Federal Credit Union Bylaws, 48055-48067 [2023-15715]

Download as PDF Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations Where: Cr = corrected product capacity in pints per day, as determined in section 5.2 of this appendix; 2 = dehumidification mode test duration in hours; EDM = energy consumption during the 2-hour dehumidification mode test in kWh, as measured in section 4.1 of this appendix; ETLP = annual combined low-power mode energy consumption in kWh per year, as calculated in section 5.3 of this appendix; 1,095 = dehumidification mode annual hours, used to convert ETLP to combined low-power mode energy consumption per hour of dehumidification mode; 1.04 = the density of water in pounds per pint; 0.454 = the liters of water per pound of water; and 24 = the number of hours per day. * * * * * [FR Doc. 2023–14980 Filed 7–25–23; 8:45 am] BILLING CODE 6450–01–P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 701 RIN 3133–AF51 Federal Credit Union Bylaws National Credit Union Administration (NCUA). ACTION: Final rule. AGENCY: On March 15, 2022, Congress enacted the Credit Union Governance Modernization Act of 2022 (Governance Modernization Act). Under the statute, the NCUA has 18 months following the date of enactment to develop a policy by which a Federal credit union (FCU) member may be expelled for cause by a two-thirds vote of a quorum of the FCU’s board of directors. The NCUA Board (Board) is issuing this final rule to amend the standard FCU bylaws (FCU Bylaws) to adopt such a policy. DATES: The final rule is effective August 25, 2023. FOR FURTHER INFORMATION CONTACT: John Tamashiro, Director, Division of Consumer Access; Paul Dibble, Consumer Access Program Officer, Office of Credit Union Resources and Expansion; Lisa Roberson, Deputy Director, Office of Consumer Financial Protection; Rachel Ackmann, Senior Staff Attorney; or Ian Marenna, Associate General Counsel, Office of General Counsel; 1775 Duke Street, Alexandria, VA 22314–3428. John Tamashiro can be reached at (703) 548– 2577, Paul Dibble can be reached at (703) 664–3164, Lisa Roberson can be reached at (703) 548–2466, Rachel lotter on DSK11XQN23PROD with RULES1 SUMMARY: VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 Ackmann can be reached at (703) 548– 2601, and Ian Marenna can be reached at (703) 518–6554. SUPPLEMENTARY INFORMATION: I. Background Under the Federal Credit Union Act (FCU Act) and standard FCU Bylaws prior to the effective date of this final rule, there were two ways a member may be expelled, namely: (1) by a twothirds vote of the membership present at a special meeting called for that purpose, and only after the individual is provided an opportunity to be heard; and (2) for non-participation in the affairs of the credit union, as specified in a policy adopted and enforced by the board.1 These requirements were set out in the standard FCU Bylaws in appendix A to part 701 of the NCUA’s regulations.2 The FCU Bylaws were last amended by the NCUA Board in 2019 (2019 FCU Bylaws Final Rule).3 The 2019 FCU Bylaws Final Rule was a comprehensive update that sought to modernize, clarify, and simplify the FCU Bylaws and was the culmination of several years of engagement between the NCUA and factoring in an assessment of stakeholder input. During the 2019 FCU Bylaws Final Rule rulemaking, several commenters expressed concern that the FCU Act expulsion provisions discussed previously made it difficult to proactively limit security threats or financial harm caused by violent, belligerent, disruptive, or abusive credit union members. Specifically, commenters were concerned about the burden from requiring members to call a special meeting to seek to expel such members. The 2019 FCU Bylaws Final Rule, however, did not modify the procedures for expelling an FCU member as the procedures for expelling a member are governed by the FCU Act. Instead, the 2019 FCU Bylaws Final Rule added a new section to the FCU Bylaws on limiting services for certain members. The 2019 FCU Bylaws Final Rule created the concept of a ‘‘member in good standing.’’ 4 So long as a member U.S.C. 1764. CFR part 701, appendix A. Section 108 of the FCU Act requires the Board to prepare periodically a form of bylaws for use by FCU incorporators and to provide that form to FCU incorporators upon request. 12 U.S.C. 1758. FCU incorporators must submit proposed bylaws to the NCUA as part of the chartering process. Once the NCUA has approved an FCU’s proposed bylaws, the FCU must operate according to its approved bylaws or seek agency approval for a bylaw amendment that is not among permissible options in the standard FCU Bylaws. 12 CFR 701.2(a). 3 84 FR 53278 (Oct. 4, 2019). 4 12 CFR part 701, appendix A, Art. II, sec. 5. PO 00000 1 12 2 12 Frm 00025 Fmt 4700 Sfmt 4700 48055 remains in good standing, that member retains all the rights and privileges associated with FCU membership. A member not in good standing, however, may be subject to an FCU’s limitation of services policy. For example, an FCU may limit all or most credit union services, such as ATM services, credit cards, loans, share draft privileges, preauthorized transfers, and access to credit union facilities, to a member who has engaged in conduct that has caused a loss to the FCU or that threatens the safety of credit union staff, facilities, or other members in the FCU or its surrounding property. The 2019 FCU Bylaws Final Rule was clear that certain actions warrant immediate limitation of services or access to credit union facilities, such as violence against other credit union members or credit union staff in the credit union facility or the surrounding property. The Board also stated clearly that an FCU may immediately take actions such as contacting local law enforcement, seeking a restraining order, or pursuing other lawful means to protect the credit union, credit union members, and staff. Nothing in the FCU Act or the FCU Bylaws prevents an FCU from using whatever lawful means it deems necessary to address circumstances in which a member poses a risk of harm to the FCU, its property, its members, or its staff and officials. Even a member deemed not in good standing, however, retains fundamental rights as a credit union member. For example, a member not in good standing has the right to attend, participate in, and vote at the annual and special meetings of the members and the right to maintain a share account.5 Those rights may be terminated only through a member’s expulsion, and the Board explained in the 2019 FCU Bylaws Final Rule that it cannot amend the statutorily prescribed expulsion procedures for members. In March 2022, however, Congress enacted the Governance Modernization Act to revise the FCU Act procedures for expelling members.6 The legislative history of the Governance Modernization Act focused on FCUs’ concerns that their ability to address violent and aggressive behaviors of certain members was inadequate. Like comments raised during the 2019 FCU Bylaws Final Rule rulemaking, the legislative history included concerns that FCUs lacked the tools to adequately protect employees and other members 5 The Board understands that a restraining or protective order from a court would bar a member from attending such meetings in person. 6 Public Law 117–103 (Mar. 15, 2022). E:\FR\FM\26JYR1.SGM 26JYR1 48056 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 from violent and abusive members and included concerns that members had threatened the life of an employee or in another case physically attacked a service representative. To address these concerns, Congress modified the FCU Act to provide FCUs with an option for expelling a member for cause by a twothirds vote of a quorum of the board of directors. The legislative history also described the need for using this authority as a rare option and focused on more extreme examples of member behavior. This statutory authority, however, is not self-executing. The legislation gave the Board 18 months following the date of enactment of the statute to develop and promulgate pursuant to a rulemaking a policy that FCUs may adopt to expel members for cause. The Board notes that it is focused on improving access to financial services, in part, through its Advancing Communities through Credit, Education, Stability and Support (ACCESS) initiative.7 As part of this initiative, the NCUA is working to expand the availability of credit to stimulate economic growth and improve the financial well-being of all Americans. This work also aims to ensure that the credit union system achieves its statutory mission of meeting the credit and savings needs of people, especially those of modest means.8 The Board believes the expulsion of members is an extreme remedy that may have the effect of denying individuals access to financial services. In addition, as financial cooperatives, a credit union’s expulsion of a member-owner is a particularly significant action resulting in financial exclusion. Therefore, consistent with certain statements in the legislative history, use of the authority under the Governance Modernization Act should be rare and used only for egregious member behavior. II. The Proposed Rule At its September 22, 2022, meeting, the Board issued a proposed rule to amend the FCU Bylaws to adopt an expulsion policy consistent with the Governance Modernization Act.9 The proposal provided for a 60-day comment period, which ended on December 2, 2022. The Board received 26 comments from FCUs, credit union leagues and trade associations, and a law firm. All commenters were generally supportive of increased 7 https://www.ncua.gov/support-services/access. 8 Public Law 105–218, 112 Stat. 912 (Aug. 7, 1998). 9 87 FR 59740 (Oct. 3, 2022). VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 flexibility for FCU boards of directors to expel members for cause. Almost all commenters, however, raised additional considerations for the Board, and several commenters recommended specific changes to the proposed rule. The comments are discussed in detail in the next section. III. The Final Rule The NCUA Board is now issuing a final rule to adopt a policy by which an FCU member may be expelled for cause by a vote of two-thirds of a quorum of an FCU’s board of directors. The final rule also makes conforming changes to Article II of the FCU Bylaws regarding members in good standing. Member in Good Standing As discussed previously, the 2019 FCU Bylaws Final Rule codified the concept of a ‘‘member in good standing.’’ So long as a member remains in good standing, that member retains all the rights and privileges associated with FCU membership.10 A member not in good standing, however, may be subject to an FCU’s limitation of services policy. The primary reason for permitting FCUs to adopt a limitation of services policy was to provide FCUs with an alternative to holding a special meeting to address certain egregious member behavior.11 The enactment of the Governance Modernization Act, however, has provided FCUs’ boards of directors with direct authority (subject to the NCUA Board promulgating a rule, described in the legislation as a policy) to expel a member for cause. The proposed rule retained the provisions on limitation of services. The proposed rule discussed several reasons for retaining these provisions, including additional flexibility for FCUs to address certain disruptive member behaviors through less severe restrictions, the ability of FCU boards to restrict access and services in the case of a violent or abusive member who has yet to be expelled,12 and to provide FCUs an easier and more expeditious tool to address abusive and disruptive members. A board vote is not required under the limitation of services policy. All commenters who discussed the issue supported retaining the limitation of services policy in the FCU Bylaws. CFR part 701, appendix A, Art. II, sec. 5. FR 53278 (Oct. 4, 2019). 