Bylaws, the Board and Other Governance Q&As; Comments on NCUA’s Bylaws Proposal Are Due Next Week
Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel, NAFCU
The regulatory compliance team has noticed an uptick in questions about the board, bylaws and federal credit union governance generally. The bylaws in particular are top of mind for many because NCUA has proposed some changes to the .
We want to make sure we get the best feedback possible to respond to NCUA’s proposal, so, if you haven’t already, please have a look at NAFCU’s regarding the changes and provide us your thoughts. are due to NAFCU by Friday, December 28th.
In the meantime, below are some interesting or useful governance Q&As that we’ve addressed this month.
How quickly must a vacant board seat be filled?
Up until 2006, NCUA’s FCU Bylaws stated that vacancies should be filled “within a reasonable time.” In 1999, NCUA stated “This provision allows the board the flexibility to deal with different situations and determine what is reasonable under the circumstances.” .
In 2006, NCUA changed the language in the FCU Bylaws from “within a reasonable time” to “as soon as possible.” NCUA proposed requiring the vacancy be filed by the next regularly scheduled board meeting, but commenters pushed back. NCUA stated: “The [NCUA] Board believes it is crucial for FCUs to appoint members to fill vacant board spots quickly, but appreciates the requirement that vacancies be filled no later than the next regularly scheduled board meeting may be too rigid a requirement. Instead, the final version of the Bylaws will require board vacancies to be filled ‘as soon as possible.’” .
So, in neither instance is there a specific timeline. Further, as credit unions are not required to adopt the amendments to NCUA’s FCU Bylaws, the 2006 language may or may not be included in an individual credit union’s own bylaws.
Credit unions may wish to review Article VI, Section 4 of their own adopted bylaws to identify the applicable standard. If the credit union’s bylaws include the “reasonable” language, that would be the applicable standard and NCUA’s analysis of that language in 1999 indicated that it is up to the credit union to determine what is reasonable under the circumstances.
How did CUMAA change the membership eligibility of family members?
Prior to the ), the Field of Membership and Chartering Policy was established in as amended by . Both allowed credit unions to accept secondary or derivative members who had a relationship to the common bond group by virtue of being family, but neither contained a definition of family. Federal credit unions were able to define family member eligibility in their bylaws.
CUMAA explicitly required that NCUA establish regulations defining “immediate family” for the purposes of establishing membership. CUMAA became law on August 7, 1998, and on that day, NCUA issued a summarizing the law and describing how it would proceed. Regarding family members, it stated that it would be issuing regulations defining “immediate family members” for membership eligibility, but in the meantime, credit unions could continue to admit members under their existing bylaws.
NCUA issued its on December 30, 1998 and the definition of family became effective on March 5, 1999. The definition is below: “Immediate family is defined as spouse, child, sibling, parent, grandparent, or grandchild. For the purposes of this definition, immediate family member includes stepparents, stepchildren, stepsiblings, and adoptive relationships. Household is defined as persons living in the same residence maintaining a single economic unit.” This definition of “immediate family” was considered a major regulation and required Congressional approval. It is substantively the same today.
Can a Director Also Serve on the Supervisory Committee?
A director can serve on the supervisory committee, assuming the director is not the chair, secretary, treasurer/financial officer, the membership officer, a member of any credit committee, the compensated officer of the board, or a credit union employee. Some of these limitations are sourced in the FCU Act, others in the bylaws, and others are safety and soundness considerations intended to avoid a conflict of interest.
Section 111(b) of the states "The supervisory committee ... shall consist of not less than three members nor more than five members, one of whom may be a director other than the compensated officer of the board." (Emphasis added).
Article IX, Section 1 of NCUA's also contains limitations on joining the supervisory committee while being the financial officer/treasurer, a member of the credit committee, or a credit union employee. The credit union may want to review this provision in its own bylaws to confirm its adopted language.
However, even if the credit union’s individual bylaws differ, Section 2.03 of the indicates that in addition to these prohibitions on employees and credit committee members, certain individuals are also prohibited from servicing on the supervisory committee by principles of sound internal control, including: loan officers, the membership officer, the president/vice president and the secretary of the board.
Programming Note. NAFCU's offices will be closed Monday, December 24th and Tuesday, December 25th in observance of the Christmas holiday. We wish you all a safe and wonderful holiday. We'll be open and back to blogging on Wednesday, December 26th. Happy Holidays!