final rule.
As discussed previously, a member's concern about fairness can be
addressed through complaints to the NCUA or consideration of private
rights of action. The Board encourages FCUs to discuss the potential of
private rights of action with local counsel, particularly when they are
inclined to adopt more restrictive hearing procedures.
FCU Board Vote
After the hearing, the FCU board of directors must hold a vote in a
timely manner on expelling the member. The proposed rule defined a
timely manner as within 30 calendar days. A few commenters stated that
this timeline was reasonable, several thought the final rule should
provide discretion to boards of directors, and two commenters thought
90 days is a more appropriate timeline.
The final rule provides 30 calendar days for the Board vote. The
Board believes 30 days represents a reasonable time to hold a vote and
that 90 days would be too long to provide the member with a resolution
to the notice of pending expulsion. In addition, a three-month delay in
an expulsion vote may undermine the board of director's position on the
severity of the member's activity that the Board expects as
justification for the potential expulsion.
Notice of Expulsion
Under the proposed rule, once a member is expelled the FCU must
provide notice to the member. The notice should state the reason for
the member's expulsion, and if a hearing was conducted or written
testimony provided, the FCU should provide a response to the member's
statements. The notice must also provide information on the effect of
the expulsion, including information related to account access and any
deductions related to amounts due.
One commenter recommended the Board provide model language for the
expulsion notice. The Board is declining to provide model language
covering these aspects of an expulsion. The Board believes each
termination notice should be tailored to the specific member subject to
expulsion. For example, the effect of expulsion may depend on the
accounts held by the member at the FCU and the contract terms of those
accounts. Additionally, without a standard form it is more likely FCUs
would be intentional about articulating the grounds for expulsion in a
manner that best protects the credit union and provides appropriate
rights and notice to the member. Therefore, the Board does not believe
this type of disclosure is appropriate for a standard form.
Under the final rule, if a member is expelled, either after the
board votes to expel the member following a hearing or 60 days after
receipt of the notice if no hearing is requested, the FCU must provide
written notice of the expulsion. The notice must provide information on
the effect of the expulsion, including information related to account
access and any withdrawals by the FCU related to amounts due.
Specifically, the notice should include pertinent information to
the member, including that expulsion does not relieve a member of any
liability to the FCU and that the FCU will pay all the member's shares
upon their expulsion less any amounts due. The notice should include a
line-by-line accounting of any deductions related to amounts due. The
notice should also include when and how the member will receive any
money in their accounts. The written notice must be provided to the
member in person, by mail to the member's address, or electronically if
the member has elected to receive electronic communications from the
credit union.
The proposed rule explicitly asked whether the final rule should
include a minimum amount of time before an FCU is permitted to call an
existing obligation or offset amounts owed. Many commenters stated that
the final rule should leave the option to call the member's outstanding
loans or other obligations to the FCU. Commenters generally stated that
an option to freeze any available funds would prevent the member from
withdrawing funds and leaving the FCU with a potential loss. One
commenter stated that FCUs should call closed-end secured credit (such
as an auto loan) and offset any available funds, assuming the contract
permitted such an action. The final rule does not include any
restrictions on calling or offsetting existing obligations. Instead,
the Board believes this is a matter that should be left to state
contract law, consumer protection laws, and FCU boards' discretion.
[[Page 48061]]
For Cause
Under the Governance Modernization Act, an FCU's board may expel a
member for cause, which means the following: (a) a substantial or
repeated violation of the membership agreement of the credit union; (b)
a substantial or repeated disruption, including dangerous or abusive
behavior (as defined by the NCUA Board pursuant to a rulemaking), to
the operations of a credit union; or (c) fraud, attempted fraud, or
other illegal conduct that a member has been convicted of in relation
to the credit union, including in connection with the credit union's
employees conducting business on behalf of the credit union.
For repeated violations of the membership agreement that are non-
substantial, the proposed rule required prior notice to the member. A
few commenters disagreed on the need for repeated notice for non-
substantial violations. One commenter stated that members have already
received the expulsion policy and a member can raise exculpatory
information at the hearing. The same commenter also stated that the
Governance Modernization Act does not specify that the same provision
of the membership agreement needs to be repeatedly violated to trigger
expulsion. Therefore, the Board should permit an FCU to expel a member
who violates any provision or combination of provisions of the
membership agreement repeatedly.
The Board has not made changes in response to these comments, and
the final rule requires notice for repeated non-substantial violations
of the membership agreement. First, FCU boards have considerable
discretion to determine what violation is non-substantial, and an
initial notice is only required for non-substantial violations. If an
FCU board determines a violation is non-substantial, then it is likely
the member would be unaware the conduct could result in expulsion.
Second, the Board believes an initial notice is necessary to ensure
members are aware that they may be expelled for repeated, non-
substantial violations of the membership agreement.
The warning notice before the notice of expulsion is only for
potential expulsions related to repeated violations that are deemed
non-substantial. The FCU's board may act to expel a member immediately
for substantial violations of the membership agreement and does not
need to provide a warning notice for substantial violations of the
membership agreement. The Board does not believe the added burden or
time required by an extra notice is outweighed by the potential benefit
to members who may be unaware that their conduct is grounds for
expulsion.
