NCUA Eyes Enforcement of Bylaws By Fed Regulators
PALM DESERT, Calif. -
In remarks to the Association of CU League Executives here last week, NCUA Chairman JoAnn Johnson said she has directed the agency's general counsel's office to review the feasibility of having the agency become the enforcer. The issue has come to the forefront over the last few years during the debate over credit union conversions because in two instances credit union members have acted under the credit union's own bylaws to collect petitions for a recall of the board of directors, but have been fought tooth-and-nail by the boards in both cases.
In one case, a state charter, Columbia CU, was eventually forced to hold a special meeting where directors narrowly survived the recall allegedly only by enlisting the support of paid employees and their extended families. In another, that of DFCU Financial, the board and management of the $2-billion credit union has been fighting efforts by angry members to hold a special meeting where a recall would be voted. In both cases, the credit unions have expended significant funds on legal fees and public relations to challenge the rights of the members-which are clearly delineated in each credit union's bylaws.
The issue is about to resurface at Lafayette FCU, the $330-million credit union in the Washington, D.C., suburb of Kensington, Md., where members are preparing their own petition drive-allowed under the bylaws of the credit union-for a special meeting to vote on the board's recall over the failed attempt to convert the credit union to a bank.
Members at Lafayette said last week they have collected 750 signatures on a petition to call a special meeting, as required under the credit union's bylaws, where they hope to vote on the recall of the board, which withdrew its application to convert to a bank two weeks ago.
"The continually evolving debate over credit union conversions, and the nature of member requests pertaining to credit union governance and records, have prompted me to direct Agency staff to conduct a review of the mechanism for resolving federal credit union bylaw disputes," Johnson told league executives last week. "Specifically, I want a top-to-bottom assessment of the standards and practices through which a member relates to their credit union, and recommendations for possible changes in their enforceability."
NCUA's position in bylaw disputes has generally been one of non-involvement, leaving it to the individual credit unions to resolve. But in the recent cases, the courts have been reluctant to enforce bylaws, even though the bylaws have been ruled to be enforceable under state corporate laws, even for federally chartered credit unions.
NCUA's position has traditionally been that the bylaws are a pact between the members and the directors and should be settled between those two parties.
The issue, of course, is fraught with potential landmines because it could set up NCUA as the arbiter for dozens, if not hundreds, of bylaw disputes, many of them frivolous.
It could also incur the wrath of members of Congress, some of whom have already criticized NCUA for its role in recent conversion disputes.