Compliance Blog

Our Member Is Really Abusive - NCUA Bylaws Proposal

Written By David Park, Regulatory Compliance Counsel, NAFCU

Hi everyone,

Credit unions exist to serve their members, building strong relationships with their member-owners. However, in some situations, it may be necessary to limit services to or extinguish ties to some members in order to protect the membership as a whole, or credit union staff.

So what happens when a fine, upstanding member changes? Well, the NCUA issued proposed revisions to the Federal Credit Union Bylaws last month that may help clarify what can be done to resolve the situation when a credit union member becomes a threat to the credit union as a whole, the credit union's staff, or similar situations. 

The proposed rule adds a new section five to Article Two of the Federal Credit Union Bylaws that reads in relevant part:

Section 5. Member in good standing. A member in good standing retains all their rights and privileges in the credit union. A member in good standing is a member who maintains at least the minimum share set forth in Article III, Section 1 of these bylaws; who is not delinquent on any credit union loan; who has not had any account with this credit union closed due to abuse or negligent behavior; who has not been belligerent or abusive to any duly elected or appointed official or employee when that official or employee is carrying out their duties as set in the Act, the rules and regulations, the charter, and bylaws of this credit union; and who has not caused a financial loss to this credit union.   

NAFCU appreciates NCUA's work to take into account comments provided by credit unions during the Advance Notice of Proposed Rulemaking In the preamble to the proposed rule, the NCUA stated that it was creating this definition of a member in good standing to facilitate the application of a limitation of services policy against abusive and disruptive members.  The proposed rule includes additions to the official commentary that discuss what a federal credit can do when it encounters a problematic member:

Thus, an individual that has become violent, belligerent, disruptive, or abusive may be prohibited from entering the premises or making telephone contact with the credit union, and the individual may be severely restricted in terms of eligibility for products or services. So long as the individual is not barred from exercising the right to vote at annual meetings and is allowed to maintain a regular share account, the FCU may fashion and implement a policy that is reasonably designed to preserve the safety of its employees and the integrity of the workplace.  The policy need not be identical nor applied uniformly in all cases – there is room for flexibility and a customized approach to fit the particular circumstances. In fact, the NCUA anticipates that some circumstances, such as violence against another member or credit union staff in the FCU or its surrounding property, an FCU may take immediate action to restrict most, if not all, services to the violent member.

This may not appear to be anything significantly new as the preamble to the proposed rule notes that the additions to the commentary are incorporating guidance provided in NCUA Legal Opinion Letter 08-0431 regarding a suspension of services policy.  The additional language, however, clarifies what types of contractual remedies – contractual in the sense that the bylaws act as a contract between the credit union and its members – are available to federal credit unions against members who are violent, belligerent, disruptive or abusive.  

One thing to note here is that the proposed rule does not expand a credit union's ability to expel an abusive member.  When the NCUA issued the Advance Notice of Proposed Rulemaking in connection with the Federal Credit Union Bylaws, NAFCU's comments requested that the NCUA amend Article 14 of the Federal Credit Union Bylaws to clarify that a member can be deemed to be nonparticipating and subject to expulsion if the member is using a credit union's services for illegal purposes.  The proposed rule, however, did not expand nonparticipation to include using a credit union's services for illegal purposes because the plain meaning of nonparticipation is more generally understood to be a failure to participate rather than doing something illegal.  

The comments are not yet due on the proposed rule, so the final rule and the final amendments may differ.  We will have to wait and see whether anything changes based on the comments the NCUA receives. NAFCU is gathering feedback from members and working on comments, and more information can be found in this Regulatory Alert (member log in required). If your FCU has comments to share or has specific examples of abusive and belligerent behavior, please reach out to us.  For now, have a Happy Thanksgiving, and I will write again in a few weeks.

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About the Author

David Park, NCCO, Regulatory Compliance Counsel, NAFCU

David joined NAFCU in September 2018.  As part of the Regulatory Compliance Team, he provides daily compliance assistance to member credit unions on a variety of topics. 
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