WASHINGTON -
The issue has come to a head as Scott Stiens, a member of Lafayette FCU who has been active in opposing the credit union's since-dropped plan to become a bank, has reported his accounts have been closed. There were other allegations last week that similar steps had been taken against a member at a Michigan CU that also planned to convert, although that report had not been confirmed.
Experts told CU Journal there are protections in place when it comes to member expulsion, but there is also significant gray area involved.
"There are only two ways to expel a credit union member," said Anthony Demangone, NAFCU director of regulatory compliance. "There are statutory protections in place for members laid out in the Federal Credit Union Act, and it's also in the model by-laws, as well." The first way is pretty straightforward, he said. "A member can be expelled by a two-thirds vote of the membership at a special meeting that has been called for that purpose, and the member has to be given an opportunity to speak in his own defense," Demangone related. "So, it's a pretty cumbersome process."
CUNA's Kathy Thompson agreed. "That requires a special meeting called specifically for the purpose, thereby giving the member notice and the opportunity to be heard," she said.
The catch is in the quorum. "The FCU Bylaws specify that 15 members constitute a quorum [and the meeting] may be held at any location permitted for the annual meeting and other meeting procedures," Thompson explained. That means it would only take 10 members out of a total of 15 voting to oust a member.
But there is a second, less straightforward way to expel a member. From the FCUA: "The board of directors...may, by majority vote of a quorum of directors, adopt and enforce a policy with respect to expulsion from membership based on nonparticipation by a member in the affairs of the credit union...the board should consider a member's failure to vote in annual credit union elections or failure to purchase shares from, obtain a loan from or lend to the federal credit union."
That's where the gray area begins. "It's fuzzy, and the problems crop up if the policy is implemented inconsistently, opening [a CU] up to discrimination charges," Demangone observed. "Think about how many members out there who don't vote at the annual meeting, and how many members would we have left?"
"The board of an FCU has limited authority to expel a member-only for 'nonparticipation,' especially for failing to maintain the required membership share," Thompson said. "Other than failing to maintain the required share, why a credit union generally wants to expel a member is for 'over participation,' such as threatening staff or causing the CU a loss."
Such "over participation," Thompson observed, falls under the type of expulsion that calls for a special membership meeting. "You cannot expel a member simply because you don't like them, or simply because they caused a loss or simply because they yelled at a teller," Demangone suggested. "But credit unions can limit the services a member can use."
And indeed, in the recent cases where members allegedly have been ousted in retaliation for those members having spoken out against a CU's plan to convert, it is likely the case that the members have not actually been expelled, but certain products and services could have been cut off to them.
"A credit union could take a member who has caused a loss or is not in good standing and close certain accounts, like the checking account. They cannot take that member's right to vote in the annual meeting away, and they cannot close the member's share account but they could cut off certain services, like the checking account, and hope that this makes that member no longer want to be part of the credit union," Demangone explained.
