Federal Credit Union Bylaws, 12283-12286 [2018-05625]

Download as PDF 12283 Proposed Rules Federal Register Vol. 83, No. 55 Wednesday, March 21, 2018 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. FEDERAL ELECTION COMMISSION 11 CFR Part 113 [NOTICE 2018–05] Rulemaking Petition: Former Candidates’ Personal Use Federal Election Commission. Rulemaking petition; notification of availability. AGENCY: ACTION: On February 5, 2018, the Federal Election Commission received a Petition for Rulemaking, which asks the Commission to revise and amend the existing rules concerning the personal use of campaign funds, specifically to clarify the application of those rules to former candidates and officeholders. The Commission seeks comments on the petition. DATES: Comments must be submitted on or before May 21, 2018. ADDRESSES: All comments must be in writing. Commenters are encouraged to submit comments electronically via the Commission’s website at http:// www.fec.gov/fosers, reference REG 2015–04. Alternatively, commenters may submit comments in paper form, addressed to the Federal Election Commission, Attn.: Robert M. Knop, Assistant General Counsel, 1050 First Street NE, Washington, DC 20463. Each commenter must provide, at a minimum, his or her first name, last name, city, and state. All properly submitted comments, including attachments, will become part of the public record, and the Commission will make comments available for public viewing on the Commission’s website and in the Commission’s Public Records Office. Accordingly, commenters should not provide in their comments any information that they do not wish to make public, such as a home street address, personal email address, date of birth, phone number, social security number, or driver’s license number, or any information that is restricted from disclosure, such as trade secrets or sradovich on DSK3GMQ082PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 17:00 Mar 20, 2018 Jkt 244001 commercial or financial information that is privileged or confidential. FOR FURTHER INFORMATION CONTACT: Mr. Robert M. Knop, Assistant General Counsel, or Mr. Sean J. Wright, Attorney, Office of General Counsel, 1050 First Street NE, Washington, DC 20463, (202) 694–1650 or (800) 424– 9530. SUPPLEMENTARY INFORMATION: On February 5, 2018, the Commission received a Petition for Rulemaking from the Campaign Legal Center, asking the Commission to revise and amend 11 CFR 113.1(g) and 11 CFR 113.2, the regulations pertaining to the personal use of campaign funds, specifically to clarify the application of those rules to former candidates and officeholders. The Federal Election Campaign Act, 52 U.S.C. 30101–46 (the ‘‘Act’’), and Commission regulations provide that a candidate’s authorized committee may use its funds for several specific purposes, as well as for ‘‘any other lawful purpose,’’ so long as the use does not constitute the conversion of campaign funds to ‘‘personal use.’’ 52 U.S.C. 30114(b); 11 CFR 113.1(g), 113.2(e). Campaign funds ‘‘shall be considered to be converted to personal use if [the funds are] used to fulfill any commitment, obligation or expense of a person that would exist irrespective of the candidate’s election campaign or individual’s duties as a holder of [f]ederal office.’’ 52 U.S.C. 30114(b)(2); see also 11 CFR 113.1(g). The Act and Commission regulations provide a nonexhaustive list of uses of campaign funds that are per se personal use. 52 U.S.C. 30114(b)(2); 11 CFR 113.1(g)(1)(i). For uses of campaign funds not on this list, the Commission determines, on a case-by-case basis, whether they constitute personal use. 11 CFR 113.1(g)(1)(ii). The petition asks the Commission to open a rulemaking to clarify the permissible use of campaign funds for former candidates and officeholders. The petition raises two discrete questions for the Commission to resolve during its proposed rulemaking. The first question asks the Commission to identify the ‘‘permissible and impermissible uses of campaign funds for an individual who is no longer a candidate or officeholder.’’ The second question asks the Commission to determine whether there is ‘‘a point at PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 which a former candidate or officeholder’s continued spending of leftover campaign funds becomes so attenuated from his or her candidate or officeholder status that the spending is presumptively personal use.’’ The Commission seeks comments on the petition. The public may inspect the petition on the Commission’s website at http://www.fec.gov/fosers, or in the Commission’s Public Records Office, 1050 First Street NE, 12th Floor, Washington, DC 20463, Monday through Friday, from 9 a.m. to 5 p.m. Interested persons may also obtain copies of the petitions by dialing the Commission’s Faxline service at (202) 501–3413 and following its instructions. Request document #280. The Commission will not consider the petition’s merits until after the comment period closes. If the Commission decides that the petition has merit, it may begin a rulemaking proceeding. The Commission will announce any action that it takes in the Federal Register. On behalf of the Commission, Dated: March 14, 2018. Caroline C. Hunter, Chair, Federal Election Commission. [FR Doc. 2018–05644 Filed 3–20–18; 8:45 am] BILLING CODE 