Bylaws and Policies: Member Expulsion Part 4

Welcome back! This is the final installment in our series on the NCUA's Member Expulsion Rule. So far we've covered how to determine if a member's behavior rises to the point of being expellable (Part 1), all of the Notices that you have to send (Part 2), and how the hearing and vote are conducted, as well as how to handle requests for reinstatement (Part 3).

Once you understand the process and decide this might be a useful tool in your credit union's toolbox, what steps should you take?

Amending your Bylaws

The NCUA's Final Rule is actually a revision to the standard Federal Credit Union Bylaws. The bulk of the Final Rule adds to Article XIV - Expulsion and Withdrawal. Here's how the Article currently reads:

Article XIV. Expulsion and Withdrawal

Section 1. Expulsion procedure; expulsion or withdrawal does not affect members' liability or shares. To expel a member, the 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.

The credit union may also expel a member under a nonparticipation policy given to each member that follows the requirements found in the Act. Expulsion or withdrawal does not relieve a member of any liability to this credit union. The credit union will pay all of their shares upon their expulsion or withdrawal less any amounts due to this credit union.

As you can see, Article XIV is very short, and details the two existing ways a member can be expelled. The Final Rule adds a third way. So the first step would be to adopt the new bylaw language once the Final Rule becomes effective. In addition to Article XIV, the Final Rule also provides updates to Article II, Section 5.

Bylaw amendments typically require a two-thirds vote of the Board of Directors to adopt. To be sure, check your credit union's bylaws. Bylaw amendments are covered in Article XVII, Section 1 of the standard Federal Credit Union Bylaws.

Policies and Procedures

In addition to the bylaws, having comprehensive policies and procedures is another important element of credit union governance. Before you start sending out notices, consider adopting a member expulsion policy and/or procedures which govern how the expulsion process will be conducted at your credit union. Just like other elements of credit union operations, standardizing and documenting not only applies a fair and consistent process to each member, but dramatically mitigates your risk.

Your credit union may already have a member expulsion policy that addresses the two methods above, or you could have a suspension of services policy that addresses how you will limit products and services to risky members but stops short of expulsion. Make sure any new policies and procedures you develop are consistent with others you may have, and of course consistent with your bylaws.

This is important for a couple of reasons. First, as noted in earlier blog posts on this topic, the NCUA's Final Rule leaves several elements up to the credit union's discretion, so relying on the NCUA's Final Rule alone as a policy leaves some blank spaces. Second, while members don't have a right to appeal a decision, they can file a complaint to the NCUA or pursue a private right of action against the credit union. Finally, it's likely NCUA examiners will be reviewing member expulsions as part of their NCUA examination. In his comments at the NCUA Board meeting, Chairman Harper said that NCUA examiners "will" be looking at member expulsions as part of their examination procedures. Having comprehensive policies and procedures will help your credit union in any post-expulsion action or examination.

What about those other two methods and suspension of services?

As you can see in the current language of Article XIV, Section 1 of the standard bylaws, there are two other ways for a member to be expelled from a credit union. The first is by a two-thirds vote of the membership present at a special meeting called for that purpose. The second is for nonparticipation in the affairs of the credit union, as specified in a policy adopted and enforced by the Board. This Final Rule does not make any changes to either of those methods - everything in this new rule is an additional tool the credit union can choose to use.

Additionally, this Final Rule does not replace or impact the credit union's ability to have a limitation of services policy. A credit union can use a limitations of services policy to limit almost all credit union services, such as debit cards, ATM access, access to branches, and more, to members who are "not in good standing." When members cause a loss to the credit union or threaten the safety of credit union staff, a limitation of services policy allows the credit union to take immediate action to cut off services and protect the credit union and its employees. However, even a member not in good standing retains some fundamental rights as a member of the credit union. This Final Rule details the process for expelling a member all together, so it should be used in conjunction with the limitation of services policy.

Final Thoughts

We did it! In the last four posts we've covered this new Final Rule on member expulsion from all angles. We looked at what behavior might make a member subject to this expulsion process. We reviewed all of the required notices to members a credit union will have to produce. We detailed how the hearing and the Board vote will be conducted, as well as how to handle a request for reinstatement. Finally, we explored the next steps a credit union should take before using this tool, such as amending their bylaws and adopting policies and procedures.

This Final Rule is an overall positive. Many credit unions have found themselves in difficult situations of wanting to protect staff and the credit union from dangerous or abusive members, members who attempt fraud, or a number of other situations, and were unsure of how to act or what actions they were allowed to take. This Rule not only provides additional clarity on their options but gives another route for credit unions to consider. It's far from simple - after all, it took four lengthy blog posts just to describe the process. However if a credit union takes the time to understand the rule and build thorough processes and procedures to apply it fairly and consistently, this can be of real benefit to them.

I hope you've found this breakdown helpful. If there's other rules or regulations you'd like to see us analyze or provide insight on, please don't hesitate to contact me at jblau@vacul.org.