12 An FCU may immediately take actions such as contacting local law enforcement, seeking a restraining order, or pursuing other lawful means to protect the FCU, its members, and staff, and nothing in the FCU Act nor the FCU Bylaws prevents an FCU from using whatever lawful means it deems necessary to address circumstances in which a member poses a risk of harm to the FCU, its property, its members, or its staff or officials. PO 00000 10 12 11 84 Frm 00026 Fmt 4700 Sfmt 4700 The Board agrees and continues to believe retaining the limitation of services policy provides important flexibility to FCU boards, and the final rule includes the limitation of services policy as proposed. The proposed rule also included a few substantive changes to the limitation of services provisions. Specifically, the definition of a member not in good standing was removed. This definition included a list of behaviors that if engaged in by a member could trigger limitation of FCU services. However, the Governance Modernization Act also includes a list of behaviors that may warrant termination of membership. Instead of including two separate lists of disruptive, abusive, or violent behaviors, the proposed rule defined a member not in good standing as a member who has engaged in any of the conduct listed in the Governance Modernization Act, as implemented in Article XIV of the FCU Bylaws. Commenters differed on whether the final rule should include the same set of ‘‘for cause’’ behaviors for both expulsion and limitation of services. Many commenters thought the same behaviors should be used for both actions. Other commenters recommended a more expansive list of behaviors available to trigger a limitation of services. For these commenters, expulsion is a more extreme remedy than the limitation of services and the conduct triggering each remedy should not be synonymous. The Board has not made changes in response to these commenters. The Board believes the list of ‘‘for cause’’ behaviors is already expansive and includes the types of actions that are reasonable grounds for limiting services or expulsion. The proposed rule also made other technical conforming changes. For example, the proposed rule amended the requirement that the disruptive, violent, or abusive behavior have a logical relationship between the objectionable activities and the services to be suspended. This provision was removed because it is not included in the Governance Modernization Act. The Board sought comment on whether it should retain the existing language regarding a logical relationship between the ‘‘for cause’’ behavior and limitation of services. Many commenters recommended removing this qualification as it is not included in the Governance Modernization Act. The final rule does not include the express provision related to the nexus between the behavior and the limitation of services; however, the Board expects each FCU’s board of directors to use E:\FR\FM\26JYR1.SGM 26JYR1 lotter on DSK11XQN23PROD with RULES1 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations appropriate discretion and only limit services when necessary. The proposed rule also included a question on whether the abusive or disruptive conduct must occur at the FCU. Many commenters objected to limiting expulsion to behaviors that occur at the FCU. Some of these commenters discussed electronic communications. For example, one commenter stated in an increasingly digital world with more channels for members to interact with an FCU, abusive behavior can occur over the phone, on social media, or through other channels that may not fit this physical location definition. These communications would likely be covered under the proposed rule, which stated dangerous or abusive behavior includes conduct while on credit union premises and through the use of telephone, mail, email, or other electronic method. Other commenters raised concerns about certain abuses that would not likely be covered under the proposed definition. Some examples of behavior that would not likely be included under the proposed rule include threats made at a location other than the credit union (such as a community event), stalking or assaulting of an employee that occurs at another location, or a violent crime committed by a member. The Board agrees with the commenters that these behaviors should be grounds for expulsion, and the final rule includes a catchall category of other behaviors related to credit union activities. Therefore, any conduct that is dangerous or abusive and related to a credit union’s activities, regardless of the location of the conduct, may be grounds for limitation of services or expulsion. The catchall category would not include violent crime or dangerous or abusive behavior that is unrelated to the credit union’s activities. The Board believes conduct that is unrelated to credit union activities should not be grounds for limitations of services or expulsion and is more appropriately handled through law enforcement. Finally, a few commenters suggested the final rule should clarify that limitation of services does not require a notice or hearing. The Board is clarifying that use of the limitation of services policy does not require notice or a hearing. developed a corresponding policy for expulsion and implemented such policy through rulemaking within 18 months following the date of enactment (March 15, 2022), and the FCU has adopted the related standard Bylaw amendment. The final policy for member expulsion is discussed below. Expulsion and Withdrawal Under the Governance Modernization Act, a member may be expelled for cause by a two-thirds vote of a quorum of the FCU’s board of directors. An FCU may only use this process to expel a member after the NCUA Board has 13 The optional standard disclosure has been added for FCUs’ convenience. However, it may not serve as a ‘‘safe harbor’’ as requested by commenters in all cases. Use of the standard disclosure would provide a ‘‘safe harbor’’ from potential NCUA action; however, members may have rights and potential remedies they could pursue under other laws than the Governance Modernization Act. VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 Notice of the Expulsion Policy Under the Governance Modernization Act, an FCU’s directors may expel a member only if the FCU has provided, in written or electronic form, a copy of NCUA’s expulsion policy to each member of the credit union. The proposed rule sought comment on whether the final rule should include a standard disclosure form of the NCUA expulsion policy outside of the language in Article XIV of the FCU Bylaws. Many commenters stated the final rule should include an optional model standard disclosure. A few commenters characterized a potential model as a safe harbor. In response to commenters’ request, the Board has provided an optional standard disclosure. The disclosure is provided at the end of the standard FCU Bylaws.13 A few commenters also requested that the Board clarify that FCUs may add the expulsion policy notice to the membership/account terms and conditions. The Board has no objection to FCUs adding the policy to membership and account terms and conditions. One commenter stated that the final rule should specify that the requirement for ‘‘each’’ member to receive a copy of the expulsion policy does not permit members to avoid expulsion by an operational error as to whether another member has received a copy of the policy. However, the requirement for ‘‘each’’ member to receive the policy is from the Governance Modernization Act, and the Board may not modify the requirement. The proposed rule also sought comment on whether FCUs should be required to get NCUA approval for all bylaw amendments related to expulsion procedures. Specifically, should certain modifications be considered fill-in-theblank type provisions and therefore not require NCUA approval. Most commenters who discussed this issue believed the final rule should include PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 48057 some fill-in-the-blank type options for FCUs to customize their expulsion procedures without receiving NCUA approval. For example, a few commenters stated that if an FCU decides to allow an in-person hearing, NCUA approval should not be required. The final rule does not require NCUA approval to require an in-person hearing. Additionally, as discussed subsequently, the NCUA will not consider hearing procedures such as the order of speakers or the length of the hearing as amendments to an expulsion policy. Therefore, hearing procedures do not require NCUA approval, provided the procedures are not inconsistent with the terms of NCUA’s expulsion policy. Any variation to the express terms of NCUA’s expulsion policy, or Article XIV, constitutes a bylaw amendment and is subject to NCUA approval. Finally, the Board sought comment on whether it should require both mail and electronic delivery of notices, even if the member has elected to receive electronic communications. No commenters who discussed this issue supported both mail and electronic delivery of notices, and the final rule does not require both mail and electronic delivery of notices for those members electing to receive electronic communications. Expulsion Vote and Notice of Pending Expulsion The Governance Modernization Act provides that an FCU’s board of directors may vote to expel a member for cause by a two-thirds vote of a quorum of the directors of the credit union. If a member will be subject to expulsion, the member shall be notified of the pending expulsion, along with the reason for such expulsion. The Board sought comment on how prescriptive the final rule should be regarding the content of the pending expulsion notice. A few commenters stated the proposed requirements are too prescriptive or vague and may lead to conflict with examiners, and a few commenters requested the Board provide a standard disclosure for the notice of pending expulsion. One commenter stated that the Board should outline the categories of information required to be included in a pending expulsion notice and do so by a published form document. The Board does not believe a standard disclosure is appropriate for the notice of pending expulsion as the Board expects each notice to be tailored to the specific member and their pending expulsion. In response to commenters, however, the final rule does include additional clarifying information on E:\FR\FM\26JYR1.SGM 26JYR1 lotter on DSK11XQN23PROD with RULES1 48058 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations what is expected in the notice. Specifically, the final rule provides that relevant dates, sufficient detail for the member to understand the grounds for expulsion, how to request a hearing, the procedures related to the hearing and, if applicable, a general statement on the effect of expulsion related to the member’s accounts or loans at the credit union must be included in the pending expulsion notice. The proposed rule required that the reason for the pending expulsion be specific and not just include conclusory statements. For example, a general statement saying the member’s behavior has been deemed abusive and the member is being subject to expulsion procedures is insufficient as an explanation. Instead, the FCU should include the date(s) of the interaction(s) and specific information describing the interaction(s), including a description of the member’s conduct. Likewise, a notice stating the member violated the membership agreement also is insufficient as an explanation for the pending expulsion. One commenter stated that the pending expulsion notice should not require the identification of any specific FCU employee and instead generic terms such as ‘‘loan officer’’ should be sufficient. The Board agrees and is clarifying that FCUs do