6715–01–P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 701 RIN 3133–AE86 Federal Credit Union Bylaws National Credit Union Administration (NCUA). ACTION: Advance notice of proposed rulemaking. AGENCY: The NCUA Board (Board) is issuing this advance notice of proposed rulemaking to solicit stakeholder comments on ways to streamline, clarify, and improve the standard Federal Credit Union (FCU) bylaws. The standard FCU bylaws provide a comprehensive set of corporate governance procedures that are mandatory for any FCU that had not adopted bylaws as of November 30, 2007. The Board is considering a number of significant changes to the FCU bylaws to provide enhanced SUMMARY: E:\FR\FM\21MRP1.SGM 21MRP1 12284 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Proposed Rules operational flexibility to FCUs and to reduce regulatory compliance burdens on all FCUs. DATES: Comments must be received on or before May 21, 2018. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • NCUA Website: http:// www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx. Follow the instructions for submitting comments. • Email: Address to regcomments@ ncua.gov. Include ‘‘[Your name]— Comments on Federal Credit Union Bylaws ANPR’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. Public inspection: You can view all public comments on NCUA’s website at http://www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314–3428, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518–6546 or send an email to OGCMail@ncua.gov. FOR FURTHER INFORMATION CONTACT: Benjamin M. Litchfield, Staff Attorney, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314–3428 or telephone: (703) 518– 6540. SUPPLEMENTARY INFORMATION: sradovich on DSK3GMQ082PROD with PROPOSALS I. Background FCU incorporators must present proposed FCU bylaws along with an organization certificate to the Board for its approval prior to commencing business as an FCU.1 To simplify the organization of FCUs, the Federal Credit Union Act (FCU Act) requires the Board to prepare ‘‘from time to time’’ a form of FCU bylaws to be used by FCU incorporators and to make that form available upon request.2 The FCU Act grants the Board considerable discretion in drafting this form ‘‘from time to 1 12 2 12 U.S.C. 1754, 1758. U.S.C. 1758. VerDate Sep<11>2014 17:00 Mar 20, 2018 Jkt 244001 time,’’ provided that the FCU bylaws are consistent with basic corporate governance procedures set out in the FCU Act. Those corporate governance procedures are designed to protect fundamental FCU member rights that underpin the cooperative principles that serve as the cornerstone of the credit union movement.3 The FCU bylaws and accompanying guidance were not part of the NCUA’s regulations for almost 25 years.4 During that time, in consultation with the NCUA, FCUs had considerable discretion to adopt reasonable FCU bylaws provisions provided that they did not conflict with the FCU Act, the NCUA’s regulations, established federal policy, or otherwise pose a safety and soundness risk to the FCU.5 Accordingly, the Board did not view FCU bylaws disputes predominantly as a federal regulatory matter. Instead, the Board believed that state corporate law and state courts were the appropriate vehicles through which FCU officials and members could settle FCU bylaws disputes where state corporate law was not preempted by federal law. However, the Board observed a number of troubling cases in which members were unable to enforce fundamental FCU member rights in state courts.6 Moreover, the Board began to see troubling precedents developing in federal courts holding that FCUs do not have fiduciary duties to their members despite the clear status conferred by the FCU Act on a credit union member as a partial owner of the FCU.7 Treating FCU bylaw disputes as largely matters of state corporate law also diminished the NCUA’s ability to take proactive enforcement measures in this area. Accordingly, the Board incorporated the standard FCU bylaws as part of the NCUA’s regulations and required all FCUs that had not adopted bylaws prior to November 30, 2007 to adopt the 3 Specifically, these rights include the right to: (1) Maintain a share account; (2) maintain FCU membership; (3) have access to credit union facilities; (4) participate in the director election process; (5) attend annual and special meetings; and (6) petition for removal of directors and committee members. See Federal Credit Union Bylaws, 72 FR 30984, 30986 (Aug. 6, 2007) (proposed rule). 4 Federal Credit Union Bylaws, 72 FR 61495, 61496 (Oct. 31, 2007) (final rule) (codified at 12 CFR 701, App. A). 5 Id. 6 See 72 FR at 30985 (Aug. 6, 2007) (observing member difficulties obtaining redress in state courts); see also Bruns v. Nat’l Credit Union Admin., 122 F.3d 1251, 1257 (9th Cir. 1997) (citing Montford v. Robins Fed’l Credit Union, 691 F. Supp. 347, 351–52 (M.D. Ga. 1988)) (NCUA appropriate body to hear FCU bylaw complaints). 