In July, NCUA released its final rule amending federal credit union bylaws to include expelling members for cause. The final rule became effective Aug. 25, 2023.
Federal credit unions have wanted the option to expel members who pose a threat to staff, other members, and credit union property. As background, member expulsion amendments first required a change to the member expulsion provisions in the Federal Credit Union Act.
In 2022, the Credit Union Governance Modernization Act (CUGMA) was included in the Consolidation Appropriations Act. It amended the Federal Credit Union Act to include a third way to expel members. However, the provision in the Federal Credit Union Act to expel members for cause was not self-executing.
Instead, it required NCUA to develop a policy by which a federal credit union member can be expelled for cause by a two-thirds vote of a quorum of the credit union’s board of directors. NCUA had 18 months to develop the expel-for-cause policy following the enactment of CUGMA.
Prior to the Aug. 25, 2023, effective date, there were only two ways members could be expelled from a federal credit union: by a two-thirds vote of the membership present at a special meeting called for that purpose (and only after the member received an opportunity to be heard), and for nonparticipation in the credit union’s affairs per the board-approved nonparticipation policy.
Now that NCUA has amended the Federal Credit Union Bylaws, and the expel-for-cause policy is effective, federal credit unions can use this authority when unsustainable situations arise.
‘Expelling a member for cause should only take place in extreme circumstances.’
The Federal Credit Union Act and Federal Credit Union Bylaws define “cause” as:
A substantial or repeated violation of the credit union’s membership agreement.
A substantial or repeated disruption, including dangerous or abusive behavior, to credit union operations.
Fraud, attempted fraud, or conviction of other illegal conduct in relation to the credit union, including the credit union’s employees.
Member expulsion is an extreme remedy. Federal credit unions can always use less severe restrictions, such as limiting services or restricting access to members considered not in good standing.
Federal Credit Union Bylaws define a member not in good standing as one who has engaged in any of the following conduct: dangerous or abusive behavior/actions, including violence, intimidation, physical threats, harassment, and physical or verbal abuse of credit union officials, employees, members, or agents.
However, these actions should have occurred while on credit union premises or be otherwise related to credit union activities, such as via telephone, mail, email, or social media.
This unacceptable behavior also includes actions that cause or threaten damage to credit union property, or unauthorized use of or access to credit union property. Any conduct that’s dangerous or abusive and related to a credit union’s activities will allow a credit union to limit services to that member or expel them from membership.
Therefore, the conduct (as long as it’s related to credit union activities) doesn’t need to occur on credit union premises.
NEXT: What to consider
Member expulsion Q&A
Q: Do we have to update our bylaws to reflect the recent changes to NCUA’s Federal Credit Union Bylaws regarding expelling a member for cause?
A: No. This is optional. A federal credit union can adopt the amendments at any point in the future.
If the credit union’s board of directors wants to include the option of expelling a member for cause in its bylaws, the credit union should follow the requirements as detailed under Appendix A to Part 701 of NCUA’s Rules and Regulations, known as the Federal Credit Union Bylaws.
This process would include amending the credit union’s bylaws by a two-thirds vote of the board of directors, and then notifying the full membership of the change.
Q: If we don’t amend our credit union’s bylaws with the option of expelling for cause, what other options do we have?
A: There are two other options for member expulsion as detailed in the Federal Credit Union Act and the Federal Credit Union Bylaws: a two-thirds vote of the membership present at a special meeting called for that purpose (only after the member receives an opportunity to be heard) and nonparticipation in the affairs of the credit union, as specified in a policy adopted and enforced by the credit union’s board.
Q: Can we limit service instead of expelling a member?
A: Yes. If your credit union has a limitation of services policy, it can limit services to a member who engages in conduct that causes a loss to the credit union or is a safety concern to staff, other members, or credit union facilities/property. Many credit unions already have this type of policy in place.
Q: Can we expel a group of members all at once?
A: No. NCUA is quite clear that expelling a member for cause should only take place in extreme circumstances, and only on a case-by-case basis.
Q: We updated our bylaws to reflect the changes made to Articles II and XIV of the Federal Credit Union Bylaws. Can we send the NCUA expulsion policy (Article XIV) to members electronically?
A: If the member has elected to receive electronic communications from the credit union, you may send a copy of the expulsion policy electronically.
Q: What’s the optional standard disclosure that’s included at the end of the Federal Credit Union Bylaws?
A: Credit unions requested that NCUA include an optional standard disclosure form that’s outside of the agency’s expulsion policy. This disclosure is provided as a convenience, and can be found in the Official NCUA Commentary of the Federal Credit Union Bylaws (Appendix A to Part 701 of NCUA’s Rules and Regulations). Credit unions may send this disclosure instead of the NCUA expulsion policy.
Q: If we expel a member for cause, are there any record-keeping requirements?
A: Yes. Federal credit unions must retain records regarding a member’s expulsion. Records to keep include items such as the member’s last known contact information, membership agreement, loan files, documents related to the cause of expulsion, the board’s decision to expel the member, any written response from the member, and information or minutes relating to a hearing (if there was one).