not need to identify any employee by name or branch location and generic terms such as ‘‘customer service representative,’’ ‘‘loan officer,’’ or ‘‘teller’’ are sufficient. The notice should, however, include specific information about how the member violated the agreement or engaged in dangerous or abusive behavior and include other relevant information as appropriate. The member is relying on the provided notice if a hearing is requested. As such, the notice must include sufficient detail for the member to understand why he or she is being subject to expulsion so that the member has a meaningful opportunity to present their case against expulsion and an opportunity to respond to the FCU’s concerns in a requested hearing. The notice must also tell the member that any complaints related to their potential expulsion should be submitted to NCUA’s website if the complaint cannot be resolved directly by the credit union.14 Several commenters expressed concerns with this proposed requirement. One commenter questioned how this process would align with the general process to 14 Currently complaints can be submitted to the NCUA at either https://mycreditunion.gov/ consumer-assistance-center or https://ncua.gov/ consumers. VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 forward certain complaints to the Consumer Financial Protection Bureau, or CFPB. One commenter questioned the NCUA’s authority for this requirement. One commenter requested specific timelines for when the NCUA receives the complaint compared to the hearing date and whether the NCUA would share the complaint with the FCU. One commenter asked that the NCUA only accept complaints after the hearing. The Board has made two changes in response to these comments. The final rule provides that complaints should be raised with the NCUA only if the member has first tried to resolve the complaint directly with the credit union and clarified complaints should be sent to NCUA’s Consumer Assistance Center. The Board believes credit unions should have an opportunity to address members’ complaints first. However, the Board believes contacting the NCUA is an appropriate avenue for members’ concerns or complaints. Therefore, the Board has not removed the requirement to notify the members of their right to complain to the NCUA. Additionally, the Board notes that notifying members of their right to complain is not providing members any new rights, and the notice is intended solely to remind members of their existing rights. Additionally, the Board does not believe notification of the right to file complaints is novel when considering routine FCU activity. For example, loan denial notices also include similar language regarding member complaints. The Board also does not believe including the statement on complaints presents a burden to FCUs. Finally, the NCUA generally has the right to remedy violations of laws, rules, or regulations, which would include the Governance Modernization Act and this rule, under 12 U.S.C. 1786. Hearing Under the Governance Modernization Act, a member has 60 calendar days from the date of receipt of a notification of pending expulsion to request a hearing from the board of directors of the FCU. The proposed rule discussed that the member has 60 calendar days from the date of receipt, not the date the FCU provides the notice. Further, the proposed rule stated that the member has 60 calendar days to provide the FCU with a request for a hearing. Therefore, the member may mail the notice 60 days after receiving the notice. As such, the FCU may not receive the notice within 60 calendar days, and the Board recommended that FCUs provide sufficient time for both the member’s PO 00000 Frm 00028 Fmt 4700 Sfmt 4700 receipt and the FCU’s receipt before expelling a member. Many commenters had concerns about these provisions and requested that the Board incorporate a presumption of receipt by the member. Suggestions for this presumption ranged from three to five business days after the FCU mailed the expulsion letter to the address on file. One FCU expressed concerns about situations in which the FCU does not have a current address on file. Another commenter raised concerns if the member denied receipt of a mailing, and another recommended that a Certificate of Mailing should satisfy this requirement. The Board has not amended the final rule to add a presumption of receipt. A member who objects to an expulsion due to the lack of receipt of a notice may either file a complaint with the NCUA or pursue a private right of action in court.15 The NCUA would consider a letter that was properly addressed and mailed as received by its intended recipient absent conclusive evidence it was not received, but local jurisdictions may have their own procedures regarding presumptions of receipt. These are evidentiary issues related to due process that the Board encourages FCUs to consider in developing their procedures, to reasonably ensure they withstand potential legal challenges.16 Another commenter objected to the proposed policy to provide the member 60 days to mail a hearing request, instead of 60 days for the FCU to receive a hearing request. This commenter recommended the final rule provide that the deadline for requesting a hearing is past if the FCU has not received the notice within 60 days after the member’s receipt of the notice. The Board has not made any changes to the final rule in response to this comment. While rules in each jurisdiction may vary, often items postmarked by deadlines are considered timely. Further, any formal appeal by the member would likely be in the form of a private right of action and not to the NCUA, as the Governance Modernization Act does not include appeal rights to the NCUA. The Board suggests FCUs consider consulting with local counsel regarding the requirements in their jurisdiction 15 The NCUA will not investigate matters that are the subject of a pending lawsuit or offer legal assistance. Additionally, the NCUA will not represent consumers in settling claims or recovering damages. 16 The FCUs have the option of sending notices by certified or registered mail as an additional step to preemptively address potential legal challenges from a member on the adequacy of notice. E:\FR\FM\26JYR1.SGM 26JYR1 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 regarding receipt and timeliness of mailings. Other commenters generally objected to the Governance Modernization Act’s requirement that a member has 60 days to request a hearing. A few commenters recommended this period be reduced. Some commenters recommended 30 days. Other commenters recommended the Board allow FCUs to expel certain members immediately. Another commenter recommended the Board interpret the Governance Modernization Act to allow for an immediate expulsion and then a 60-day period after expulsion to request a hearing. The Governance Modernization Act provides that the FCU must provide ‘‘Notification of pending expulsion.’’ The statute also uses the term ‘‘in advance of the expulsion’’ and then provides for expulsion after 60 days if the member does not request a hearing. Therefore, the Board finds no authority in the statute to permit immediate expulsions or to allow a shorter timeframe than 60 days to request a hearing. The proposed rule provided that the FCU must maintain a copy of the notice provided for its records. The Board sought comment on whether this requirement is burdensome. In response, two credit unions stated that this requirement is not a burden, one commenter stated state law should determine this requirement, and one commenter generally stated if the notice is not retained, then the FCU should maintain a written record of the facts. The Board has not made any changes to the final rule in response to commenters as it believes the requirement represents only a small burden to credit unions and would assist examiners in any review of an FCU’s expulsions. It also ensures an FCU has records available in the event of legal disputes over an expulsion. Form of the Hearing Under the Governance Modernization Act, if a member does not request a hearing, the member is automatically expelled after the end of the 60-day period. If a member requests a hearing, the board of directors must provide the member with a hearing. The statute is silent on whether the hearing must be in person, and the proposed rule permitted in-person or virtual hearings and permitted members an option to offer only written testimony. The Board sought comments on whether fairness, other principles, or other laws may call for an in-person hearing or other hearing procedures. No commenter expressed support for mandatory in-person hearings. VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 Commenters had wide ranging suggestions on the form of the hearing. Several commenters stated the final rule should permit FCUs to choose between in-person, virtual, and hearings conducted solely through written submissions (referred to as on-the-paper hearing), especially in cases of a violent or abusive member. Some commenters stated that there should be no hearing, just a written response if the member is dangerous or abusive. A few commenters recommended permitting telephonic hearings. For example, if a violent member does not have access to a computer to conduct a videoconference hearing, then the FCU should offer a telephonic hearing. One commenter recommended requiring members to appear virtually (and not permitting only written testimony as is permitted under the proposed rule). Another commenter, however, recommended requiring written testimony in addition to any oral testimony. In response to commenters, the final rule does not require in-person hearings, as the Board continues to believe it is not necessary and may be problematic in cases of expulsion due to violence or threatened violence. Further, the Board agrees with commenters that a telephonic hearing would be appropriate if a member cannot participate by videoconference.17 Therefore, the final rule has been amended to permit the option of a telephonic hearing if the member cannot participate through a virtual hearing. The Board continues to believe that telephonic hearings and written hearings should not be the primary means of conducting hearings and are more appropriate forums for a hearing only if a virtual or in-person hearing is not a viable option. Therefore, the Board is not amending the rule to permit FCUs to offer members only telephonic hearings or written hearings. Members who are potentially subject to expulsion should have the option of orally presenting their case through a virtual hearing, or in-person if there are no safety concerns. Hearing Procedures The proposed rule did not include many prescriptive requirements related to the structure and procedure for the hearing and included only general principles related to the fairness of the hearing, such as the FCU could not raise any reason or rationale for expulsion that is not explicitly included in the 17 For clarity, the final rule uses the terms videoconference and telephonic instead of the term virtual. PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 48059 notice to the member. The proposed rule did not, for example, include provisions for the order of testimony at the hearing, time limits for members, or whether the member or board members may ask questions. Several commenters stated that the Board has provided sufficient guidance in the proposal regarding the structure and procedure of an expulsion hearing, and no further guidance is necessary. Other commenters objected to the proposed requirements not found in the Governance Modernization Act and characterized these elements as turning the expulsion process into something closer to the due process afforded a student facing expulsion at a public university than the termination of a