7 Id.; see also. Miur v. Navy Fed’l Credit Union, 529 F.3d 1100, 1107–8 (D.C. Cir. 2008) (applying the Virginia Commercial Code). PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 standard FCU bylaws.8 FCUs that had adopted bylaws prior to that date were allowed to retain their then current bylaws. However, the Board strongly encouraged those FCUs to adopt the standard FCU bylaws. Since incorporating standard FCU bylaws into the NCUA’s regulations, the NCUA has periodically solicited comment from stakeholders on ways to streamline, clarify, and improve the standard FCU bylaws to provide FCUs with greater operational flexibility. For example, the NCUA’s Office of General Counsel met with stakeholders in 2013 to discuss possible revisions to the standard FCU bylaws. Those stakeholders provided valuable input on particular provisions of the standard FCU bylaws. Their comments and recommended changes included: (1) Adding flexibility where consistent with law, regulation, and the protection of fundamental member rights; (2) removing outdated or obsolete provisions and terms; (3) conforming the standard FCU bylaws to plain English writing principles; (4) expanding the commentary section to provide additional information and guidance; (5) adding provisions related to member rights and responsibilities and clarifying the permissible actions FCUs can take to address members who are abusive or disruptive; and (6) addressing provisions pertaining to meeting procedures, quorums, and notice requirements. The Office of General Counsel has a record of these comments and continues to take them into account. Recently, the NCUA’s Regulatory Reform Task Force (Task Force), a group created by the NCUA Chairman to implement the NCUA’s regulatory reform agenda, has suggested that more wholesale changes to the standard FCU bylaws may be necessary because they have not been significantly updated in nearly 10 years.9 To ensure that the standard FCU bylaws are amended in a transparent manner that affords stakeholders enhanced opportunity to participate in the rulemaking process, the Task Force recommended that the Board issue an advance notice of proposed rulemaking to request comments on ways in which the FCU bylaws may be streamlined, clarified, and improved. 8 12 CFR 701, App. A, Instruction A. Reform Agenda, 82 FR 39702, 39705 (Aug. 22, 2017). The Task Force’s report was adopted by the Board and issued for public comment with a comment period ending on November 20, 2017. 9 Regulatory E:\FR\FM\21MRP1.SGM 21MRP1 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Proposed Rules II. Request for Comments on Specific Topics In accordance with the Task Force’s recommendation, the Board is issuing this advance notice of proposed rulemaking to solicit stakeholder comments on the standard FCU bylaws. In particular, the Board requests specific comments on the following questions: 1. How can the Board improve the FCU bylaws amendment process? A perennial concern among stakeholders is that the process to amend the standard FCU bylaws is complicated and time consuming. An FCU’s decision to amend its bylaws often results from a pressing operational concern. The FCU’s ability to respond to that concern in a timely manner is not just a matter of convenience, but also an important safety and soundness issue. An FCU that wishes to amend its bylaws must request approval from the NCUA’s Office of Credit Union Resources and Expansion (CURE) for many amendments to the standard FCU bylaws. While CURE processes bylaws amendment requests as expeditiously as possible, the standard FCU bylaws do not provide for any timeline by which CURE must arrive at its determination, except in the case of previously approved bylaws amendments.10 Accordingly, the Board seeks specific stakeholder comments on ways to improve this process to provide a requesting FCU with a more timely response, greater transparency, and enhanced accountability. sradovich on DSK3GMQ082PROD with PROPOSALS 2. How can the Board clarify the FCU bylaws provisions addressing limitation of service and expulsion of members? In the past, stakeholders have asked for clarification on the FCU bylaws provisions addressing limitation of service policies. Article II, § 4 of the standard FCU bylaws permits an FCU to limit services or access to credit union facilities to ‘‘a member who is disruptive to credit union operations.’’ 11 The Office of General Counsel’s longstanding interpretation of the phrase ‘‘disruptive to credit union operations’’ is that an FCU may limit services to an FCU member in a number of cases, including situations where a member is abusive to FCU staff or has caused a loss to the FCU. This is the case provided that members have received adequate notice of the limitation of service policy and there is some ‘‘logical relationship between the 10 12 CFR 701, App. A, Instruction C.4. 11 12 CFR 701, App. A, Art. II, § 4. VerDate Sep<11>2014 17:00 Mar 20, 2018 Jkt 244001 objectionable conduct and the services to be suspended.’’ 12 However, the Office of General Counsel has also stated that contract provisions in account and other member service agreements, as well as federal and state laws, may affect an FCU’s ability to implement a limitation of service policy.13 For example, an FCU may not implement a limitation of service policy that has a disparate impact on a protected class, such as may be the case regarding defaults on consumer loans.14 The ambiguity surrounding the use of limitation of service policies has led to some justifiable stakeholder confusion and enforcement issues. Accordingly, the Board is particularly interested in specific stakeholder comments on ways to improve Article II, § 4 of the standard FCU bylaws to provide FCUs with the greatest possible clarity regarding the use and misuse of limitation of service policies. The Board is also interested in specific stakeholder comments on whether this regulatory text should be removed in its entirety and addressed as a separate regulation. 