The Board also specifically sought comment on whether the final
rule should limit the time between the FCU's notice of a violation and
the repeated behavior. Many commenters stated any repeated behavior
should be grounds for expulsion regardless of the time between the
events. One commenter favored a maximum amount of time for non-
substantial repeated violations to qualify as grounds for expulsion.
The commenter noted, however, the FCU should retain the flexibility to
limit services prior to that time. The Board agrees, and the final rule
includes a two-year limit on the amount of time that may occur between
non-substantial repeated violations to qualify as grounds for
expulsion. The Board believes that non-substantial conduct that occurs
less frequently than every two years does not present sufficient
disruptions to the FCU's operations to warrant expulsion.
The Board also solicited comments on typical violations of a
membership agreement that cause concern for FCUs and whether FCUs
consider causing a loss to be a substantial violation of the membership
agreement. One commenter recommended examples of substantial violations
of the membership agreement. FCUs provided many examples of potential
grounds for expulsion related to violating the membership agreement,
including red flags for money laundering, participation in restricted
activities (for example, personal share draft accounts being used for
business transactions), causing property damage or engaging in
fraudulent activities, causing physical or mental harm to an employee,
members sharing account access devices with unauthorized individuals,
account service abuse, engaging in conduct that would give rise to a
bond or insurance claim, and causing a financial loss to the credit
union (or conduct that would have caused a loss but for the FCU's loss
prevention).
A few FCUs raised examples of concerns that the Board does not
universally agree should be grounds for expulsion. The Board is
commenting on these examples to provide guidance to FCUs in how the
agency will interpret and administer the final rule. One credit union
stated failing to keep accounts secure (for example, keeping the PIN
with the debit card) should be grounds for expulsion. In such a case,
the Board recommends limiting services and access to debit cards if the
credit union believes access should be limited. The Board has
intentionally kept the limitation of services policy for credit unions
to have a variety of remedies available for problematic conduct. One
FCU stated that a member filing bankruptcy should be considered per se
or automatic material loss, and another commenter stated that the final
rule should permit FCUs to expel people who could target credits unions
after being forced out of a bank.\19\ The Board disagrees.
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\19\ The Board notes that there may be statutory restrictions
outside of the FCU Act on FCUs taking certain actions based on a
member's bankruptcy filing. The Board recommends FCUs consult with
counsel before engaging in any expulsion solely due to a member's
bankruptcy filing.
---------------------------------------------------------------------------
The Board considers both examples to be sources of potential harm
to the FCU and, without more, not actual disruptions or violations.
Additionally, the Board is concerned a policy that states filing
bankruptcy is a per se loss might unfairly impact members who have
prioritized loan payments to the FCU. For example, a member who has
prioritized paying an auto loan should not be subject to expulsion due
to filing bankruptcy from overwhelming medical debt.
The final rule, however, provides FCU boards discretion to
determine what behaviors constitute substantial violations of the
membership agreement or dangerous or abusive behaviors. The Board
believes such a determination would be dependent on the particular
facts and would be difficult to determine through a universal policy
applicable to all FCUs. Therefore, the final rule does not define or
otherwise limit an FCU's discretion to determine what behavior or
violation of the membership agreement is substantial.
One commenter also discussed that not all FCUs have a document
called a ``membership agreement,'' and many read the term as a
combination of several documents. The Board believes the term should
generally be defined as any documents customarily provided to the
member at account opening that include terms and conditions of FCU
membership and terms and conditions of the account being opened.
Under the proposed rule, a member may also be expelled by an FCU
board for a substantial or repeated disruption, including dangerous or
abusive behavior, to the operations of a credit union. The proposed
rule defined dangerous or abusive behavior as follows: (1) violence,
intimidation, physical threats, harassment, or physical or verbal abuse
of officials or employees of the credit union, members, or agents of
the credit union (this includes actions while on FCU premises, through
use of telephone,
[[Page 48062]]
mail, email, or other electronic method, or otherwise related to the
credit union's activities); (2) behavior that causes or threatens
damage to FCU property; or (3) unauthorized use or access of FCU
property.
The proposed rule generally relied on the current definition of a
member not in good standing to define dangerous or abusive behavior.
The proposed rule also stated that expressions of frustration with the
FCU or its employees through elevated volume and tone or repeated
interactions with employees are insufficient to constitute dangerous or
abusive behavior. One trade association urged the Board to remove this
statement. The commenter stated that depending upon the facts and
circumstances, these behaviors may well constitute harassment or verbal
abuse and a valid basis for restricting services as harassment.
The Board wants to be clear that racist, sexist, personally
insulting, or otherwise offensive language is grounds for limiting
access to FCU employees or expulsion. However, the Board also wants to
be clear that members who are upset, frustrated, or otherwise agitated
with an FCU should not be expelled on that basis alone. The Board
believes this determination is likely dependent on the context and
should be considered on a case-by-case basis. Deciding which side of
the line a member is on is not a simple matter insofar as it requires
the credit union to balance the need to preserve the safety of
individual staff, other members, and the integrity of the workplace
with the rights of the affected member.
As with repeated violations of the membership agreement, if the
FCU's board acts to expel a member for repeated disruptions that are
non-substantial, the FCU must have first provided written notice to the
member after an instance of such disruption. In contrast, substantial
disruptions, including any conduct that would constitute dangerous or
abusive behavior, may be grounds for immediate action and termination
of membership.
