February 25, 2020

NAFCU-sought bill to give CUs flexibility in governance policies introduced

Capitol HillSenate Banking Committee members Tina Smith, D-Minn., and Ben Sasse, R-Neb., Monday introduced a NAFCU-sought, bipartisan bill that would improve existing language in the Federal Credit Union (FCU) Act related to expulsion in order to protect credit unions, members, and employees.

"NAFCU strongly supports the Credit Union Governance Modernization Act of 2020 as it will help protect credit unions and their members from abusive, fraudulent and criminal activity," said NAFCU President and CEO Dan Berger. "Credit unions have an obligation to ensure their cooperatives act in the best interests of their members and local community, and this bill would make it easier for them to address bad actors engaging in illegal behavior. We thank Senators Tina Smith and Ben Sasse for introducing this important bill, and NAFCU will continue to advocate for this bill to be signed into law."

Currently, federal credit unions are required to hold a special vote and obtain two-thirds approval from all members in order to expel a member. The proposed legislation from Smith and Sasse would provide credit unions with flexibility and relief from unnecessary regulatory burden that puts the credit union, its members, and branch employees at risk.

Members can only be expelled for cause and is a last resort option credit unions can take to address a member's bad behavior. The bill defines "cause" broadly to include fraud and other illegal behavior and would provide a path for recourse by allowing the member to request reinstatement at a credit union's board of directors meeting shortly after their expulsion.

The proposed legislation would provide parity with several state-chartered credit unions' model or standard bylaws, which often have a "for cause" provision or board-adopted policy for expulsion.

NAFCU has long heard from credit unions that current expulsion regulations make it difficult to expel members who are physically or verbally abusive, and engaged in fraud or other illegal activities. The NCUA in September finalized a rule that clarified several bylaw provisions but took a strict reading of expulsion under the FCU Act and declined to broaden the definition of nonparticipation.