3. How can the Board improve the FCU bylaws to facilitate the recruitment and development of directors? As the credit union movement continues to undergo significant changes, the Board is interested in ways that it can improve the FCU bylaws to facilitate the recruitment of FCU directors. Article V of the standard FCU bylaws sets out four distinct procedures that an FCU may choose to follow in order to select directors.15 In each case, a nominating committee must appoint at least one member to each vacancy, including any unexpired term vacancy, for which elections are being held. However, these procedures do not provide guidance on how the nominating committee should proceed with identifying prospective candidates nor do they clarify the criteria that the nominating committee may use when selecting candidates. While the Board believes that these matters fall squarely within the sound business judgment of each individual FCU, the Board is interested in ways that it can amend the standard FCU bylaws to facilitate effective business continuity planning. For example, 12 Suspension of Service Policy, OGC Op. Letter 08–0431 (Aug. 12, 2008); Request for Interpretation of Section 118 of the Federal Credit Union Act, OGC Op. Letter 96–0530 (June 10, 1996). 13 Id. 14 Regulation B, which implements the Equal Credit Opportunity Act, prohibits discrimination on the basis of a protected class. See 12 CFR 1002. 15 12 CFR 701, App. A, Art. V. PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 12285 should the Board include commentary to Article V of the standard FCU bylaws recommending certain non-binding factors that the nominating committee may consider when selecting a candidate to fill a particular vacancy? If so, what factors should the Board highlight? In addition, should the Board include commentary authorizing FCUs to establish standing advisory committees designed to recruit potential candidates to fill board vacancies? If so, which individuals within the FCU should be part of this advisory committee? What safeguards should be put in place to prevent conflicts of interest? 4. How can the Board improve the FCU bylaws to encourage member attendance at annual and special meetings? A key difference ‘‘between credit unions and other federally chartered financial institutions lies in the democratic control and management of credit unions.’’ 16 Accordingly, the Board is interested in ways that it can improve the standard FCU bylaws to encourage active member participation in annual and special meetings. Article IV of the standard FCU bylaws sets out the procedures that must be followed when an FCU holds a meeting of members.17 For an annual meeting, the secretary of the FCU must provide members with at least 30 but not more than 75 days written notice before the date of any annual meeting. For a special meeting, the written notice must be at least 7 days before the date of the special meeting. The Board seeks stakeholder input on whether these time periods are adequate to ensure that members have sufficient advanced notice to afford an actual opportunity to attend annual and special meetings. In addition, with the rise of ecommerce and mobile banking, the Board is interested in stakeholder comments on ways that it may improve Article IV of the standard FCU bylaws to allow FCUs to harness new technologies, particularly social media and web-based conferencing solutions, to allow more members to attend annual and special meetings. For example, should the Board allow an FCU to conduct an annual or special meeting through teleconference? If so, what market solutions exist to allow members to debate issues brought to the floor or to securely vote on director nominations? Would the use of such a market solution be considered an 16 La Caisse Populaire Ste-Marie (St. Mary’s Bank) v. U.S., 425 F. Supp. 512, 517 (D.N.H. 1976). 17 12 CFR 701, App. A, Art. IV. E:\FR\FM\21MRP1.SGM 21MRP1 12286 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Proposed Rules impermissible proxy vote? What risks are associated with the use of these products? Would the use of these kinds of solutions encourage greater member participation from those individuals who largely rely on mobile financial services and avoid traditional brick-andmortar branches? Could this technology be provided through a mobile application? sradovich on DSK3GMQ082PROD with PROPOSALS 5. Should the Board eliminate overlaps between the NCUA’s regulations and the FCU bylaws? In reviewing the standard FCU bylaws, NCUA staff identified a number of the NCUA’s regulations that overlap, to some extent, with the standard FCU bylaws. Many of the overlapping standard FCU bylaws provisions are located in Article XVI and address issues such as FCU member confidentiality, conflicts of interest, record retention, and the availability of books and records to FCU members. Do these duplicative regulatory and bylaws requirements increase compliance burden in a manner that outweighs any measurable member benefit? If so, the Board requests specific stakeholder comments on how to address these provisions. If such overlap is problematic, a solution the Board could consider is to remove the overlapping provisions from the standard FCU bylaws to the greatest extent possible and make appropriate adjustments to the NCUA’s regulations to maintain their substantive protections. For example, should the Board remove Article XVI, § 4 of the standard FCU bylaws, which governs conflicts of interests for institutionalaffiliated parties? 