consumer finance relationship. One commenter requested that the Board clarify that hearings do not need to follow the parliamentary procedure noted in Article IV, section 4(k) of the FCU Bylaws. One commenter suggested that the final rule include time limits for members at the hearing, such as 15 minutes. This commenter also requested that the final rule state FCU boards have no evidentiary burden. The Board agrees with the commenters who stated the proposed rule included sufficient guidance regarding the structure and procedure of an expulsion hearing and no further guidance is necessary. The Board believes that each FCU should have the flexibility to conduct a hearing as it deems appropriate and standard procedures across all FCUs are unnecessary. As requested by a commenter, the Board is clarifying that the hearings do not need to follow the same procedures as meetings of the members. To simplify the requirements for the hearing, the Board has also removed the proposed requirement that subsequent conduct cannot be raised at the hearings. Commenters discussed that subsequent conduct is relevant to the hearing, this requirement is not part of the Governance Modernization Act, and the hearing is not a criminal trial. Therefore, subsequent conduct could be discussed at an expulsion hearing; however, the subsequent conduct must be related to the conduct outlined in the notice for fairness reasons. For example, if the original conduct and rationale for proposed expulsion was abusive personal conduct, and the person repeated abusive conduct after the notice was sent that could be discussed at the hearing. But, at the hearing the credit union should not raise a violation of the membership agreement related to a loan loss as that is a new unrelated rationale E:\FR\FM\26JYR1.SGM 26JYR1 48060 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 for the expulsion and the member would not be on notice of the new rationale. A member should not be expected to address new rationales not discussed in the notice of pending expulsion. In adopting their own hearing procedures, FCUs should do their best to ensure they adopt procedures they reasonably expect are defensible under any applicable law and are consistent with the intent of the Governance Modernization Act. Additionally, the Board is clarifying that hearing procedures are not considered amendments to NCUA’s expulsion policy and do not require Board approval. For example, procedures related to the order, amount of time members have to speak, or whether questions will be asked are not governed by NCUA’s expulsion policy. Each credit union may determine its own hearing procedures. The final rule generally only requires that hearings provide members a meaningful opportunity to present their case to the FCU’s board orally. The Board expects hearings to be held in a fair, reasonable, and consistent manner that provides members a reasonable opportunity to present their case, but the final rule does not include prescriptive procedures. These general principles are intended to guide credit unions and ensure members are given a fair opportunity to present their case against expulsion and an opportunity to respond to the FCU’s concerns without limiting FCU boards from determining the structure of their own hearings. Finally, the Board notes that members can file complaints with the NCUA if the complaint cannot be resolved directly with the credit union or consider the possibility of independent legal action if the FCU does not provide fair and reasonable hearing procedures.18 One commenter also requested that if a member does not attend a hearing, the final rule should state the FCU may proceed with the expulsion vote. The Board agrees. If a member requests a hearing and does not attend, the FCU board may proceed with the expulsion vote. Appeal Rights The Board also sought comment on whether the final rule should include an appeal right for members. No commenters expressed support for an appeal right, and several stated that a request for reinstatement is a form of an 18 The NCUA will not investigate matters that are the subject of a pending lawsuit or offer legal assistance. Additionally, the NCUA will not represent consumers in settling claims or recovering damages. VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 appeal. A few commenters also explicitly stated that the final rule should not require supervisory committees to review records related to expulsion, but it would make sense for the FCU to review expulsions as part of an internal audit. A few commenters mentioned that there may be a private right of action related to expulsion, and therefore, formal appeal rights are unnecessary. The Board has not adopted formal appeal rights in the final rule. As discussed previously, a member’s concern about fairness can be addressed through complaints to the NCUA or consideration of private rights of action. The Board encourages FCUs to discuss the potential of private rights of action with local counsel, particularly when they are inclined to adopt more restrictive hearing procedures. FCU Board Vote After the hearing, the FCU board of directors must hold a vote in a timely manner on expelling the member. The proposed rule defined a timely manner as within 30 calendar days. A few commenters stated that this timeline was reasonable, several thought the final rule should provide discretion to boards of directors, and two commenters thought 90 days is a more appropriate timeline. The final rule provides 30 calendar days for the Board vote. The Board believes 30 days represents a reasonable time to hold a vote and that 90 days would be too long to provide the member with a resolution to the notice of pending expulsion. In addition, a three-month delay in an expulsion vote may undermine the board of director’s position on the severity of the member’s activity that the Board expects as justification for the potential expulsion. Notice of Expulsion Under the proposed rule, once a member is expelled the FCU must provide notice to the member. The notice should state the reason for the member’s expulsion, and if a hearing was conducted or written testimony provided, the FCU should provide a response to the member’s statements. The notice must also provide information on the effect of the expulsion, including information related to account access and any deductions related to amounts due. One commenter recommended the Board provide model language for the expulsion notice. The Board is declining to provide model language covering these aspects of an expulsion. The Board believes each termination notice should be tailored to the specific PO 00000 Frm 00030 Fmt 4700 Sfmt 4700 member subject to expulsion. For example, the effect of expulsion may depend on the accounts held by the member at the FCU and the contract terms of those accounts. Additionally, without a standard form it is more likely FCUs would be intentional about articulating the grounds for expulsion in a manner that best protects the credit union and provides appropriate rights and notice to the member. Therefore, the Board does not believe this type of disclosure is appropriate for a standard form. Under the final rule, if a member is expelled, either after the board votes to expel the member following a hearing or 60 days after receipt of the notice if no hearing is requested, the FCU must provide written notice of the expulsion. The notice must provide information on the effect of the expulsion, including information related to account access and any withdrawals by the FCU related to amounts due. Specifically, the notice should include pertinent information to the member, including that expulsion does not relieve a member of any liability to the FCU and that the FCU will pay all the member’s shares upon their expulsion less any amounts due. The notice should include a line-by-line accounting of any deductions related to amounts due. The notice should also include when and how the member will receive any money in their accounts. The written notice must be provided to the member in person, by mail to the member’s address, or electronically if the member has elected to receive electronic communications from the credit union. The proposed rule explicitly asked whether the final rule should include a minimum amount of time before an FCU is permitted to call an existing obligation or offset amounts owed. Many commenters stated that the final rule should leave the option to call the member’s outstanding loans or other obligations to the FCU. Commenters generally stated that an option to freeze any available funds would prevent the member from withdrawing funds and leaving the FCU with a potential loss. One commenter stated that FCUs should call closed-end secured credit (such as an auto loan) and offset any available funds, assuming the contract permitted such an action. The final rule does not include any restrictions on calling or offsetting existing obligations. Instead, the Board believes this is a matter that should be left to state contract law, consumer protection laws, and FCU boards’ discretion. E:\FR\FM\26JYR1.SGM 26JYR1 lotter on DSK11XQN23PROD with RULES1 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations For Cause Under the Governance Modernization Act, an FCU’s board may expel a member for cause, which means the following: (a) a substantial or repeated violation of the membership agreement of the credit union; (b) a substantial or repeated disruption, including dangerous or abusive behavior (as defined by the NCUA Board pursuant to a rulemaking), to the operations of a credit union; or (c) fraud, attempted fraud, or other illegal conduct that a member has been convicted of in relation to the credit union, including in connection with the credit union’s employees conducting business on behalf of the credit union. For repeated violations of the membership agreement that are nonsubstantial, the proposed rule required prior notice to the member. A few commenters disagreed on the need for repeated notice for non-substantial violations. One commenter stated that members have already received the expulsion policy and a member can raise exculpatory information at the hearing. The same commenter also stated that the Governance Modernization Act does not specify that the same provision of the membership agreement needs to be repeatedly violated to trigger expulsion. Therefore, the Board should permit an FCU to expel a member who violates any provision or combination of provisions of the membership agreement repeatedly. The Board has not made changes in response to these comments, and the final rule requires notice for repeated non-substantial violations of the membership agreement. First, FCU boards have considerable discretion to determine what violation is nonsubstantial, and an initial notice is only required for non-substantial violations. If an FCU board determines a violation is non-substantial, then it is likely the member would be unaware the conduct could result in expulsion. Second, the Board believes an initial notice is necessary to ensure members are aware that they may be expelled for repeated, non-substantial violations of the membership agreement. The warning notice before the notice of expulsion is only for potential expulsions related to repeated violations that are deemed non-substantial. The FCU’s board may act to expel a member immediately for substantial violations of the membership agreement and does not need to provide a warning notice for substantial violations of the membership agreement. The Board does not believe the added burden or time VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 required by an extra notice is outweighed by the potential benefit to members who may be unaware that their conduct is grounds for expulsion. The Board also specifically sought