Member expulsion simplified

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.

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

What to consider

How can federal credit unions use this authority to expel a member for cause? First, understand that you’re not required to do anything as a result of the changes to the Federal Credit Union Bylaws. Taking action is optional.

If a federal credit union would like the flexibility to use the expel-for-cause option, it should take certain “housekeeping” steps prior to using this authority. These steps include:

• Amending the credit union’s bylaws to include the expulsion policy as found in the Federal Credit Union Bylaws.
• Reviewing the credit union’s bylaws for additional changes that may be necessary (e.g., sections addressing membership qualifications and member-in-good-standing requirements) to ensure consistency and prevent conflicting provisions.
• Notifying the credit union’s membership by providing a copy of the NCUA expulsion policy or optional disclosure notice once the credit union’s board approves the amended bylaws.
• Reviewing and updating the credit union’s membership agreements or other agreements or disclosures to include expelling for cause so new members know they can be expelled for certain actions or behaviors.

Notification and termination

If a federal credit union decides to expel a member for cause, it must meet notification and timing requirements prior to finalizing the expulsion.

A member subject to expulsion must be notified of the pending expulsion and the reason for this action. The notice of pending expulsion should include relevant dates, how the member violated the agreement or engaged in dangerous or abusive behavior, how to request a hearing, hearing procedures, and compliance processes. 

It should also address the effect the expulsion may have on the member’s accounts or loans.

The member must have 60 days from the receipt of the notice of the pending expulsion to request a hearing with the board of directors.

Timing requirements must be followed, so credit unions should consider using a mailing option that provides a record or proof that notices were delivered.

If a member doesn’t request a hearing, the board of directors can vote to expel after 60 calendar days have passed from the member receiving the notice of the pending expulsion.

However, if the member requests a hearing, the board’s vote to expel should occur within 30 calendar days of the hearing.

If the member fails to appear at the hearing, the board can vote on expulsion.

Once the expulsion vote takes place and the member is expelled, the credit union must notify the member of the expulsion and that their membership with the credit union has been terminated.

Tailor the termination notice to the specific member with information such as:

• The effect of expulsion on the accounts held by the expelled member.
• The contract terms of those accounts.
• The fact that the expelled member isn’t relieved of any liability to the federal credit union.
• A line-by-line accounting of any deductions related to amounts due, and how the expelled member will receive any remaining funds from their accounts.

Make sure the credit union keeps any records pertaining to the expelled member and their expulsion for six years.

NANCY DeGRANDI is manager of federal compliance information and research at Credit Union National Association. Contact CUNA’s compliance team at cuna.org/compliance.