18 If so, the Board could make appropriate amendments to its conflicts of interest rule, § 701.4,19 to expand the scope of that rule to cover all institution-affiliated parties of an FCU rather than just FCU directors. Similarly, should the Board remove Article XVI, §§ 5 and 6 and make appropriate changes to the NCUA’s rule governing FCU member access to FCU records, § 701.3,20 and the rule governing record retention, part 749? 21 III. Request for General Comments In addition to requesting specific comments addressing the issues identified above, the Board also requests stakeholder comments on any aspect of the standard FCU bylaws that commenters wish to bring to the Board’s attention to improve the standard FCU 18 12 CFR 701, App. A, Art. XVI, § 4. CFR 701.4. 20 12 CFR 701.3. 21 12 CFR 749. 19 12 VerDate Sep<11>2014 17:00 Mar 20, 2018 Jkt 244001 bylaws’ usefulness and ease of use. Further, the Board invites stakeholders that have previously commented on proposed changes to the standard FCU bylaws to offer additional comments based on recent experiences. The Board asks stakeholders, who are requesting a specific change to a provision of the standard FCU bylaws, to please provide a brief statement regarding whether the FCU Act would permit such a change. Some provisions of the standard FCU bylaws are drawn directly from the FCU Act and, therefore, may not be legally amended. For example, § 109 of the FCU Act provides that an FCU may not charge any other fee for FCU membership other than a ‘‘uniform entrance fee if required by the board of directors.’’ 22 This provision of the FCU Act prohibits FCUs from imposing monthly membership fees and other similar charges 23 and was codified in the standard FCU bylaws to simplify compliance obligations for FCUs.24 Accordingly, any request to change this provision or any similar provisions that correspond to a statutory requirement set out in the FCU Act, regardless of how compelling the stakeholder’s arguments, would be impermissible. In providing this brief supporting statement, the Board asks that stakeholders not only consider whether the statutory text would permit such a change but also whether the change fits within the spirit and intent of the FCU Act.25 By the National Credit Union Administration Board on March 15, 2018. Gerard Poliquin, Secretary of the Board. [FR Doc. 2018–05625 Filed 3–20–18; 8:45 am] BILLING CODE 7535–01–P 22 12 U.S.C. 1759. Monthly Membership Fees, OGC Op. Letter 15–0902 (May 1, 2015). 24 See 12 CFR 701, App. A, Art. II, § 2. 25 It is a ‘‘familiar rule that a thing may be within the letter of a statute and yet not within the statute, because not within its spirit nor within the intention of its makers.’’ Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1068 (D.C. Cir. 1998) (citing Holy Trinity Church v. U.S., 143 U.S. 457, 459–60 (1892)). 23 See PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 BUREAU OF CONSUMER FINANCIAL PROTECTION [Docket No. CFPB–2018–0011] 12 CFR Chapter X Request for Information Regarding the Bureau’s Adopted Regulations and New Rulemaking Authorities Bureau of Consumer Financial Protection. ACTION: Request for information. AGENCY: The Bureau of Consumer Financial Protection (Bureau) is seeking comments and information from interested parties to assist the Bureau in considering whether, consistent with its statutory authority to prescribe rules pursuant to the Federal consumer financial laws, the Bureau should amend those rules it has promulgated since its creation or issue certain new rules. DATES: Comments must be received by June 19, 2018. ADDRESSES: You may submit responsive information and other comments, identified by Docket No. CFPB–2018– 0011, by any of the following methods: • Electronic: Go to http:// www.regulations.gov. Follow the instructions for submitting comments. • Email: FederalRegisterComments@ cfpb.gov. Include Docket No. CFPB– 2018–0011 in the subject line of the message. • Mail: Comment Intake, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. • Hand Delivery/Courier: Comment Intake, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. Instructions: The Bureau encourages the early submission of comments. All submissions must include the document title and docket number. Please note the number of the topic on which you are commenting at the top of each response (you do not need to address all topics). Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http:// www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW, Washington, DC 20552, on official business days between the hours of 10 a.m. and 5 p.m. eastern time. You can make an appointment to inspect the documents by telephoning 202–435– 7275. All submissions in response to this request for information, including SUMMARY: E:\FR\FM\21MRP1.SGM 21MRP1