comment on whether the final rule should limit the time between the FCU’s notice of a violation and the repeated behavior. Many commenters stated any repeated behavior should be grounds for expulsion regardless of the time between the events. One commenter favored a maximum amount of time for non-substantial repeated violations to qualify as grounds for expulsion. The commenter noted, however, the FCU should retain the flexibility to limit services prior to that time. The Board agrees, and the final rule includes a twoyear limit on the amount of time that may occur between non-substantial repeated violations to qualify as grounds for expulsion. The Board believes that non-substantial conduct that occurs less frequently than every two years does not present sufficient disruptions to the FCU’s operations to warrant expulsion. The Board also solicited comments on typical violations of a membership agreement that cause concern for FCUs and whether FCUs consider causing a loss to be a substantial violation of the membership agreement. One commenter recommended examples of substantial violations of the membership agreement. FCUs provided many examples of potential grounds for expulsion related to violating the membership agreement, including red flags for money laundering, participation in restricted activities (for example, personal share draft accounts being used for business transactions), causing property damage or engaging in fraudulent activities, causing physical or mental harm to an employee, members sharing account access devices with unauthorized individuals, account service abuse, engaging in conduct that would give rise to a bond or insurance claim, and causing a financial loss to the credit union (or conduct that would have caused a loss but for the FCU’s loss prevention). A few FCUs raised examples of concerns that the Board does not universally agree should be grounds for expulsion. The Board is commenting on these examples to provide guidance to FCUs in how the agency will interpret and administer the final rule. One credit union stated failing to keep accounts secure (for example, keeping the PIN with the debit card) should be grounds for expulsion. In such a case, the Board recommends limiting services and access to debit cards if the credit union believes access should be limited. The Board has intentionally kept the PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 48061 limitation of services policy for credit unions to have a variety of remedies available for problematic conduct. One FCU stated that a member filing bankruptcy should be considered per se or automatic material loss, and another commenter stated that the final rule should permit FCUs to expel people who could target credits unions after being forced out of a bank.19 The Board disagrees. The Board considers both examples to be sources of potential harm to the FCU and, without more, not actual disruptions or violations. Additionally, the Board is concerned a policy that states filing bankruptcy is a per se loss might unfairly impact members who have prioritized loan payments to the FCU. For example, a member who has prioritized paying an auto loan should not be subject to expulsion due to filing bankruptcy from overwhelming medical debt. The final rule, however, provides FCU boards discretion to determine what behaviors constitute substantial violations of the membership agreement or dangerous or abusive behaviors. The Board believes such a determination would be dependent on the particular facts and would be difficult to determine through a universal policy applicable to all FCUs. Therefore, the final rule does not define or otherwise limit an FCU’s discretion to determine what behavior or violation of the membership agreement is substantial. One commenter also discussed that not all FCUs have a document called a ‘‘membership agreement,’’ and many read the term as a combination of several documents. The Board believes the term should generally be defined as any documents customarily provided to the member at account opening that include terms and conditions of FCU membership and terms and conditions of the account being opened. Under the proposed rule, a member may also be expelled by an FCU board for a substantial or repeated disruption, including dangerous or abusive behavior, to the operations of a credit union. The proposed rule defined dangerous or abusive behavior as follows: (1) violence, intimidation, physical threats, harassment, or physical or verbal abuse of officials or employees of the credit union, members, or agents of the credit union (this includes actions while on FCU premises, through use of telephone, 19 The Board notes that there may be statutory restrictions outside of the FCU Act on FCUs taking certain actions based on a member’s bankruptcy filing. The Board recommends FCUs consult with counsel before engaging in any expulsion solely due to a member’s bankruptcy filing. E:\FR\FM\26JYR1.SGM 26JYR1 lotter on DSK11XQN23PROD with RULES1 48062 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations mail, email, or other electronic method, or otherwise related to the credit union’s activities); (2) behavior that causes or threatens damage to FCU property; or (3) unauthorized use or access of FCU property. The proposed rule generally relied on the current definition of a member not in good standing to define dangerous or abusive behavior. The proposed rule also stated that expressions of frustration with the FCU or its employees through elevated volume and tone or repeated interactions with employees are insufficient to constitute dangerous or abusive behavior. One trade association urged the Board to remove this statement. The commenter stated that depending upon the facts and circumstances, these behaviors may well constitute harassment or verbal abuse and a valid basis for restricting services as harassment. The Board wants to be clear that racist, sexist, personally insulting, or otherwise offensive language is grounds for limiting access to FCU employees or expulsion. However, the Board also wants to be clear that members who are upset, frustrated, or otherwise agitated with an FCU should not be expelled on that basis alone. The Board believes this determination is likely dependent on the context and should be considered on a case-by-case basis. Deciding which side of the line a member is on is not a simple matter insofar as it requires the credit union to balance the need to preserve the safety of individual staff, other members, and the integrity of the workplace with the rights of the affected member. As with repeated violations of the membership agreement, if the FCU’s board acts to expel a member for repeated disruptions that are nonsubstantial, the FCU must have first provided written notice to the member after an instance of such disruption. In contrast, substantial disruptions, including any conduct that would constitute dangerous or abusive behavior, may be grounds for immediate action and termination of membership. This distinction and requirement to put a member on notice of conduct that, if repeated, may lead to expulsion, stem from the Governance Modernization Act, which defines ‘‘cause’’ in part as ‘‘a substantial or repeated disruption.’’ Additionally, as discussed previously in connection with limitation of services policies, an FCU may immediately take actions such as limiting services, contacting local law enforcement, seeking a restraining order, or pursuing other lawful means to protect the credit union, its property, credit union members, staff and officials, and VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 nothing in the FCU Act or the FCU Bylaws prevents an FCU from using whatever lawful means it deems necessary to address circumstances in which a member poses a risk of harm to the FCU, its members, or its staff. A member may also be expelled for cause if the member has engaged in fraud, attempted fraud, or been convicted of other illegal conduct in relation to the credit union, including in connection with the credit union’s employees conducting business on behalf of the credit union. The Board solicited comments on whether it should define fraud or attempted fraud. Many commenters stated the Board does not need to define the term fraud. The final rule does not include a definition of fraud or attempted fraud. One commenter suggested clarifying in the regulatory text that a conviction is not necessary for fraud or attempted fraud. The Board agrees and has made this clarification. Reinstatement Under the Governance Modernization Act, a member expelled by a two-thirds vote of an FCU’s board of directors must be given an opportunity to request reinstatement of membership. The member may be reinstated by either a majority vote of a quorum of the directors of the FCU or a majority vote of the members of the FCU present at a meeting, which the proposed rule said must be a special meeting. Two commenters recommended the Board clarify how the determination is made between the two options. These commenters recommended that the decision be at the sole discretion of the FCU. The Board agrees and is clarifying that FCU boards have discretion to choose between the two options. One commenter stated that if an FCU opts for a member vote the final rule should permit the vote to occur at an annual meeting. The Board agrees. Under the final rule, the FCU may act on a reinstatement request through a majority vote of a quorum of the directors of the credit union, a majority vote of the members of the credit union present at a special meeting, or majority vote of members at an annual meeting provided that the annual meeting occurs within 90 days of the member’s reinstatement request. The final rule requires that if the FCU addresses the reinstatement request through an annual meeting, this meeting must occur within 90 days of the reinstatement request. The Board believes a previously expelled member should not have to wait up to one year (which may be necessary if an annual meeting occurs just before the member PO 00000 Frm 00032 Fmt 4700 Sfmt 4700 requests reinstatement) for a resolution to their reinstatement request. Finally, the rule clarifies that an in-person vote is not required if the FCU holds a meeting of the members to vote on the reinstatement request. The proposed rule also specified that an FCU is required to hold a board vote or special meeting in response to a reinstatement request only once. Many commenters agreed that FCU boards should not have to vote on reinstatement more than once. Some commenters suggested the final rule provide a minimum amount of time before an FCU must act on a reinstatement request (for example, one year after expulsion). The final rule does not include a minimum amount of time for a reinstatement request. Members are only entitled to one reinstatement request, and the Board believes each member should be able to make that request based on that member’s own circumstances. Finally, the Board solicited comments on whether a member convicted of other illegal conduct should be automatically reinstated if the conviction is later overturned. No commenters who discussed this issue were in favor of automatic reinstatement. The final rule does not include automatic reinstatement if the conviction is overturned. Each FCU board could take this into consideration if a member requests reinstatement. The overturning of a conviction might cause the FCU to reconsider its expulsion decision, but the underlying conduct that led to expulsion may still be relevant. In this area, the Board believes that FCUs should exercise sound judgment and consult with counsel if they need further guidance. Class of Members Under the Governance Modernization Act, an expulsion of a member by an FCU’s board of directors must be done on an individual, case-by-case basis. Further, neither the NCUA Board nor any FCU may expel a class of members. The proposed rule stated that a class of members included a class of members that have caused a loss. One commenter was opposed to this interpretation. The Governance Modernization Act, however, is clear that expulsion must be done individually on a case-by-case basis.20 Further, all anti-discrimination laws and regulations remain applicable, and expulsions of a class of members based on any class or characteristic such as, but not limited to, race, color, religion, national origin, gender, sexual 20 12 E:\FR\FM\26JYR1.SGM U.S.C. 1764(e). 