NCUA advances proposed rule on member expulsion

The National Credit Union Administration has furthered a proposed rule for federal credit union boards that would grant leaders the authority to remove problematic members.

Pursuant to the Credit Union Governance Modernization Act, which passed as part of President Biden's $1.5 trillion omnibus spending bill in March, the NCUA is working within an 18-month time frame on cementing a final rule for directors struggling to expel members who commit fraud, verbally or physically abuse branch staff or other members, lead the institution to suffer a material loss or engage in other improper conduct.

"While there are admittedly times in which the expulsion of a member is necessary to protect credit union members and staff, this is a power that credit unions should rarely use. … That's because the Federal Credit Union Act exists so that people, particularly those of modest means, can access safe, fair and affordable financial services," Todd Harper, chairman of the NCUA, said at the agency's monthly meeting on Thursday.

Frank Gargano

The current process for dismissal requires either a lack of participation determined and adopted in a policy by a board of directors or a two-thirds majority vote of members present at a meeting especially convened for that purpose. Upon finalization of the rule, boards would only need a two-thirds affirmative vote by directors to oust someone.

Similar efforts include a 2021 proposal in the House Financial Services Committee by Reps. Tom Emmer, R-Minn., and Ed Perlmutter, D-Colo., petitioning for clarification of language within the Federal Credit Union Act regarding member expulsion, as well as the addition of an appeal process for the member in question.

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Kyle Hauptman, vice chairman of the NCUA, explained at the meeting that credit unions across the U.S. were dissatisfied with the agency's 2019 Bylaws Final Rule granting boards the ability to limit services to problematic members in lieu of expulsion, and stressed that federal credit unions should be afforded other resources as well for resolving potential conflicts.

"The current expulsion procedures are so difficult they are impractical for most, if not all, credit unions. … While I agree that expulsion of a member — especially in a financial cooperative — should not be taken lightly, [federal credit unions] should be allowed every tool possible to protect the safety of staff and other members," Hauptman said.

Within the proposed rule is a provision allowing for members that have been dismissed to submit an appeal to the federal credit union's board of directors for potential reinstatement. Once published, the rule will be open to comment for 60 days.

Experts with the National Association of Federally-Insured Credit Unions say that despite worries the newfound power would be abuse, directors could now deal with discrepancies more promptly than before and protect other members from potential physical and financial harm in turn.

"Credit unions are not aiming to just expel members for no reason. ... The reason that NAFCU and our members have been fighting for anything related to [the proposal] is solely due to problematic members that engage in abusive or illegal behavior, not just to just expel members" for the sake of doing so, said Aminah Moore, senior counsel of regulatory affairs for NAFCU.

The NCUA has until Sept. 15, 2023, to develop a final rule that federal credit unions may adopt to expel a member for cause.

"The rule makes it clear that the board believes that the expulsion of members is an extreme remedy that may have the effect of denying individuals access to financial services so the authority under the Governance Modernization Act and codified in today's proposed rule should be rare and should be reserved for extremely egregious behavior," said Rodney Hood, member of the NCUA's board of directors.