Agencies

[Federal Register Volume 83, Number 55 (Wednesday, March 21, 2018)]
[Proposed Rules]
[Pages 12283-12286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05625]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AE86


Federal Credit Union Bylaws

AGENCY: National Credit Union Administration (NCUA).

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The NCUA Board (Board) is issuing this advance notice of 
proposed rulemaking to solicit stakeholder comments on ways to 
streamline, clarify, and improve the standard Federal Credit Union 
(FCU) bylaws. The standard FCU bylaws provide a comprehensive set of 
corporate governance procedures that are mandatory for any FCU that had 
not adopted bylaws as of November 30, 2007. The Board is considering a 
number of significant changes to the FCU bylaws to provide enhanced

[[Page 12284]]

operational flexibility to FCUs and to reduce regulatory compliance 
burdens on all FCUs.

DATES: Comments must be received on or before May 21, 2018.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Website: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to [email protected]. Include ``[Your 
name]--Comments on Federal Credit Union Bylaws ANPR'' in the email 
subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public inspection: You can view all public comments on NCUA's 
website at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314-
3428, by appointment weekdays between 9 a.m. and 3 p.m. To make an 
appointment, call (703) 518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: Benjamin M. Litchfield, Staff 
Attorney, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. Background

    FCU incorporators must present proposed FCU bylaws along with an 
organization certificate to the Board for its approval prior to 
commencing business as an FCU.\1\ To simplify the organization of FCUs, 
the Federal Credit Union Act (FCU Act) requires the Board to prepare 
``from time to time'' a form of FCU bylaws to be used by FCU 
incorporators and to make that form available upon request.\2\ The FCU 
Act grants the Board considerable discretion in drafting this form 
``from time to time,'' provided that the FCU bylaws are consistent with 
basic corporate governance procedures set out in the FCU Act. Those 
corporate governance procedures are designed to protect fundamental FCU 
member rights that underpin the cooperative principles that serve as 
the cornerstone of the credit union movement.\3\
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    \1\ 12 U.S.C. 1754, 1758.
    \2\ 12 U.S.C. 1758.
    \3\ Specifically, these rights include the right to: (1) 
Maintain a share account; (2) maintain FCU membership; (3) have 
access to credit union facilities; (4) participate in the director 
election process; (5) attend annual and special meetings; and (6) 
petition for removal of directors and committee members. See Federal 
Credit Union Bylaws, 72 FR 30984, 30986 (Aug. 6, 2007) (proposed 
rule).
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    The FCU bylaws and accompanying guidance were not part of the 
NCUA's regulations for almost 25 years.\4\ During that time, in 
consultation with the NCUA, FCUs had considerable discretion to adopt 
reasonable FCU bylaws provisions provided that they did not conflict 
with the FCU Act, the NCUA's regulations, established federal policy, 
or otherwise pose a safety and soundness risk to the FCU.\5\ 
Accordingly, the Board did not view FCU bylaws disputes predominantly 
as a federal regulatory matter. Instead, the Board believed that state 
corporate law and state courts were the appropriate vehicles through 
which FCU officials and members could settle FCU bylaws disputes where 
state corporate law was not preempted by federal law.
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    \4\ Federal Credit Union Bylaws, 72 FR 61495, 61496 (Oct. 31, 
2007) (final rule) (codified at 12 CFR 701, App. A).
    \5\ Id.
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    However, the Board observed a number of troubling cases in which 
members were unable to enforce fundamental FCU member rights in state 
courts.\6\ Moreover, the Board began to see troubling precedents 
developing in federal courts holding that FCUs do not have fiduciary 
duties to their members despite the clear status conferred by the FCU 
Act on a credit union member as a partial owner of the FCU.\7\ Treating 
FCU bylaw disputes as largely matters of state corporate law also 
diminished the NCUA's ability to take proactive enforcement measures in 
this area. Accordingly, the Board incorporated the standard FCU bylaws 
as part of the NCUA's regulations and required all FCUs that had not 
adopted bylaws prior to November 30, 2007 to adopt the standard FCU 
bylaws.\8\ FCUs that had adopted bylaws prior to that date were allowed 
to retain their then current bylaws. However, the Board strongly 
encouraged those FCUs to adopt the standard FCU bylaws.
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    \6\ See 72 FR at 30985 (Aug. 6, 2007) (observing member 
difficulties obtaining redress in state courts); see also Bruns v. 
Nat'l Credit Union Admin., 122 F.3d 1251, 1257 (9th Cir. 1997) 
(citing Montford v. Robins Fed'l Credit Union, 691 F. Supp. 347, 
351-52 (M.D. Ga. 1988)) (NCUA appropriate body to hear FCU bylaw 
complaints).
    \7\ Id.; see also. Miur v. Navy Fed'l Credit Union, 529 F.3d 
1100, 1107-8 (D.C. Cir. 2008) (applying the Virginia Commercial 
Code).
    \8\ 12 CFR 701, App. A, Instruction A.
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    Since incorporating standard FCU bylaws into the NCUA's 
regulations, the NCUA has periodically solicited comment from 
stakeholders on ways to streamline, clarify, and improve the standard 
FCU bylaws to provide FCUs with greater operational flexibility. For 
example, the NCUA's Office of General Counsel met with stakeholders in 
2013 to discuss possible revisions to the standard FCU bylaws. Those 
stakeholders provided valuable input on particular provisions of the 
standard FCU bylaws. Their comments and recommended changes included: 
(1) Adding flexibility where consistent with law, regulation, and the 
protection of fundamental member rights; (2) removing outdated or 
obsolete provisions and terms; (3) conforming the standard FCU bylaws 
to plain English writing principles; (4) expanding the commentary 
section to provide additional information and guidance; (5) adding 
provisions related to member rights and responsibilities and clarifying 
the permissible actions FCUs can take to address members who are 
abusive or disruptive; and (6) addressing provisions pertaining to 
meeting procedures, quorums, and notice requirements. The Office of 
General Counsel has a record of these comments and continues to take 
them into account.
    Recently, the NCUA's Regulatory Reform Task Force (Task Force), a 
group created by the NCUA Chairman to implement the NCUA's regulatory 
reform agenda, has suggested that more wholesale changes to the 
standard FCU bylaws may be necessary because they have not been 
significantly updated in nearly 10 years.\9\ To ensure that the 
standard FCU bylaws are amended in a transparent manner that affords 
stakeholders enhanced opportunity to participate in the rulemaking 
process, the Task Force recommended that the Board issue an advance 
notice of proposed rulemaking to request comments on ways in which the 
FCU bylaws may be streamlined, clarified, and improved.
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    \9\ Regulatory Reform Agenda, 82 FR 39702, 39705 (Aug. 22, 
2017). The Task Force's report was adopted by the Board and issued 
for public comment with a comment period ending on November 20, 
2017.

