FCU Bylaw Amendments will be required for updating member expulsion policy.

This summer, the NCUA adopted a final rule permitting a federal credit union (“FCU”) to expel a member for cause by a two-thirds vote of the FCU’s board of directors. The NCUA was required to develop a policy under which a member could be expelled. This policy was published in July and became effective on August 25, 2023.  The NCUA has recently updated the language in the model bylaws on their website to reflect these changes.

To recap, the prior bylaws allowed an FCU to expel a member by either a two-thirds vote of the members at a special meeting convened for that purpose or a lack of participation, as defined in the FCU’s policy.  This final rule was intended to provide flexibility for FCU’s by allowing them to expel a member for cause with a two-thirds vote by the board of directors. To expel a member under this provision, the FCU must amend its bylaws to include procedures for expelling and provide notice to the members.

Under the final rule, the NCUA Board clarifies what constitutes a “member not in good standing”, which includes substantial or repeated violations of the membership agreement; a substantial or repeated disruption to the operation of the FCU; or fraud/attempted fraud or other illegal conduct related to the FCU.  To note, a disruption can include threats, violence, abuse of FCU employees, and other types of harassment by a member.

Once the FCU has adopted the amended bylaws, they must provide notice of the expulsion policy, either by providing the policy in written or electronic form, to each member, or by providing the optional standard disclosure notice to each member.  We recommend providing the standard disclosure notice rather than the entire policy to your members. Only after the notice is provided can the FCU begin to expel members under the policy.  You can find the optional standard disclosure notice here in the Official NCUA Commentary section.

The final rule also establishes procedures an FCU must follow when expelling a member.  Prior to expelling a member, they must be notified in writing and provided with a reason for the expulsion.  The final rule gives a member 60 calendar days from the date of receipt of a notification of pending expulsion to request a hearing from the FCU’s board of directors. FCUs are not required to provide an in-person hearing under the rule and a virtual or telephonic hearing is sufficient if it provides an opportunity for the member to orally present their case to the board. If a member does not request a hearing within the 60-day period, they shall be deemed expelled at the expiration of the period. If there is a hearing, the board has 30 days to hold a vote on the expulsion. The rule does not include a right to appeal the board’s decision.  However, the FCU must provide information to the member about the effect of the expulsion and must provide details on how to submit complaints to the NCUA if it cannot be resolved between the FCU and the member. The final rule also provides details on how a member can be reinstated after expulsion.

The rule retains the limitation of services policy and the NCUA Board recommends that the policy be used as a tool to be used in conjunction with the new expulsion policy and that the expulsion policy be used sparingly.

You can read the final rule here: https://www.govinfo.gov/content/pkg/FR-2023-07-26/pdf/2023-15715.pdf.  If you have any questions on how to implement this change or amend your bylaws, please contact our office and we can assist you.