NCUA Proposed Rule to Update Federal Credit Union Bylaws
by Amy Kleinschmit
Chief Compliance Officer
11/29/2018

Bylaw proposed rule.

The NCUA has proposed rule to update, clarify and simplify the federal credit union (FCU) bylaws. The proposed rule would also update the FCU bylaws to conform with legal opinion letters that have been issued by the NCUA. Comments are due January 14, 2019.

Despite receiving comments to the contrary, the proposed rule does not permit a FCU to draft its own bylaws. The FCU Act requires the Board to develop a form of bylaws that “shall be used” by FCU incorporators and mandates that FCUs operate according to their NCUA approved bylaws. Therefore, please take moment to review these proposed changes and weigh in with any comments or concerns.

Some changes include establishing a deadline for NCUA’s Office of Credit Union Resources and Expansion (CURE) to reach a decision on a bylaw amendment – the proposed rule sets this at 90 days. If no response is received in 90 days then it is deemed a denial and can be appealed to the NCUA.

Under Article II, commentary is expanded to discuss measures a FCU may take to address abusive and disruptive members. The rule also adds the term “member in good standing.” The proposed rule adds language under Article III regarding varying par values for different classes of membership (such as students, minors, or non-natural persons). The new language also clarifies that FCUs have options regarding whether to require all members to maintain a regular share account, or whether to permit members to base their qualification for membership on some other type of account. Language is added to clarify membership issues with trusts.

With regard to meetings of members, the proposed rule makes changes to encourage greater member participation. Staff commentary to the proposed rule discusses providing a live webcast of the annual and special meetings for interested members, as well as a video of the annual meeting on the FCU’s website. The proposed rule does not generally allow a FCU to conduct a virtual or hybrid (combined virtual and in-person) annual or special meeting – but the NCUA would consider a bylaw amendment for a FCU that offers a majority of its financial services online or a FCU with a geographically dispersed FOM. However, FCUs holding hybrid meetings must always offer an option for in-person attendance as well as online if approved by NCUA.

Quorum changes - the proposed rule also adjusts the quorum requirement for meetings. It requires 12 members, excluding the board, credit union staff, and officials, for a quorum. The NCUA is proposing this adjustment to encourage FCUs to have wider participation from members, rather than allowing credit union staff and board members to control all corporate decision making within the credit union.

There are proposed changes to elections – added staff commentary clarify electronic voting, but the proposed rule does not allow a FCU to adopt an entirely electronic voting process. The proposed rule amends the staff commentary to encourage FCUs to take steps to increase the number of members who vote in FCU elections by increasing the range of voting options. The NCUA is seeking comment on whether the FCU Bylaws should include an additional option for conducting elections that would allow FCUs to use a combination of voting methods without needing to make individual requests to do so.

Board of Directors – the proposed rule would add a new section that as a matter of FCU board policy, the position of director emeritus for former directors who faithfully fulfilled their responsibilities as members of the board for at least a specified minimum number of years may be added – they may not vote on any matter before the board or exercise any official duties of a director. Proposed staff commentary to this section states that the decision to establish a director emeritus position, as well as any selection of individuals to become directors emeriti, is solely within the discretion of the FCU’s board.

The proposed rule also clarifies, through staff commentary, that an FCU may establish associate director positions through board policy.

To provide FCUs with greater flexibility to address concerns regarding director and credit committee member attendance at monthly meetings, the proposed rule amends the option for FCUs to remove a director or a credit committee member for failure to attend regular meetings.

The proposed rule also provides that the total number of current voting directors serving who fall into the following categories must not constitute a majority of the board: (1) management officials plus assistant management officials plus other employees; (2) immediate family members or persons in the same household as the management officials, assistant management officials, and other employees; or (3) management officials plus assistant management officials plus other employees, plus immediate family members or persons in the same household as management officials, assistant management officials, and other employees.

Expulsion of member - new staff commentary reiterates that the FCU Act provides only two methods for an FCU to expel a member and clarifies that only in-person voting is permitted in conjunction with a special meeting held for that purpose.

Other proposed changes include a requirement for FCUs with websites to post their bylaws on the website. The NCUA believes that adding this new requirement will ensure that members without access to an FCU’s physical location where they can request a copy of the bylaws, can still have access to the FCU’s corporate governance documents.

The proposed rule would add several new definitions to the bylaws. These definitions include “Agency,” “Charter,” “Field of Membership,” “Loans,” and “Membership Officer.”

 

If you have questions about this proposed rule or any compliance issue, feel free to contact Amy Kleinschmit.

 

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