You're on Notice: Part 2 of the NCUA's Member Expulsion Rule Breakdown

This is the second part of our series breaking down the NCUA's Final Rule on Member Expulsion. If you missed Part 1, you can find it here.

Today we're taking a look at the required notices. There's several steps to expelling a member through this process, and it's critical to make sure you've dotted your "i"s and crossed your "t"s. Part of that is sending all of the required notices with the required content.

Notice of the Expulsion Policy

The first notice that has to be sent out is the Notice of the Expulsion Policy. Under the Credit Union Governance Modernization Act (the law that directed the NCUA Board to issue this Rule), the Board of Directors may only expel a member if the FCU has provided, in written or electronic form, a copy of NCUA's expulsion policy to each member of the credit union.

In the Final Rule, the NCUA Board provides an optional standard disclosure to members. The disclosure can be found at the very end of the final rule, and you would replace the bracketed portions with information for your credit union:

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].

The alternative to this notice is sending a copy of Article XIV of the Bylaws to each member.

In the Proposed Rule, the NCUA Board indicated they were considering requiring both mail and electronic delivery of notices, even if the member had opted to receive electronic communications. They ultimately steered away from that approach, and the Final Rule does not require delivery in both formats. Instead, the notice can be sent electronically to members who have elected to receive electronic communications from the credit union, and should be mailed to all other members.

In the Final Rule, the NCUA emphasizes that all notices required as part of this process must be legible, written in plain language, and reasonably understandable by ordinary members.

Written Notice of Non-Substantial Violations of the Membership Agreement

We covered this in Part 1, but it's worth mentioning again here because it can be a required notice. One of the grounds for expulsion is repeated, non-substantial violations of the membership agreement. In this situation, the Final Rule requires a warning notice to the member followed by the member exhibiting the same conduct or repeating the violation within two years of receiving the warning letter. This warning letter 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. Finally, as a reminder, this warning letter is not required in all circumstances. If the violation or conduct is deemed to be a substantial violation of the membership agreement, or falls under one of the other two criteria for expulsion, this warning notice is not required.

Pending Expulsion Notice

You've determined your member's behavior meets the expulsion criteria, and you've sent the warning notice if needed. To pursue expulsion, the next notice would be the Pending Expulsion Notice. This is the letter that tells the member that the Board of Directors will be voting on whether to expel them from the credit union, and the reason why.

There is no standard form for this notice. The NCUA Board felt it appropriate for each FCU to tailor the notice to the specific member and their situation. The Final Rule does, however, include additional information about what should be included in this notice. Specifically, the notice should include:

• relevant dates;
• sufficient detail for the member to understand the grounds for expulsion;
• the member’s right to request a hearing;
• how to request a hearing;
• the procedures related to the hearing;
• if applicable, a general statement on the effect of expulsion related to the member’s accounts or loans at the credit union; and
• 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.

Sometimes these incidents can be hostile, especially in cases where a member is being expelled for dangerous or abusive behavior. For that reason, NCUA specified that the notice does not require the identification of any specific FCU employee by name or branch location. Instead, generic terms such as "teller" or "loan officer" can be used to describe the situation.

That being said, the notice must include some specific information. It's not enough to say they are being expelled because they violated the agreement or engaged in dangerous or abusive behavior. You must detail how they violated the membership agreement, or what behavior was deemed dangerous or abusive. The NCUA wants to ensure members are provided meaningful opportunities to present their case, so they must have sufficient knowledge of what they are responding to.

The notice must be provided either in person, by mail, or, if the member has elected to receive electronic communications from the credit union, may be provided electronically.

Notice of Expulsion

Once the member receives the Pending Expulsion Notice, they have 60 days to request a hearing (more on the hearing in Part 3). If they do not request a hearing, or they do and the Board of Directors votes to expel them, the next required notice is the Notice of Expulsion. As the name suggests, this is the letter that tells the member they've been expelled from the credit union.

This notice should:

• state the reason for the member’s expulsion;
• provide a response to the member’s statements if a hearing was conducted or written testimony was provided;
• provide information on the effect of the expulsion, including information related to account access, how the member will receive any money in their accounts, and a line-by-line accounting of any deductions by the credit union related to amounts due;
• include 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;
• 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; and
• state that the member has an opportunity to request reinstatement.

Like the Pending Expulsion Notice, the Notice of Expulsion must also be provided either in person, by mail, or, if the member has elected to receive electronic communications from the credit union, may be provided electronically.

The NCUA Board declined to provide any model language for this notice, again preferring for the FCU to tailor the notice to the member and the situation. Additionally, the Board did not include any restrictions on calling or offsetting existing obligations, noting that this "is a matter that should be left to state contract law, consumer protection laws, and FCU boards’ discretion."

Summary

To recap, there are three required notices (and 4 in some circumstances):

• The Notice of the Expulsion Policy, where you tell all of your members about how this expulsion process would work;
• The Written Notice of Non-Substantial Violations of the Membership Agreement, where you warn members that if they continue this behavior pattern they could be expelled (not required in all circumstances);
• The Pending Expulsion Notice, where you tell members the Board is voting on whether or not to expel them; and
• The Notice of Expulsion, where you tell them they have been expelled.

We'll be back later this week to dive deeper on the expulsion hearing itself, the expulsion vote, and requests for reinstatement.