This distinction and requirement to put a member on notice of
conduct that, if repeated, may lead to expulsion, stem from the
Governance Modernization Act, which defines ``cause'' in part as ``a
substantial or repeated disruption.'' Additionally, as discussed
previously in connection with limitation of services policies, an FCU
may immediately take actions such as limiting services, contacting
local law enforcement, seeking a restraining order, or pursuing other
lawful means to protect the credit union, its property, credit union
members, staff and officials, and nothing in the FCU Act or the FCU
Bylaws prevents an FCU from using whatever lawful means it deems
necessary to address circumstances in which a member poses a risk of
harm to the FCU, its members, or its staff.
A member may also be expelled for cause if the member has engaged
in fraud, attempted fraud, or been convicted of other illegal conduct
in relation to the credit union, including in connection with the
credit union's employees conducting business on behalf of the credit
union. The Board solicited comments on whether it should define fraud
or attempted fraud. Many commenters stated the Board does not need to
define the term fraud. The final rule does not include a definition of
fraud or attempted fraud. One commenter suggested clarifying in the
regulatory text that a conviction is not necessary for fraud or
attempted fraud. The Board agrees and has made this clarification.
Reinstatement
Under the Governance Modernization Act, a member expelled by a two-
thirds vote of an FCU's board of directors must be given an opportunity
to request reinstatement of membership. The member may be reinstated by
either a majority vote of a quorum of the directors of the FCU or a
majority vote of the members of the FCU present at a meeting, which the
proposed rule said must be a special meeting. Two commenters
recommended the Board clarify how the determination is made between the
two options. These commenters recommended that the decision be at the
sole discretion of the FCU. The Board agrees and is clarifying that FCU
boards have discretion to choose between the two options.
One commenter stated that if an FCU opts for a member vote the
final rule should permit the vote to occur at an annual meeting. The
Board agrees. Under the final rule, the FCU may act on a reinstatement
request through a majority vote of a quorum of the directors of the
credit union, a majority vote of the members of the credit union
present at a special meeting, or majority vote of members at an annual
meeting provided that the annual meeting occurs within 90 days of the
member's reinstatement request.
The final rule requires that if the FCU addresses the reinstatement
request through an annual meeting, this meeting must occur within 90
days of the reinstatement request. The Board believes a previously
expelled member should not have to wait up to one year (which may be
necessary if an annual meeting occurs just before the member requests
reinstatement) for a resolution to their reinstatement request.
Finally, the rule clarifies that an in-person vote is not required if
the FCU holds a meeting of the members to vote on the reinstatement
request.
The proposed rule also specified that an FCU is required to hold a
board vote or special meeting in response to a reinstatement request
only once. Many commenters agreed that FCU boards should not have to
vote on reinstatement more than once. Some commenters suggested the
final rule provide a minimum amount of time before an FCU must act on a
reinstatement request (for example, one year after expulsion). The
final rule does not include a minimum amount of time for a
reinstatement request. Members are only entitled to one reinstatement
request, and the Board believes each member should be able to make that
request based on that member's own circumstances.
Finally, the Board solicited comments on whether a member convicted
of other illegal conduct should be automatically reinstated if the
conviction is later overturned. No commenters who discussed this issue
were in favor of automatic reinstatement. The final rule does not
include automatic reinstatement if the conviction is overturned. Each
FCU board could take this into consideration if a member requests
reinstatement. The overturning of a conviction might cause the FCU to
reconsider its expulsion decision, but the underlying conduct that led
to expulsion may still be relevant. In this area, the Board believes
that FCUs should exercise sound judgment and consult with counsel if
they need further guidance.
Class of Members
Under the Governance Modernization Act, an expulsion of a member by
an FCU's board of directors must be done on an individual, case-by-case
basis. Further, neither the NCUA Board nor any FCU may expel a class of
members. The proposed rule stated that a class of members included a
class of members that have caused a loss. One commenter was opposed to
this interpretation. The Governance Modernization Act, however, is
clear that expulsion must be done individually on a case-by-case
basis.\20\
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\20\ 12 U.S.C. 1764(e).
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Further, all anti-discrimination laws and regulations remain
applicable, and expulsions of a class of members based on any class or
characteristic such as, but not limited to, race, color, religion,
national origin, gender, sexual
[[Page 48063]]
orientation, gender identity, age, familial status, or disability
status, are strictly prohibited. An FCU may have liability if it
exercises its discretion in a manner that has a discriminatory purpose
or effect or disparate impact under anti-discrimination laws. In
addition, members cannot be expelled due to or in retaliation for their
complaints to the NCUA or any other regulatory agency or law
enforcement, such as the CFPB, and members who are employees or former
employees of the FCU cannot be expelled for any protected whistleblower
activities.\21\
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\21\ See 12 U.S.C. 1790b. The final rule clarifies that
retaliation is impermissible even if other reasons motivate the
expulsion. In particular, the relevant text in appendix A has been
revised to remove the qualifier ``solely.''
