Federal Credit Union Act Amendment – Expelling Members

By:  Jennifer Winston


On March 15, 2022, Congress enacted the Credit Union Governance Modernization Act of 2022 (CUGMA). The CUGMA amended the Federal Credit Union Act to allow FCUs to expel members engaging in abusive, illegal, or violent behavior with a two-thirds vote of the FCU’s Board of Directors in accordance with a policy established by the NCUA. Currently, a credit union can expel a credit union member in two ways: by a two-thirds vote of the membership present at a special meeting called for that purpose, and for non-participation in the affairs of the credit union as specified in a policy adopted and enforced by the board. Due to these limitations, most FCUs tend to rely on their limitation of services policy when a member has become abusive. This proposed rule gives FCUs additional flexibility in expelling abusive members.

The NCUA Board has now issued a proposed rule to amend the Bylaws to adopt an expulsion policy in accordance with the CUGMA and is requesting comments.

Under the CUGMA, members may be expelled by a board vote “for cause.” The NCUA’s proposed rule defines the term “cause” means a substantial or repeated violation of the membership agreement; a substantial or repeated disruption, including dangerous or abusive behavior, to the operations of a credit union; or fraud, attempted fraud, or other illegal conduct that a member has been convicted of in relation to the credit union, including the credit union’s employees conducting business on behalf of the credit union.

The proposed rule goes further and defines “dangerous or abusive behavior” to includes: (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 credit union premises and through use of telephone, mail, email, or other electronic method; (2) Behavior that causes or threatens damage to credit union property; or (3) Unauthorized use or access of credit union property.

The proposed rule also establishes a 60-day notice prior to expulsion and the right to a hearing if the member requests. In addition, the proposed rule allows for a member to be reinstated by either a board or member vote.

The NCUA is requesting comments on 16 specific questions.  A sampling of questions that could impact the final rule include:

  • Should the limitation of services policy remain in the Bylaws?
  • Does allowing expulsion hearing to take place virtually violate fairness principles?
  • Should the final rule include a set amount of time before an FCU is permitted any offsets?
  • Should the NCUA Board consider prohibiting FCUs from expelling a member for causing a loss outside of fraudulent or other criminal acts?
  • Are timing requirements for expulsion notice and hearings sufficient?

In addition, the NCUA is asking for examples of typical violations of a membership agreement that cause concern for FCUs and what threshold would an FCU consider constitutes a material loss.

The full policy can be read here.

Comments are due to the NCUA by December 2, 2022. Please contact me if you have any questions or would like assistance in drafting a comment.