26JYR1 lotter on DSK11XQN23PROD with RULES1 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations orientation, gender identity, age, familial status, or disability status, are strictly prohibited. An FCU may have liability if it exercises its discretion in a manner that has a discriminatory purpose or effect or disparate impact under anti-discrimination laws. In addition, members cannot be expelled due to or in retaliation for their complaints to the NCUA or any other regulatory agency or law enforcement, such as the CFPB, and members who are employees or former employees of the FCU cannot be expelled for any protected whistleblower activities.21 The proposed rule also sought comment on whether the possibility of FCUs expelling some members but not others for engaging in certain behavior is a cause for concern. A few FCUs stated this concern would likely be addressed through adoption of policies on expulsions. Another commenter, however, stated FCUs should not be required to adopt any policy on expulsion. One commenter generally thought this would not likely be an issue because FCUs are focused on growing membership and would not arbitrarily expel members. One commenter thought private rights of actions would address this concern. FCUs should be aware of the potential for discrimination, including disparate impacts on and arbitrary treatment of members. An FCU must ensure that its implementation of the authority to expel members for cause is done consistently and does not violate anti-discrimination laws or regulations. The Board recommends each FCU consider adopting a policy related to when its board should expel members, especially if the FCU intends to expel members for violations of the membership agreement. Each FCU should periodically review its past expulsions to ensure there is not a disparate impact created from its expulsion policy. To enable NCUA examiners to review relevant information related to expulsions, the proposed rule required FCUs to maintain records relating to expelled members for five years. Commenters provided a variety of responses to this proposed requirement. One stated any record retention policy should align with other member documents that must be retained after account closing. One commenter suggested setting the requirement at seven years as that should meet or exceed most statutes of limitation. One stated the proposed five-year retention 21 See 12 U.S.C. 1790b. The final rule clarifies that retaliation is impermissible even if other reasons motivate the expulsion. In particular, the relevant text in appendix A has been revised to remove the qualifier ‘‘solely.’’ VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 period is reasonable and not a compliance burden. This commenter recommended FCUs retain evidence of the member behavior leading up to the expulsion decision, all formal written communications to the member related to the behavior and the expulsion decision, and documents used or introduced in the hearing. One commenter recommended that the retention of clear copies (and not originals) is sufficient. The final rule has increased the retention period to six years. The Board agrees with the commenter who recommended aligning the retention period with state statute of limitation laws. The Board believes that six years is likely the most common statute of limitations for contracts under state law. The Board also wants FCUs to retain records over a sufficient period so examiners can review the records and have the necessary data to ensure expulsions do not have a disparate impact on a protected class.22 The rule does not specify necessary documents for the record or the format for retention, but the Board expects a record to include general documents related to the member, such as the member’s last known contact information, membership agreement, loan files, and specific documents related to the cause of the member’s expulsion, including written communications from the credit union regarding the expulsion, the board’s decision to expel the member, any written response from the member, and information or minutes relating to any hearing, should one occur. Past Member Conduct as Grounds for Expulsion The proposed rule discussed whether FCUs may only expel members for conduct that occurs after a certain date, such as when notice of the policy is provided to members, when the FCU board adopts a bylaw amendment, or when the Governance Modernization Act was enacted. A few commenters stated that the final rule should provide the option of reviewing past behavior of the member. Many offered the date the Governance Modernization Act was signed into law. The final rule does not prescribe a date after which member conduct must occur for the conduct to serve as grounds for expulsion. The Board agrees there are some reasonable examples of 22 FCUs should be aware that any minimum retention period required by regulation may be extended if litigation develops, and the final rule does not purport to preempt the requirements of judicial forums with respect to ongoing record preservation for reasonably anticipated litigation. PO 00000 Frm 00033 Fmt 4700 Sfmt 4700 48063 past conduct that could serve as grounds for expulsion and does not want to remove the option for FCUs to expel these members. The Board, however, recommends that FCUs consider fairness issues and litigation risk when considering past conduct as grounds for expulsion. For example, expelling a member who currently is subject to a limitation of services for a violent action would be more reasonable than expelling someone for past conduct that has not led to a limitation in services. More broadly, while Congress did not specifically constrain an FCU’s reliance on past conduct, the legislation requires each FCU to provide a copy of its expulsion policy to each member before an FCU may implement it. Relying on conduct that occurred before an FCU provides the policy to each member may raise legal risks for the FCU. Other Comments A few commenters raised issues with aspects of the proposal that were from the Governance Modernization Act and outside of the Board’s discretion. One commenter stated that FCU management, and not FCU boards of directors, should make the member expulsion decision. One FCU recommended that the expulsion procedures mirror or be significantly similar to that of state-chartered credit unions. One commenter requested that the Board provide a flow chart to help FCUs understand the expulsion process. The Board does not believe the rule is sufficiently complex that a flow chart is warranted as part of this final rule. One commenter stated that there should be no private right of action under the Governance Modernization Act. The Board notes that the Act does not include an express private right of action. The Board neither intends to establish a private right of action with this final rule nor preclude a private right of action that may be available under existing law. FCUs should consider legal risks when establishing their policies. Finally, one commenter discussed whether FCUs could take steps to address delinquencies without invoking the limitation of services policy. The commenter asked that Article II provide either of the following: (a) the standard is not ‘‘significantly delinquent’’ but rather the old standard of ‘‘loss,’’ or (b) the concept of limitation of services for members not in good standing does not prohibit day-to-day collections activities, actions resulting from the creditworthiness of members, or targeted responses to abuse in a single E:\FR\FM\26JYR1.SGM 26JYR1 48064 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations account or communications channel. The Board is clarifying in this preamble that the limitation of services policy is not intended to limit day-to-day collections activities, actions resulting from the creditworthiness of members, or targeted responses to abuse in a single account or communications channel. Implementation After the effective date of this final rule, FCUs have the option to amend their bylaws to provide their boards of directors with authority to expel members for cause. FCUs seeking to adopt these authorities must amend their bylaws through a two-thirds vote of their boards of directors. Such FCUs do not need to submit the amendment to the NCUA for its approval provided the amendment is identical to the language included in this final rule or only includes additional language on hearing procedures as discussed in the preceding paragraphs. FCUs may adopt amendments immediately after the effective date of the final rule or at any point in the future. However, the amendment included in this final rule is optional, and FCUs do not need to amend their bylaws or take any other action in response to this final rule. Those FCUs electing not to act in response to this final rule, however, could expel a member solely through a special meeting of the members or on the basis of a violation of a nonparticipation policy. IV. Regulatory Procedures lotter on DSK11XQN23PROD with RULES1 Paperwork Reduction Act The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency creates a new or amends existing information collection requirements.23 For purposes of the PRA, an information collection requirement may take the form of a reporting, recordkeeping, or a thirdparty disclosure requirement. The NCUA may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a valid Office of Management and Budget (OMB) control number. The current information collection requirements for FCU Bylaws are approved under OMB control number 3133–0052. The proposed rule included an estimated burden of 5,227 hours associated with the rulemaking. The Board received and considered comments on the estimated burden. Under the final rule, the notice requirements to be provided to the 23 44 U.S.C. 3507(d); 5 CFR part 1320. VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 member are as follows: (1) the notice of potential expulsion for cause, (2) the notice of expulsion, and (3) the notice of expulsion due to repeated, nonsubstantial violations of the membership agreement or repeated disruptions for non-substantial conduct. These notices will be provided to the member by the FCU as prescribed by proposed sections 2 and 3 of Article XIV of appendix A to part 701. The information collection requirements associated with these disclosure notices vary depending on the number of respondents. An estimated total of 5,227 responses will be generated, taking an hour per response, for a total of 5,227 burden hours associated with the notice requirements. Additionally, FCUs are required to retain and maintain all records associated with the expulsion policy, and it is estimated to average 30 minutes per FCU for a total annual burden of 1,230 hours. Therefore, there is a total burden of 6,457 hours associated with this rulemaking. The total burden associated with OMB Control Number: 3133–0052 is as follows: OMB Control Number: 3133–0052. Title of information collection: Federal Credit Union Bylaws, Appendix A to Part 701. Estimated number of respondents: 3,076. Estimated number of responses per respondent: 347. Estimated total annual responses: 1,067,833. Estimated total annual burden hours per response: 0.35. Estimated total annual burden hours: 377,263. The total annual burden hours increased due to the disclosure requirements. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) generally requires that when an agency issues a proposed rule or a final rule pursuant to the Administrative Procedure Act or another law, the agency must prepare a regulatory flexibility analysis that meets the requirements of the RFA and publish such analysis in the Federal Register. Specifically, the RFA normally requires agencies to describe the impact of a rulemaking on small entities by providing a regulatory impact analysis. For purposes of the RFA, the Board considers credit unions with assets less than $100 million to be small entities.24 A regulatory flexibility analysis is not required, however, if the agency 24 NCUA Interpretive Ruling and Policy Statement 15–1, 80 FR 57512 (Sept. 24, 2015). PO 00000 Frm 00034 Fmt 4700 Sfmt 4700 certifies that the rule will not have a significant economic impact on a substantial number of small entities and publishes its certification and a short, explanatory statement in the Federal Register together with the rule. The Board does not believe the final rule results in any burden or other significant economic impact to small entities. First, adoption of the flexibilities included in the rule is optional, and FCUs are not required to amend their bylaws. Additionally, even if FCUs revise their bylaws in response to the rule, it is within FCUs’ discretion to exercise the authority provided in the final rule to expel a member. The Board also believes that expulsion will continue to be rare, and thus, any impact from the rule will be limited. Further, the final rule includes no affirmative requirements for small credit unions and will not affect the competitive balance between small and large credit unions. Therefore, the Board certifies that the final rule does not have a significant economic impact on a substantial number of small entities. Executive Order 13132 Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. The NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the Executive order to adhere to fundamental federalism principles. This final rule applies to FCUs only and does not have substantial direct effects on the states, on the relationship between the National Government and the states, or on the distribution of power and responsibilities among the various levels of government. Any effect the final rule might have on statechartered credit unions or development of state law on expulsion would be purely speculative and attenuated. The NCUA has therefore determined that this rule does not constitute a policy that has federalism implications for purposes of the Executive order. Assessment of Federal Regulations and Policies on Families The NCUA has determined that this final rule will not affect family wellbeing within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105–277, 112 Stat. 2681 (1998). In particular, the NCUA has reviewed the criteria specified in section 654(c)(1) of that act, by evaluating whether this rule (1) impacts the stability or safety of the family, particularly in terms of marital E:\FR\FM\26JYR1.SGM 26JYR1 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations commitment, (2) impacts the authority of parents in the education, nurture, and supervision of their children, (3) helps the family perform its functions, (4) affects disposable income or poverty of families and children, (5) only financially impacts families, if at all, to the extent such impacts are justified; (6) may be carried out by State or local government or by the family, or (7) establishes a policy concerning the relationship between the behavior and personal responsibility of youth and the norms of society. Under this statute, if the agency determines the rule may negatively affect family well-being, then the agency must provide an adequate rationale for its implementation. The NCUA has determined that the implementation of this proposed rule would not affect family well-being within the meaning of the statute. Of the seven factors in the statute, the factors on disposable income and financial impact appear most relevant. Removing access to financial services at an FCU may negatively affect a member and their family. These actions, however, would be unlikely to affect disposable income or poverty directly, so the NCUA finds that the rule does not have a negative effect as described in the statute. Moreover, the final rule implements a statutory mandate, and the NCUA cannot decline to implement the legislation. The NCUA has taken potentially adverse effects on members into account in designing the rule. lotter on DSK11XQN23PROD with RULES1 Small Business Regulatory Enforcement Fairness Act—Congressional Review Act The Congressional Review chapter of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) generally provides for congressional review of agency rules.25 A reporting requirement is triggered in instances where the NCUA issues a final rule as defined in the Administrative Procedure Act.26 Besides being subject to congressional oversight, an agency rule may also be subject to a delayed effective date if it is a ‘‘major rule.’’ The NCUA does not believe this rule is a ‘‘major rule’’ within the meaning of the relevant sections of the statute. As required by the statute, the NCUA will submit this final rule OMB for it to determine if this final rule is a ‘‘major rule’’ for purposes of the statute. The NCUA also will file appropriate reports with Congress and the Government Accountability Office so this rule may be reviewed. 25 5 U.S.C. 551. 26 Id. VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 List of Subjects in 12 CFR Part 701 Credit, Credit unions, Federal credit union bylaws. By the NCUA Board on July 20, 2023. Melane Conyers-Ausbrooks, Secretary of the Board. For the reasons discussed in the preamble, the Board amends 12 CFR part 701 as follows: PART 701—ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS 1. The authority citation for part 701 continues to read as follows: ■ Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789. Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601– 3610. Section 701.35 is also authorized by 42 U.S.C. 4311–4312. 2. In appendix A to part 701: a. Revise Articles II and Article XIV; and ■ b. In Official NCUA Commentary— Federal Credit Union Bylaws, revise Articles II and Article XIV. The revisions read as follows: ■ ■ Appendix A to Part 701—Federal Credit Union Bylaws * * * * * Article II. Qualifications for Membership Section 1. Field of membership. The field of membership of this credit union is limited to that stated in Section 5 of its charter. Section 2. Membership application procedures. Persons eligible for membership under Section 5 of the charter must sign a membership application on approved forms. The applicant becomes a member upon approval of the application by a membership officer, after subscription to at least one share, payment of the initial installment, and payment of a uniform entrance fee if required by the board. If the membership officer denies a person’s membership application, the credit union must explain the reasons for the denial in writing upon written request. Section 3. Maintenance of membership share required. A member who withdraws all shareholdings or fails to comply with the time requirements for restoring his or her account balance to par value in Article III, section 3, ceases to be a member. By resolution, the board may require persons readmitted to membership to pay another entrance fee. Section 4. Continuation of membership. (a) Once a member, always a member. Once a member, always a member until the person or organization chooses to withdraw its membership or is expelled under the Act and Article XIV of these bylaws. (b) Limitation of services. Notwithstanding any provision of these bylaws, the board of directors may adopt a policy that limits PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 48065 credit union services to any member not in good standing. Section 5. Member in good standing. Members in good standing retain all their rights and privileges in the credit union. A member not in good standing may be subject to a policy that limits credit union services. A member not in good standing is one who has engaged in any of the conduct in Article XIV, section 3, related to for-cause expulsion. In the event of a suspension of service, the member will be notified of what accounts or services have been discontinued. Subject to Article XIV and any applicable limitation of services policy approved by the board, members not in good standing retain their right to attend, participate, and vote at the annual and special meetings of the members and maintain a share account. * * * * * Article XIV. Expulsion and Withdrawal Section 1. Expulsion procedure. A credit union may expel a member in one of three ways. The first way is through a special meeting. Under this option, a credit union must call a special meeting of the members, provide the member the opportunity to be heard, and obtain a two-thirds vote of the members present at the special meeting to expel a member. The second way to expel a member is under a nonparticipation policy given to each member that follows the requirements found in the Act. The third way to expel a member is by a two-thirds vote of a quorum of the directors of the credit union. A credit union can only expel a member for cause and through a vote of the directors of the credit union if it follows the policy for expulsion in section 2. Section 2. A credit union’s directors may vote to expel a member for cause if the credit union has provided a written copy of this Article or the optional standard disclosure notice to each member of the credit union. The communication of the policy, along with all notices required under this section, must be legible, written in plain language, reasonably understandable by ordinary members, and may be provided electronically only in the case of members who have elected to receive electronic communications from the credit union. If a member will be subject to expulsion, the member shall be notified in writing in advance, along with the reason for such expulsion. The notice must include, at minimum, (i) relevant dates, (ii) sufficient detail for the member to understand the grounds for expulsion, (iii) the member’s right to request a hearing, (iv) how to request a hearing, (v) the procedures related to the hearing, (vi) notification that, if a hearing is not requested, membership will terminate after 60 calendar days, and (vii) if applicable, a general statement on the effect of expulsion related to the member’s accounts or loans at the credit union. The notice cannot include only conclusory statements regarding the reason for the member’s expulsion. The notice must also tell the member that any complaints related to the member’s potential expulsion should be submitted to NCUA’s Consumer Assistance Center if the complaint cannot be resolved directly with the credit union. The FCU must maintain a copy of the E:\FR\FM\26JYR1.SGM 26JYR1 lotter on DSK11XQN23PROD with RULES1 48066 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations provided notice for its records. The 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 credit union, may be provided electronically. A member shall have 60 calendar days from the date of receipt of a notification to request a hearing from the board of directors of the credit union. A member is not entitled to attend the hearing in person, but the member must be provided a meaningful opportunity to present the member’s case orally to the FCU board through a videoconference hearing. The member may choose to provide a written submission to the Board