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The proposed rule also sought comment on whether the possibility of
FCUs expelling some members but not others for engaging in certain
behavior is a cause for concern. A few FCUs stated this concern would
likely be addressed through adoption of policies on expulsions. Another
commenter, however, stated FCUs should not be required to adopt any
policy on expulsion. One commenter generally thought this would not
likely be an issue because FCUs are focused on growing membership and
would not arbitrarily expel members. One commenter thought private
rights of actions would address this concern.
FCUs should be aware of the potential for discrimination, including
disparate impacts on and arbitrary treatment of members. An FCU must
ensure that its implementation of the authority to expel members for
cause is done consistently and does not violate anti-discrimination
laws or regulations. The Board recommends each FCU consider adopting a
policy related to when its board should expel members, especially if
the FCU intends to expel members for violations of the membership
agreement. Each FCU should periodically review its past expulsions to
ensure there is not a disparate impact created from its expulsion
policy.
To enable NCUA examiners to review relevant information related to
expulsions, the proposed rule required FCUs to maintain records
relating to expelled members for five years. Commenters provided a
variety of responses to this proposed requirement. One stated any
record retention policy should align with other member documents that
must be retained after account closing. One commenter suggested setting
the requirement at seven years as that should meet or exceed most
statutes of limitation. One stated the proposed five-year retention
period is reasonable and not a compliance burden. This commenter
recommended FCUs retain evidence of the member behavior leading up to
the expulsion decision, all formal written communications to the member
related to the behavior and the expulsion decision, and documents used
or introduced in the hearing. One commenter recommended that the
retention of clear copies (and not originals) is sufficient.
The final rule has increased the retention period to six years. The
Board agrees with the commenter who recommended aligning the retention
period with state statute of limitation laws. The Board believes that
six years is likely the most common statute of limitations for
contracts under state law. The Board also wants FCUs to retain records
over a sufficient period so examiners can review the records and have
the necessary data to ensure expulsions do not have a disparate impact
on a protected class.\22\
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\22\ FCUs should be aware that any minimum retention period
required by regulation may be extended if litigation develops, and
the final rule does not purport to preempt the requirements of
judicial forums with respect to ongoing record preservation for
reasonably anticipated litigation.
---------------------------------------------------------------------------
The rule does not specify necessary documents for the record or the
format for retention, but the Board expects a record to include general
documents related to the member, such as the member's last known
contact information, membership agreement, loan files, and specific
documents related to the cause of the member's expulsion, including
written communications from the credit union regarding the expulsion,
the board's decision to expel the member, any written response from the
member, and information or minutes relating to any hearing, should one
occur.
Past Member Conduct as Grounds for Expulsion
The proposed rule discussed whether FCUs may only expel members for
conduct that occurs after a certain date, such as when notice of the
policy is provided to members, when the FCU board adopts a bylaw
amendment, or when the Governance Modernization Act was enacted. A few
commenters stated that the final rule should provide the option of
reviewing past behavior of the member. Many offered the date the
Governance Modernization Act was signed into law.
The final rule does not prescribe a date after which member conduct
must occur for the conduct to serve as grounds for expulsion. The Board
agrees there are some reasonable examples of past conduct that could
serve as grounds for expulsion and does not want to remove the option
for FCUs to expel these members. The Board, however, recommends that
FCUs consider fairness issues and litigation risk when considering past
conduct as grounds for expulsion. For example, expelling a member who
currently is subject to a limitation of services for a violent action
would be more reasonable than expelling someone for past conduct that
has not led to a limitation in services.
More broadly, while Congress did not specifically constrain an
FCU's reliance on past conduct, the legislation requires each FCU to
provide a copy of its expulsion policy to each member before an FCU may
implement it. Relying on conduct that occurred before an FCU provides
the policy to each member may raise legal risks for the FCU.
Other Comments
A few commenters raised issues with aspects of the proposal that
were from the Governance Modernization Act and outside of the Board's
discretion. One commenter stated that FCU management, and not FCU
boards of directors, should make the member expulsion decision. One FCU
recommended that the expulsion procedures mirror or be significantly
similar to that of state-chartered credit unions.
One commenter requested that the Board provide a flow chart to help
FCUs understand the expulsion process. The Board does not believe the
rule is sufficiently complex that a flow chart is warranted as part of
this final rule.
One commenter stated that there should be no private right of
action under the Governance Modernization Act. The Board notes that the
Act does not include an express private right of action. The Board
neither intends to establish a private right of action with this final
rule nor preclude a private right of action that may be available under
existing law. FCUs should consider legal risks when establishing their
policies.
Finally, one commenter discussed whether FCUs could take steps to
address delinquencies without invoking the limitation of services
policy. The commenter asked that Article II provide either of the
following: (a) the standard is not ``significantly delinquent'' but
rather the old standard of ``loss,'' or (b) the concept of limitation
of services for members not in good standing does not prohibit day-to-
day collections activities, actions resulting from the creditworthiness
of members, or targeted responses to abuse in a single
[[Page 48064]]
account or communications channel. The Board is clarifying in this
preamble that the limitation of services policy is not intended to
limit day-to-day collections activities, actions resulting from the
creditworthiness of members, or targeted responses to abuse in a single
account or communications channel.