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[[Page 12285]]

II. Request for Comments on Specific Topics

    In accordance with the Task Force's recommendation, the Board is 
issuing this advance notice of proposed rulemaking to solicit 
stakeholder comments on the standard FCU bylaws. In particular, the 
Board requests specific comments on the following questions:

1. How can the Board improve the FCU bylaws amendment process?

    A perennial concern among stakeholders is that the process to amend 
the standard FCU bylaws is complicated and time consuming. An FCU's 
decision to amend its bylaws often results from a pressing operational 
concern. The FCU's ability to respond to that concern in a timely 
manner is not just a matter of convenience, but also an important 
safety and soundness issue. An FCU that wishes to amend its bylaws must 
request approval from the NCUA's Office of Credit Union Resources and 
Expansion (CURE) for many amendments to the standard FCU bylaws. While 
CURE processes bylaws amendment requests as expeditiously as possible, 
the standard FCU bylaws do not provide for any timeline by which CURE 
must arrive at its determination, except in the case of previously 
approved bylaws amendments.\10\ Accordingly, the Board seeks specific 
stakeholder comments on ways to improve this process to provide a 
requesting FCU with a more timely response, greater transparency, and 
enhanced accountability.
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    \10\ 12 CFR 701, App. A, Instruction C.4.
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2. How can the Board clarify the FCU bylaws provisions addressing 
limitation of service and expulsion of members?

    In the past, stakeholders have asked for clarification on the FCU 
bylaws provisions addressing limitation of service policies. Article 
II, Sec.  4 of the standard FCU bylaws permits an FCU to limit services 
or access to credit union facilities to ``a member who is disruptive to 
credit union operations.'' \11\ The Office of General Counsel's 
longstanding interpretation of the phrase ``disruptive to credit union 
operations'' is that an FCU may limit services to an FCU member in a 
number of cases, including situations where a member is abusive to FCU 
staff or has caused a loss to the FCU. This is the case provided that 
members have received adequate notice of the limitation of service 
policy and there is some ``logical relationship between the 
objectionable conduct and the services to be suspended.'' \12\
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    \11\ 12 CFR 701, App. A, Art. II, Sec.  4.
    \12\ Suspension of Service Policy, OGC Op. Letter 08-0431 (Aug. 
12, 2008); Request for Interpretation of Section 118 of the Federal 
Credit Union Act, OGC Op. Letter 96-0530 (June 10, 1996).
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    However, the Office of General Counsel has also stated that 
contract provisions in account and other member service agreements, as 
well as federal and state laws, may affect an FCU's ability to 
implement a limitation of service policy.\13\ For example, an FCU may 
not implement a limitation of service policy that has a disparate 
impact on a protected class, such as may be the case regarding defaults 
on consumer loans.\14\ The ambiguity surrounding the use of limitation 
of service policies has led to some justifiable stakeholder confusion 
and enforcement issues.
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    \13\ Id.
    \14\ Regulation B, which implements the Equal Credit Opportunity 
Act, prohibits discrimination on the basis of a protected class. See 
12 CFR 1002.
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    Accordingly, the Board is particularly interested in specific 
stakeholder comments on ways to improve Article II, Sec.  4 of the 
standard FCU bylaws to provide FCUs with the greatest possible clarity 
regarding the use and misuse of limitation of service policies. The 
Board is also interested in specific stakeholder comments on whether 
this regulatory text should be removed in its entirety and addressed as 
a separate regulation.

3. How can the Board improve the FCU bylaws to facilitate the 
recruitment and development of directors?

    As the credit union movement continues to undergo significant 
changes, the Board is interested in ways that it can improve the FCU 
bylaws to facilitate the recruitment of FCU directors. Article V of the 
standard FCU bylaws sets out four distinct procedures that an FCU may 
choose to follow in order to select directors.\15\ In each case, a 
nominating committee must appoint at least one member to each vacancy, 
including any unexpired term vacancy, for which elections are being 
held. However, these procedures do not provide guidance on how the 
nominating committee should proceed with identifying prospective 
candidates nor do they clarify the criteria that the nominating 
committee may use when selecting candidates.
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    \15\ 12 CFR 701, App. A, Art. V.
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    While the Board believes that these matters fall squarely within 
the sound business judgment of each individual FCU, the Board is 
interested in ways that it can amend the standard FCU bylaws to 
facilitate effective business continuity planning. For example, should 
the Board include commentary to Article V of the standard FCU bylaws 
recommending certain non-binding factors that the nominating committee 
may consider when selecting a candidate to fill a particular vacancy? 
If so, what factors should the Board highlight? In addition, should the 
Board include commentary authorizing FCUs to establish standing 
advisory committees designed to recruit potential candidates to fill 
board vacancies? If so, which individuals within the FCU should be part 
of this advisory committee? What safeguards should be put in place to 
prevent conflicts of interest?

