by Amy Kleinschmit, Chief Compliance Officer
Proposed Rule – Member Expulsion
The National Credit Union Administration recently issued this proposed rule to implement the Credit Union Governance Modernization Act of 2022, specifically provisions to expel members for cause.
Comments must be submitted within 60 days.
Prior to the Credit Union Governance Modernization Act of 2022, Federal Credit Unions (FCUs) could only expel members by a two-thirds vote of the membership present at a special meeting called for that purpose, and only after the individual is provided an opportunity to be heard; or for non-participation in the affairs of the credit union, as specified in a policy adopted and enforced by the board.
The proposed rule would amend Appendix A to Part 701—Federal Credit Union Bylaws, Article XIV Expulsion and Withdrawal - to provide a third way in which a member may be expelled – specifically, a “two-thirds vote of a quorum of the directors of the credit union for cause” provided the provisions of the policy are followed which includes notice requirements and opportunities to request a hearing by the member that is the subject of the potential expulsion.
To briefly highlight some provisions of the proposed rule:
Notice of policy requirement in general - A credit union’s directors may vote to expel a member for cause only if the credit union has provided, in written or electronic form, if the member has elected to receive electronic communications from the credit union, a copy of this Article to each member of the credit union. Posting this notice on the credit union’s website would not be sufficient to meet this requirement per the discussion of this proposed rule.
Notice to member that will be expelled - the member shall be notified of the expulsion, along with the reason for such expulsion. The notice must include sufficient detail for the member to understand the grounds for expulsion and cannot include only conclusory statements regarding the reason for the member’s expulsion. The notice must also tell the member that any complaints related to their potential expulsion should be submitted to the NCUA’s website. The notice must also clearly state the member’s right to request a hearing, and if a hearing is not requested membership will automatically terminate after 60 calendar days.
Timeframe - A member shall have 60 calendar days from the date of receipt of a notification to request a hearing from the board of directors of credit union. A member is not entitled to attend the hearing in person, but the member must be provided a meaningful opportunity to orally present their case to the FCU board.
If a member does not request a hearing, the member shall be expelled after the end of the 60-day period after receipt of the notice.
If a member requests a hearing, the board of directors must provide the member with a hearing. At the hearing, the board of directors may not raise any rationale or reason for expulsion that is not explicitly included in the notice to the member.
After the hearing, the board of directors of the credit union must hold a vote within 30 calendar days on expelling the member.
Notice to expelled member - notice of the expulsion must be provided to the member in person and must provide information on the effect of the expulsion, including information related to account access and any deductions by the credit union related to amounts due. The notice must also tell the member that any complaints related to their potential expulsion should be submitted to the NCUA’s website.
Reinstatement - The notice must also state that the member has an opportunity to request reinstatement by either a majority vote of a quorum of the directors of the credit union or a majority vote of the members of the credit union present at a special meeting.
For purposes of this proposed rule, the term “cause”:
(A) a substantial or repeated violation of the membership agreement of the credit union;
(B) a substantial or repeated disruption, including dangerous or abusive behavior, to the operations of a credit union; or
(C) 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.
“Dangerous or abusive behavior” 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. Expressions of frustration with the credit union or its employees through elevated volume and tone; expressions of intent to seek lawful recourse, regardless of perceived merit; or repeated interactions with credit union employees is insufficient to constitute dangerous or abusive behavior.
FCUs cannot use member conduct that occurred prior to the effective date of the final rule as grounds for expelling members.
In case you missed it, the National Credit Union Administration (NCUA) issued a simplified CECL tool for small credit unions which can be found here.
As explained in Letter to Credit Unions 22-CU-10, “The CECL Tool is one of many options available to calculate the ACL for loans and leases under the requirements of the CECL accounting standard. While credit unions may choose from a variety of credit loss models under CECL (for example, expected loss, discounted cash flow, roll-rate, probability of default), the CECL Tool uses the Weighted Average Remaining Maturity (WARM) methodology.”
The NCUA has also provided several resources to support this tool including FAQs and model development documents, which can all be found at the above link.
Register for Simplified CECL Tool Webinar
Speaking of CECL, the National Credit Union Administration Office of Examination & Insurance is hosting a webinar on the recently announced Simplified Current Expected Credit Loss (CECL) Tool. The one-hour live webinar will take place on Wednesday, October 12 at 1:00 p.m. CT.
The Simplified CECL Tool uses the Weighted Average Remaining Maturity (WARM) methodology to estimate the allowance for credit loss and is designed for the more than 3,000 credit unions with less than $100 million in assets. Larger credit unions can use the tool based on management and auditor discretion.
NCUA subject matter experts will provide an overview of the Tool, demonstrate the Tool, and answer participants’ questions. Participants may submit questions in advance by emailing WebinarQuestions@ncua.gov. The email’s subject line should read, “CECL Webinar.”
Register for this webinar here.
NACHA – Late Night ACH Delivery
In case you missed it, the Federal Reserve and The Clearing House has implemented additional late-night deliveries of ACH files to all Receiving Depository Financial Institutions (RDFIs) as explained in this ACH Operations Bulletin #2-2022.
These files will contain all ACH payments that the ACH Operators have received since the previous transmission deadline, including:
These files will not include Same Day ACH payments, as the daily Same Day ACH settlements will have already been completed before these late-night files are generated.
Additional processing of these late-night files by RDFIs will be optional. An RDFI may opt to make use of the earlier receipt of payment information in these files, or an RDFI may opt not to do anything differently than it does today, processing the files the morning of the next business day prior to the 8:30 am ET settlement. Applicable rules and requirements for received entries will apply.
Free Learning Opportunity
September 28 - Decoding Recent Overdraft Criticism and Market Shifts
Legislators have recently turned up the heat on excessive fees and undisclosed overdraft program procedures. As inflation impacts the country, political agendas can create uncertainty regarding important financial service options. In this session, JMFA’s EVP of Compliance Review, Cheryl Lawson, will share her expertise and insight on the recent topics making news headlines. She will address some of the continuous elements proposed by lawmakers to impose changes to regulations on overdraft programs and why previous attempts have failed. Plus, she will address specific areas that can raise red flags for overdraft regulators—and potential interest from lawyers pursuing class-action lawsuits. Please register for this event here.
As always, DakCU members may contact Amy Kleinschmit with any compliance related questions.
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