Implementation
After the effective date of this final rule, FCUs have the option
to amend their bylaws to provide their boards of directors with
authority to expel members for cause. FCUs seeking to adopt these
authorities must amend their bylaws through a two-thirds vote of their
boards of directors. Such FCUs do not need to submit the amendment to
the NCUA for its approval provided the amendment is identical to the
language included in this final rule or only includes additional
language on hearing procedures as discussed in the preceding
paragraphs. FCUs may adopt amendments immediately after the effective
date of the final rule or at any point in the future. However, the
amendment included in this final rule is optional, and FCUs do not need
to amend their bylaws or take any other action in response to this
final rule. Those FCUs electing not to act in response to this final
rule, however, could expel a member solely through a special meeting of
the members or on the basis of a violation of a nonparticipation
policy.
IV. Regulatory Procedures
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency creates a new or amends existing information collection
requirements.\23\ For purposes of the PRA, an information collection
requirement may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a valid Office of Management
and Budget (OMB) control number. The current information collection
requirements for FCU Bylaws are approved under OMB control number 3133-
0052. The proposed rule included an estimated burden of 5,227 hours
associated with the rulemaking. The Board received and considered
comments on the estimated burden.
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\23\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
Under the final rule, the notice requirements to be provided to the
member are as follows: (1) the notice of potential expulsion for cause,
(2) the notice of expulsion, and (3) the notice of expulsion due to
repeated, non-substantial violations of the membership agreement or
repeated disruptions for non-substantial conduct. These notices will be
provided to the member by the FCU as prescribed by proposed sections 2
and 3 of Article XIV of appendix A to part 701. The information
collection requirements associated with these disclosure notices vary
depending on the number of respondents. An estimated total of 5,227
responses will be generated, taking an hour per response, for a total
of 5,227 burden hours associated with the notice requirements.
Additionally, FCUs are required to retain and maintain all records
associated with the expulsion policy, and it is estimated to average 30
minutes per FCU for a total annual burden of 1,230 hours. Therefore,
there is a total burden of 6,457 hours associated with this rulemaking.
The total burden associated with OMB Control Number: 3133-0052 is
as follows:
OMB Control Number: 3133-0052.
Title of information collection: Federal Credit Union Bylaws,
Appendix A to Part 701.
Estimated number of respondents: 3,076.
Estimated number of responses per respondent: 347.
Estimated total annual responses: 1,067,833.
Estimated total annual burden hours per response: 0.35.
Estimated total annual burden hours: 377,263.
The total annual burden hours increased due to the disclosure
requirements.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule or a final rule pursuant to the
Administrative Procedure Act or another law, the agency must prepare a
regulatory flexibility analysis that meets the requirements of the RFA
and publish such analysis in the Federal Register. Specifically, the
RFA normally requires agencies to describe the impact of a rulemaking
on small entities by providing a regulatory impact analysis. For
purposes of the RFA, the Board considers credit unions with assets less
than $100 million to be small entities.\24\ A regulatory flexibility
analysis is not required, however, if the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities and publishes its certification and a short,
explanatory statement in the Federal Register together with the rule.
---------------------------------------------------------------------------
\24\ NCUA Interpretive Ruling and Policy Statement 15-1, 80 FR
57512 (Sept. 24, 2015).
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The Board does not believe the final rule results in any burden or
other significant economic impact to small entities. First, adoption of
the flexibilities included in the rule is optional, and FCUs are not
required to amend their bylaws. Additionally, even if FCUs revise their
bylaws in response to the rule, it is within FCUs' discretion to
exercise the authority provided in the final rule to expel a member.
The Board also believes that expulsion will continue to be rare, and
thus, any impact from the rule will be limited. Further, the final rule
includes no affirmative requirements for small credit unions and will
not affect the competitive balance between small and large credit
unions. Therefore, the Board certifies that the final rule does not
have a significant economic impact on a substantial number of small
entities.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. The
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the Executive order to adhere to fundamental
federalism principles.
This final rule applies to FCUs only and does not have substantial
direct effects on the states, on the relationship between the National
Government and the states, or on the distribution of power and
responsibilities among the various levels of government. Any effect the
final rule might have on state-chartered credit unions or development
of state law on expulsion would be purely speculative and attenuated.
The NCUA has therefore determined that this rule does not constitute a
policy that has federalism implications for purposes of the Executive
order.
Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Public Law 105-277, 112
Stat. 2681 (1998). In particular, the NCUA has reviewed the criteria
specified in section 654(c)(1) of that act, by evaluating whether this
rule (1) impacts the stability or safety of the family, particularly in
terms of marital
[[Page 48065]]
commitment, (2) impacts the authority of parents in the education,
nurture, and supervision of their children, (3) helps the family
perform its functions, (4) affects disposable income or poverty of
families and children, (5) only financially impacts families, if at
all, to the extent such impacts are justified; (6) may be carried out
by State or local government or by the family, or (7) establishes a
policy concerning the relationship between the behavior and personal
responsibility of youth and the norms of society. Under this statute,
if the agency determines the rule may negatively affect family well-
being, then the agency must provide an adequate rationale for its
implementation.