4. How can the Board improve the FCU bylaws to encourage member 
attendance at annual and special meetings?

    A key difference ``between credit unions and other federally 
chartered financial institutions lies in the democratic control and 
management of credit unions.'' \16\ Accordingly, the Board is 
interested in ways that it can improve the standard FCU bylaws to 
encourage active member participation in annual and special meetings. 
Article IV of the standard FCU bylaws sets out the procedures that must 
be followed when an FCU holds a meeting of members.\17\ For an annual 
meeting, the secretary of the FCU must provide members with at least 30 
but not more than 75 days written notice before the date of any annual 
meeting. For a special meeting, the written notice must be at least 7 
days before the date of the special meeting. The Board seeks 
stakeholder input on whether these time periods are adequate to ensure 
that members have sufficient advanced notice to afford an actual 
opportunity to attend annual and special meetings.
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    \16\ La Caisse Populaire Ste-Marie (St. Mary's Bank) v. U.S., 
425 F. Supp. 512, 517 (D.N.H. 1976).
    \17\ 12 CFR 701, App. A, Art. IV.
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    In addition, with the rise of e-commerce and mobile banking, the 
Board is interested in stakeholder comments on ways that it may improve 
Article IV of the standard FCU bylaws to allow FCUs to harness new 
technologies, particularly social media and web-based conferencing 
solutions, to allow more members to attend annual and special meetings. 
For example, should the Board allow an FCU to conduct an annual or 
special meeting through teleconference? If so, what market solutions 
exist to allow members to debate issues brought to the floor or to 
securely vote on director nominations? Would the use of such a market 
solution be considered an

[[Page 12286]]

impermissible proxy vote? What risks are associated with the use of 
these products? Would the use of these kinds of solutions encourage 
greater member participation from those individuals who largely rely on 
mobile financial services and avoid traditional brick-and-mortar 
branches? Could this technology be provided through a mobile 
application?

5. Should the Board eliminate overlaps between the NCUA's regulations 
and the FCU bylaws?

    In reviewing the standard FCU bylaws, NCUA staff identified a 
number of the NCUA's regulations that overlap, to some extent, with the 
standard FCU bylaws. Many of the overlapping standard FCU bylaws 
provisions are located in Article XVI and address issues such as FCU 
member confidentiality, conflicts of interest, record retention, and 
the availability of books and records to FCU members. Do these 
duplicative regulatory and bylaws requirements increase compliance 
burden in a manner that outweighs any measurable member benefit? If so, 
the Board requests specific stakeholder comments on how to address 
these provisions.
    If such overlap is problematic, a solution the Board could consider 
is to remove the overlapping provisions from the standard FCU bylaws to 
the greatest extent possible and make appropriate adjustments to the 
NCUA's regulations to maintain their substantive protections. For 
example, should the Board remove Article XVI, Sec.  4 of the standard 
FCU bylaws, which governs conflicts of interests for institutional-
affiliated parties? \18\ If so, the Board could make appropriate 
amendments to its conflicts of interest rule, Sec.  701.4,\19\ to 
expand the scope of that rule to cover all institution-affiliated 
parties of an FCU rather than just FCU directors. Similarly, should the 
Board remove Article XVI, Sec. Sec.  5 and 6 and make appropriate 
changes to the NCUA's rule governing FCU member access to FCU records, 
Sec.  701.3,\20\ and the rule governing record retention, part 749? 
\21\
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    \18\ 12 CFR 701, App. A, Art. XVI, Sec.  4.
    \19\ 12 CFR 701.4.
    \20\ 12 CFR 701.3.
    \21\ 12 CFR 749.
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III. Request for General Comments

    In addition to requesting specific comments addressing the issues 
identified above, the Board also requests stakeholder comments on any 
aspect of the standard FCU bylaws that commenters wish to bring to the 
Board's attention to improve the standard FCU bylaws' usefulness and 
ease of use. Further, the Board invites stakeholders that have 
previously commented on proposed changes to the standard FCU bylaws to 
offer additional comments based on recent experiences.
    The Board asks stakeholders, who are requesting a specific change 
to a provision of the standard FCU bylaws, to please provide a brief 
statement regarding whether the FCU Act would permit such a change. 
Some provisions of the standard FCU bylaws are drawn directly from the 
FCU Act and, therefore, may not be legally amended. For example, Sec.  
109 of the FCU Act provides that an FCU may not charge any other fee 
for FCU membership other than a ``uniform entrance fee if required by 
the board of directors.'' \22\ This provision of the FCU Act prohibits 
FCUs from imposing monthly membership fees and other similar charges 
\23\ and was codified in the standard FCU bylaws to simplify compliance 
obligations for FCUs.\24\ Accordingly, any request to change this 
provision or any similar provisions that correspond to a statutory 
requirement set out in the FCU Act, regardless of how compelling the 
stakeholder's arguments, would be impermissible. In providing this 
brief supporting statement, the Board asks that stakeholders not only 
consider whether the statutory text would permit such a change but also 
whether the change fits within the spirit and intent of the FCU 
Act.\25\
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    \22\ 12 U.S.C. 1759.
    \23\ See Monthly Membership Fees, OGC Op. Letter 15-0902 (May 1, 
2015).
    \24\ See 12 CFR 701, App. A, Art. II, Sec.  2.
    \25\ It is a ``familiar rule that a thing may be within the 
letter of a statute and yet not within the statute, because not 
within its spirit nor within the intention of its makers.'' Mova 
Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1068 (D.C. Cir. 
1998) (citing Holy Trinity Church v. U.S., 143 U.S. 457, 459-60 
(1892)).

    By the National Credit Union Administration Board on March 15, 
2018.
 Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2018-05625 Filed 3-20-18; 8:45 am]
BILLING CODE 7535-01-P