Credit Union Governance Modernization Act Simplifies Member Expulsion Process

In March, the Credit Union Governance Modernization Act (CUGMA) was signed into law by President Biden as part of the omnibus spending bill. CUGMA amended the member expulsion provision in the Federal Credit Union Act, making it a bit easier for federal credit unions to expel certain members.

The Federal Credit Union Act and the Federal Credit Union Bylaws allowed for only two avenues to expel a member: if there was a special meeting called for that purpose or for lack of participation in the credit union if the federal credit union had a non-participation policy.

The two methods for expulsion are covered in Section 118 of the Federal Credit Union Act and Article XIV of the Federal Credit Union Bylaws.

A few years ago, the National Credit Union Association (NCUA) updated its Federal Credit Union Bylaws. The updated bylaws included additional commentary to assist federal credit unions in dealing with disruptive and abusive members. Particularly on limiting services to disruptive members (policy) and the concept of “member in good standing.”

So, what are the options for federal credit unions under CUGMA and the changes to the Federal Credit Union Act? Well, a member can now be expelled for cause as per a NCUA approved policy that has also been approved by the federal credit union’s board of directors. CUGMA also defines “cause” as a “material loss to the credit union, a violation of the credit union’s membership agreement, a substantial disruption to the operations of a credit union, fraud, or attempted fraud, and other illegal or inappropriate behavior.”

If the member disagrees, he or she can request a hearing of the federal credit union’s board of directors, after which a vote is conducted by the board. Also, once the member is expelled the member can request a reinstatement but this will need two-thirds vote of the members present at the meeting called for the reinstatement of the member.

Under the law, NCUA is required to develop a policy for expelling a member for cause to be used by federal credit unions within 18 months (September 2023) of enactment of CUGMA.

Until NCUA develops the policy, your board may want to review NCUA’s current bylaws for the agency’s perspective on handling difficult and disruptive members.

Below are the key points on expelling a member for cause under CUGMA:

An expulsion of a member shall be done individually, on a case-by-case basis, and neither the Board nor any Federal credit union may expel a class of members.

A member may be expelled for cause by a two-thirds vote of a quorum of the directors of the Federal credit union pursuant to a policy which the National Credit Union Administration Board shall adopt within the 18-month period following the date of enactment of the Credit Union Governance Modernization Act of 2022.

• Cause means—
  • a substantial or repeated violation of the membership agreement of the Federal credit union;
  • a substantial or repeated disruption, including dangerous or abusive behavior (as defined by the National Credit Union Administration Board pursuant to a rulemaking), to the operations of a Federal credit union; or
  • fraud, attempted fraud, or other illegal conduct that a member has been convicted of in relation to the Federal credit union, including the Federal credit union’s employees conducting business on behalf of the Federal credit union.
  • A Federal credit union may not expel a member for cause unless the Federal credit union has provided, in written or electronic form, a copy of the policy adopted by the National Credit Union Administration Board to each member of the Federal credit union.

• If a member is to be expelled for cause, the member shall be notified in advance of the expulsion, along with the reason for such expulsion. Such notice shall be provided in person, by mail to the member’s address, or, if the member has elected to receive electronic communications from the Federal credit union, may be provided electronically.
• A member shall have 60 days from the date of receipt of a notification to request a hearing from the board of directors of the Federal credit union.
• If a member does not request a hearing during the 60-day period the member shall be expelled after the end of the 60-day period.
• If a member requests a hearing during the 60-day period, the board of directors of the Federal credit union shall provide the member with a hearing after such hearing, the board of directors of the Federal credit union shall hold a vote in a timely manner on expelling the member.
• If a member is expelled for cause the notice of the expulsion of the member shall be provided to the member in person, by mail to the member’s address, in written form or, if the member has elected to receive electronic communications from the Federal credit union, may be provided electronically.
• A member expelled for cause can request reinstatement of membership. There are two ways the expelled member can be reinstated. Either by a majority vote of a quorum of the directors of the Federal credit union or by a majority vote of the members of the Federal credit union present at a meeting for the purpose of reinstatement.

To read the CUGMA text in its entirety, you can find it in the 1000+ page bill, HR 2471, found here. The text for CUGMA begins at the bottom of page 775.