The NCUA has determined that the implementation of this proposed
rule would not affect family well-being within the meaning of the
statute. Of the seven factors in the statute, the factors on disposable
income and financial impact appear most relevant. Removing access to
financial services at an FCU may negatively affect a member and their
family. These actions, however, would be unlikely to affect disposable
income or poverty directly, so the NCUA finds that the rule does not
have a negative effect as described in the statute. Moreover, the final
rule implements a statutory mandate, and the NCUA cannot decline to
implement the legislation. The NCUA has taken potentially adverse
effects on members into account in designing the rule.
Small Business Regulatory Enforcement Fairness Act--Congressional
Review Act
The Congressional Review chapter of the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA) generally provides for
congressional review of agency rules.\25\ A reporting requirement is
triggered in instances where the NCUA issues a final rule as defined in
the Administrative Procedure Act.\26\ Besides being subject to
congressional oversight, an agency rule may also be subject to a
delayed effective date if it is a ``major rule.'' The NCUA does not
believe this rule is a ``major rule'' within the meaning of the
relevant sections of the statute. As required by the statute, the NCUA
will submit this final rule OMB for it to determine if this final rule
is a ``major rule'' for purposes of the statute. The NCUA also will
file appropriate reports with Congress and the Government
Accountability Office so this rule may be reviewed.
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\25\ 5 U.S.C. 551.
\26\ Id.
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List of Subjects in 12 CFR Part 701
Credit, Credit unions, Federal credit union bylaws.
By the NCUA Board on July 20, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the Board amends 12 CFR
part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
0
2. In appendix A to part 701:
0
a. Revise Articles II and Article XIV; and
0
b. In Official NCUA Commentary--Federal Credit Union Bylaws, revise
Articles II and Article XIV.
The revisions read as follows:
Appendix A to Part 701--Federal Credit Union Bylaws
* * * * *
Article II. Qualifications for Membership
Section 1. Field of membership. The field of membership of this
credit union is limited to that stated in Section 5 of its charter.
Section 2. Membership application procedures. Persons eligible
for membership under Section 5 of the charter must sign a membership
application on approved forms. The applicant becomes a member upon
approval of the application by a membership officer, after
subscription to at least one share, payment of the initial
installment, and payment of a uniform entrance fee if required by
the board. If the membership officer denies a person's membership
application, the credit union must explain the reasons for the
denial in writing upon written request.
Section 3. Maintenance of membership share required. A member
who withdraws all shareholdings or fails to comply with the time
requirements for restoring his or her account balance to par value
in Article III, section 3, ceases to be a member. By resolution, the
board may require persons readmitted to membership to pay another
entrance fee.
Section 4. Continuation of membership.
(a) Once a member, always a member. Once a member, always a
member until the person or organization chooses to withdraw its
membership or is expelled under the Act and Article XIV of these
bylaws.
(b) Limitation of services. Notwithstanding any provision of
these bylaws, the board of directors may adopt a policy that limits
credit union services to any member not in good standing.
Section 5. Member in good standing. Members in good standing
retain all their rights and privileges in the credit union. A member
not in good standing may be subject to a policy that limits credit
union services. A member not in good standing is one who has engaged
in any of the conduct in Article XIV, section 3, related to for-
cause expulsion. In the event of a suspension of service, the member
will be notified of what accounts or services have been
discontinued. Subject to Article XIV and any applicable limitation
of services policy approved by the board, members not in good
standing retain their right to attend, participate, and vote at the
annual and special meetings of the members and maintain a share
account.
* * * * *
Article XIV. Expulsion and Withdrawal
Section 1. Expulsion procedure. A credit union may expel a
member in one of three ways. The first way is through a special
meeting. Under this option, a credit union must call a special
meeting of the members, provide the member the opportunity to be
heard, and obtain a two-thirds vote of the members present at the
special meeting to expel a member. The second way to expel a member
is under a nonparticipation policy given to each member that follows
the requirements found in the Act. The third way to expel a member
is by a two-thirds vote of a quorum of the directors of the credit
union. A credit union can only expel a member for cause and through
a vote of the directors of the credit union if it follows the policy
for expulsion in section 2.
Section 2. A credit union's directors may vote to expel a member
for cause if the credit union has provided a written copy of this
Article or the optional standard disclosure notice to each member of
the credit union. The communication of the policy, along with all
notices required under this section, must be legible, written in
plain language, reasonably understandable by ordinary members, and
may be provided electronically only in the case of members who have
elected to receive electronic communications from the credit union.
If a member will be subject to expulsion, the member shall be
notified in writing in advance, along with the reason for such
expulsion. The notice must include, at minimum, (i) relevant dates,
(ii) sufficient detail for the member to understand the grounds for
expulsion, (iii) the member's right to request a hearing, (iv) how
to request a hearing, (v) the procedures related to the hearing,
(vi) notification that, if a hearing is not requested, membership
will terminate after 60 calendar days, and (vii) if applicable, a
general statement on the effect of expulsion related to the member's
accounts or loans at the credit union. The notice cannot include
only conclusory statements regarding the reason for the member's
expulsion. The notice must also tell the member that any complaints
related to the member's potential expulsion should be submitted to
NCUA's Consumer Assistance Center if the complaint cannot be
resolved directly with the credit union. The FCU must maintain a
copy of the
[[Page 48066]]
provided notice for its records. The notice shall be provided in
person, by mail to the member's address, or, if the member has
elected to receive electronic communications from the credit union,
may be provided electronically.
A member shall have 60 calendar days from the date of receipt of
a notification to request a hearing from the board of directors of
the credit union. A member is not entitled to attend the hearing in
person, but the member must be provided a meaningful opportunity to
present the member's case orally to the FCU board through a
videoconference hearing. The member may choose to provide a written
submission to the Board instead of a hearing with oral statements.
If a member cannot participate in a videoconference hearing, then
the FCU may offer a telephonic hearing. If a member does not request
a hearing or provide a written submission, the member shall be
expelled after the end of the 60-day period after receipt of the
notice. If a member requests a hearing, the board of directors must
provide the member with a hearing. At the hearing, the board of
directors may not raise any rationale for expulsion that is not
explicitly included in the notice to the member.
After the hearing, the board of directors of the credit union
must hold a vote within 30 calendar days on expelling the member. If
a member is expelled, either through the expiration of the 60-day
period or a vote to expel the member after a hearing, written notice
of the expulsion must be provided to the member in person, by mail
to the member's address, or, if the member has elected to receive
electronic communications from the credit union, may be provided
electronically. The notice must provide information on the effect of
the expulsion, including information related to account access and
any deductions by the credit union related to amounts due. The
notice must also tell the member that any complaints related to
their expulsion should be submitted to NCUA's Consumer Assistance
Center if the complaint cannot be resolved directly with the credit
union. The notice must also state that the member has an opportunity
to request reinstatement.
A member expelled under this authority must be given an
opportunity to request reinstatement of membership. The FCU may act
on a reinstatement request through a majority vote of a quorum of
the directors of the credit union, a majority vote of the members of
the credit union present at a special meeting, or a majority vote of
members at an annual meeting, provided the annual meeting occurs
within 90 days of the member's reinstatement request. If the FCU
holds a meeting of the members to vote on the reinstatement request,
an in-person vote is not required. An FCU is only required to hold a
board vote or special meeting in response to a member's first
reinstatement request following expulsion.
FCUs are required to maintain records related to any member
expelled through a vote of the directors of the credit union for six
years.
Section 3. The term cause in this Article means (A) a
substantial or repeated violation of the membership agreement of the
credit union; (B) a substantial or repeated disruption, including
dangerous or abusive behavior, to the operations of a credit union,
as defined below; or (C) fraud, attempted fraud, or conviction of
other illegal conduct in relation to the credit union, including the
credit union's employees conducting business on behalf of the credit
union.
If the FCU is considering expulsion of a member due to repeated
non-substantial violations of the membership agreement or repeated
disruptions to the credit union's operations, the credit union must
provide written notice to the member at least once prior to the
notice of expulsion, and the violation or conduct must be repeated
within two years after having been notified of the violation. The
written notice must state the specific nature of the violation or
conduct and that if the violation or conduct occurs again, the
member may be expelled from the credit union.
Dangerous or abusive behavior includes the following: (1)
violence, intimidation, physical threats, harassment, or physical or
verbal abuse of officials or employees of the credit union, members,
or agents of the credit union. This only includes (a) actions while
on credit union premises or otherwise related to credit union
activities, and through use of telephone, mail, email, or other
electronic method; (b) behavior that causes or threatens damage to
credit union property; or (c) unauthorized use or access of credit
union property. 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 credit union employees are insufficient
to constitute dangerous or abusive behavior. Additionally, members
cannot be expelled due to or in retaliation for their complaints to
the NCUA or any other regulatory agency or law enforcement, and
members who are employees or former employees of the FCU cannot be
expelled for any protected whistleblower activities.
Section 4. Expulsion or withdrawal does not relieve a member of
any liability to the credit union. The credit union will pay all of
the member's shares upon the member's expulsion or withdrawal less
any amounts due to the credit union.
Section 5. An expulsion of a member pursuant to section 2 shall
be done individually, on a case-by-case basis, and neither the NCUA
Board nor any credit union may expel a class of members.
* * * * *
Official NCUA Commentary--Federal Credit Union Bylaws
Article II. Qualifications for Membership
i. Entrance fee: FCUs may not vary the entrance fee among
different classes of members (such as students, minors, or non-
natural persons) because the Act requires a uniform fee. FCUs may,
however, eliminate the entrance fee for all applicants.
ii. Membership application procedures: Under section 113 of the
Act,\3\ the board acts upon applications for membership. However,
the board can appoint membership officers from among the members of
the credit union. Such membership officers cannot be a paid officer
of the board, the financial board officer, any assistant to the paid
officer of the board or to the financial officer, or any loan
officer. As described under section 2 of this Article, an applicant
becomes a member upon approval by a membership officer and payment
of at least one share (or installment) and uniform entrance fee, if
applicable.
---------------------------------------------------------------------------
\3\ See 12 U.S.C. 1761b.
---------------------------------------------------------------------------
(iii) Violent, belligerent, disruptive, or abusive members: Many
credit unions have confronted the issue of handling a violent,
belligerent, disruptive, or abusive individual. Doing so is not a
simple matter insofar as it requires the credit union to balance the
need to preserve the safety of individual staff, other members, and
the integrity of the workplace, on one hand, with the rights of the
affected member on the other. In accordance with the Act and
applicable legal interpretations, there is a reasonably wide range
within which FCUs may fashion a policy that addresses these
interrelated responsibilities.
Thus, an individual who has become violent, belligerent,
disruptive, or abusive may be prohibited from entering the premises
or making telephone contact with the credit union, and the
individual may be severely restricted in terms of eligibility for
products or services. So long as the individual is not barred from
exercising the right to vote at annual meetings and is allowed to
maintain a regular share account, the FCU may fashion and implement
a policy that is reasonably designed to preserve the safety of its
employees and the integrity of the workplace. The policy need not be
identical nor applied uniformly in all cases; there is room for
flexibility and a customized approach to fit the circumstances. In
fact, the NCUA anticipates that in some circumstances, such as
violence or a credible threat of violence against another member or
credit union staff in the FCU or its surrounding property, an FCU
may take immediate action to restrict most, if not all, services to
the member. This may occur along a parallel track as the credit
union begins the process of expelling the member under Article XIV.
In other situations, such as a member who frequently writes checks
with insufficient funds, the FCU may attempt to resolve the matter
with the member before limiting check writing services. Once a
limitation of services policy is adopted or revised, members must
receive notice. The FCU should disclose the policy to new members
when they join and notify existing members of the policy at least 30
calendar days before it becomes effective. The credit union's board
has the option to adopt the amendment addressing members in good
standing.
* * * * *
Article XIV. Expulsion and Withdrawal
As noted in the commentary to Article II, there is a wide range
of measures available to the credit union in responding to abusive
or unreasonably disruptive members. A credit union can limit
services under Article II for a member not in good standing. A
credit union may also expel the member for cause after a two-thirds
vote of the credit union's
[[Page 48067]]
directors.\11\ Dangerous and abusive behavior is considered any
violent, belligerent, unreasonably disruptive, or abusive behavior.
Examples of dangerous and abusive conduct include, but are not
limited to, a member threatening physical harm to employees, a
member repeatedly and unwelcomely giving gifts to or asking tellers
on dates, a member repeatedly using racial or sexist language
towards employees, and a member threatening to follow a loan officer
home for denying a loan.
---------------------------------------------------------------------------
\11\ See 12 U.S.C. 1764.
---------------------------------------------------------------------------
A credit union must provide notice of the expulsion to the
member. The notice must include the reason for the expulsion, and if
a hearing was conducted or written testimony provided, the credit
union should provide a response to the member's statements. The
notice must be specific and not just include conclusory statements
regarding the reason for the member's expulsion. For example, a
general statement that the member's behavior has been deemed abusive
and the member is being subject to expulsion procedures would be
insufficient as an explanation. A credit union is prohibited from
expelling a class of members under this provision. That would
include a board acting to remove all delinquent members or class of
delinquent members.
If a special meeting of the members is called to expel the
member, only in-person voting is permitted in conjunction with the
special meeting, so that the affected member has an opportunity to
present the member's case and respond to the credit union's
concerns. However, an in-person meeting is not required if a member
is expelled by a two-thirds vote of the board of directors. In
addition, FCUs should consider the commentary under Article XVI
about members using accounts for unlawful purposes.
Optional Standard Disclosure of Expulsion Policy
We may terminate your membership in [name of FCU] in one of
three ways. The first way is through a special meeting. Under this
option, we may call a special meeting of the members, provide you an
opportunity to be heard, and obtain a two-thirds vote of the members
present at the special meeting in favor of your expulsion. The
second way to terminate your membership is under a nonparticipation
policy given to each member that follows certain requirements. The
third way to terminate your membership is by a two-thirds vote of a
quorum of the directors of the credit union for cause.
Cause is defined as follows: (A) a substantial or repeated
violation of [name of membership agreement] with [us]; (B) a
substantial or repeated disruption, including dangerous or abusive
behavior, to the credit union's operations; or (C) fraud, attempted
fraud, or a conviction of other illegal conduct that a member has
been convicted of in relation to [us], including in connection with
our employees conducting business on behalf of us.
Before the board votes on an expulsion, [we] must provide
written notice to your mail address (or email, if applicable) on
record or personally provide the written notice. [We] must provide
the specific reasons for the expulsion and allow you an opportunity
to rebut those reasons through a hearing if you choose. It is your
responsibility to keep your contact information with [us] up to
date, and to open and read notices from [us]. Unless [we] determine
to allow otherwise, there is no right to an in-person hearing with
the board. If you fail to request a hearing within 60 calendar days
of receipt of the notice, you will be expelled. You may submit any
complaints about your pending expulsion or expulsion to NCUA's
Consumer Assistance Center if the complaint cannot be resolved with
the credit union.
[We] will confirm any expulsion with a letter with information
on the effect of the expulsion and how you can request
reinstatement. Expulsion or withdrawal from membership does not
relieve a member of liability to the credit union, and we may demand
immediate repayment of the money you owe to us after expulsion,
subject to any applicable contract terms and conditions.
For additional information on expulsion and a copy of our
expulsion policy, see [Article XIV of our Bylaws].
* * * * *
[FR Doc. 2023-15715 Filed 7-25-23; 8:45 am]
BILLING CODE 7535-01-P
</pre></body>
</html>Indexed from Federal Register on July 26, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.