instead of a hearing with oral statements. If a member cannot participate in a videoconference hearing, then the FCU may offer a telephonic hearing. If a member does not request a hearing or provide a written submission, the member shall be expelled after the end of the 60-day period after receipt of the notice. If a member requests a hearing, the board of directors must provide the member with a hearing. At the hearing, the board of directors may not raise any rationale for expulsion that is not explicitly included in the notice to the member. After the hearing, the board of directors of the credit union must hold a vote within 30 calendar days on expelling the member. If a member is expelled, either through the expiration of the 60-day period or a vote to expel the member after a hearing, written notice of the expulsion must be provided to the member in person, by mail to the member’s address, or, if the member has elected to receive electronic communications from the credit union, may be provided electronically. The notice must provide information on the effect of the expulsion, including information related to account access and any deductions by the credit union related to amounts due. The notice must also tell the member that any complaints related to their expulsion should be submitted to NCUA’s Consumer Assistance Center if the complaint cannot be resolved directly with the credit union. The notice must also state that the member has an opportunity to request reinstatement. A member expelled under this authority must be given an opportunity to request reinstatement of membership. The FCU may act on a reinstatement request through a majority vote of a quorum of the directors of the credit union, a majority vote of the members of the credit union present at a special meeting, or a majority vote of members at an annual meeting, provided the annual meeting occurs within 90 days of the member’s reinstatement request. If the FCU holds a meeting of the members to vote on the reinstatement request, an in-person vote is not required. An FCU is only required to hold a board vote or special meeting in response to a member’s first reinstatement request following expulsion. FCUs are required to maintain records related to any member expelled through a vote of the directors of the credit union for six years. Section 3. The term cause in this Article means (A) a substantial or repeated violation of the membership agreement of the credit VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 union; (B) a substantial or repeated disruption, including dangerous or abusive behavior, to the operations of a credit union, as defined below; or (C) fraud, attempted fraud, or conviction of other illegal conduct in relation to the credit union, including the credit union’s employees conducting business on behalf of the credit union. If the FCU is considering expulsion of a member due to repeated non-substantial violations of the membership agreement or repeated disruptions to the credit union’s operations, the credit union must provide written notice to the member at least once prior to the notice of expulsion, and the violation or conduct must be repeated within two years after having been notified of the violation. The written notice must state the specific nature of the violation or conduct and that if the violation or conduct occurs again, the member may be expelled from the credit union. Dangerous or abusive behavior includes the following: (1) violence, intimidation, physical threats, harassment, or physical or verbal abuse of officials or employees of the credit union, members, or agents of the credit union. This only includes (a) actions while on credit union premises or otherwise related to credit union activities, and through use of telephone, mail, email, or other electronic method; (b) behavior that causes or threatens damage to credit union property; or (c) unauthorized use or access of credit union property. Expressions of frustration with the credit union or its employees through elevated volume and tone; expressions of intent to seek lawful recourse, regardless of perceived merit; or repeated interactions with credit union employees are insufficient to constitute dangerous or abusive behavior. Additionally, members cannot be expelled due to or in retaliation for their complaints to the NCUA or any other regulatory agency or law enforcement, and members who are employees or former employees of the FCU cannot be expelled for any protected whistleblower activities. Section 4. Expulsion or withdrawal does not relieve a member of any liability to the credit union. The credit union will pay all of the member’s shares upon the member’s expulsion or withdrawal less any amounts due to the credit union. Section 5. An expulsion of a member pursuant to section 2 shall be done individually, on a case-by-case basis, and neither the NCUA Board nor any credit union may expel a class of members. * * * * * Official NCUA Commentary—Federal Credit Union Bylaws Article II. Qualifications for Membership i. Entrance fee: FCUs may not vary the entrance fee among different classes of members (such as students, minors, or nonnatural persons) because the Act requires a uniform fee. FCUs may, however, eliminate the entrance fee for all applicants. ii. Membership application procedures: Under section 113 of the Act,3 the board acts upon applications for membership. However, PO 00000 3 See 12 U.S.C. 1761b. Frm 00036 Fmt 4700 Sfmt 4700 the board can appoint membership officers from among the members of the credit union. Such membership officers cannot be a paid officer of the board, the financial board officer, any assistant to the paid officer of the board or to the financial officer, or any loan officer. As described under section 2 of this Article, an applicant becomes a member upon approval by a membership officer and payment of at least one share (or installment) and uniform entrance fee, if applicable. (iii) Violent, belligerent, disruptive, or abusive members: Many credit unions have confronted the issue of handling a violent, belligerent, disruptive, or abusive individual. Doing so is not a simple matter insofar as it requires the credit union to balance the need to preserve the safety of individual staff, other members, and the integrity of the workplace, on one hand, with the rights of the affected member on the other. In accordance with the Act and applicable legal interpretations, there is a reasonably wide range within which FCUs may fashion a policy that addresses these interrelated responsibilities. Thus, an individual who has become violent, belligerent, disruptive, or abusive may be prohibited from entering the premises or making telephone contact with the credit union, and the individual may be severely restricted in terms of eligibility for products or services. So long as the individual is not barred from exercising the right to vote at annual meetings and is allowed to maintain a regular share account, the FCU may fashion and implement a policy that is reasonably designed to preserve the safety of its employees and the integrity of the workplace. The policy need not be identical nor applied uniformly in all cases; there is room for flexibility and a customized approach to fit the circumstances. In fact, the NCUA anticipates that in some circumstances, such as violence or a credible threat of violence against another member or credit union staff in the FCU or its surrounding property, an FCU may take immediate action to restrict most, if not all, services to the member. This may occur along a parallel track as the credit union begins the process of expelling the member under Article XIV. In other situations, such as a member who frequently writes checks with insufficient funds, the FCU may attempt to resolve the matter with the member before limiting check writing services. Once a limitation of services policy is adopted or revised, members must receive notice. The FCU should disclose the policy to new members when they join and notify existing members of the policy at least 30 calendar days before it becomes effective. The credit union’s board has the option to adopt the amendment addressing members in good standing. * * * * * Article XIV. Expulsion and Withdrawal As noted in the commentary to Article II, there is a wide range of measures available to the credit union in responding to abusive or unreasonably disruptive members. A credit union can limit services under Article II for a member not in good standing. A credit union may also expel the member for cause after a two-thirds vote of the credit union’s E:\FR\FM\26JYR1.SGM 26JYR1 Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 directors.11 Dangerous and abusive behavior is considered any violent, belligerent, unreasonably disruptive, or abusive behavior. Examples of dangerous and abusive conduct include, but are not limited to, a member threatening physical harm to employees, a member repeatedly and unwelcomely giving gifts to or asking tellers on dates, a member repeatedly using racial or sexist language towards employees, and a member threatening to follow a loan officer home for denying a loan. A credit union must provide notice of the expulsion to the member. The notice must include the reason for the expulsion, and if a hearing was conducted or written testimony provided, the credit union should provide a response to the member’s statements. The notice must be specific and not just include conclusory statements regarding the reason for the member’s expulsion. For example, a general statement that the member’s behavior has been deemed abusive and the member is being subject to expulsion procedures would be insufficient as an explanation. A credit union is prohibited from expelling a class of members under this provision. That would include a board acting to remove all delinquent members or class of delinquent members. If a special meeting of the members is called to expel the member, only in-person voting is permitted in conjunction with the special meeting, so that the affected member has an opportunity to present the member’s case and respond to the credit union’s concerns. However, an in-person meeting is not required if a member is expelled by a two-thirds vote of the board of directors. In addition, FCUs should consider the commentary under Article XVI about members using accounts for unlawful purposes. Optional Standard Disclosure of Expulsion Policy We may terminate your membership in [name of FCU] in one of three ways. The first way is through a special meeting. Under this option, we may call a special meeting of the members, provide you an opportunity to be heard, and obtain a two-thirds vote of the members present at the special meeting in favor of your expulsion. The second way to terminate your membership is under a nonparticipation policy given to each member that follows certain requirements. The third way to terminate your membership is by a two-thirds vote of a quorum of the directors of the credit union for cause. Cause is defined as follows: (A) a substantial or repeated violation of [name of membership agreement] with [us]; (B) a substantial or repeated disruption, including dangerous or abusive behavior, to the credit union’s operations; or (C) fraud, attempted fraud, or a conviction of other illegal conduct that a member has been convicted of in relation to [us], including in connection with our employees conducting business on behalf of us. Before the board votes on an expulsion, [we] must provide written notice to your mail address (or email, if applicable) on record or 11 See 12 U.S.C. 1764. VerDate Sep<11>2014 17:11 Jul 25, 2023 Jkt 259001 personally provide the written notice. [We] must provide the specific reasons for the expulsion and allow you an opportunity to rebut those reasons through a hearing if you choose. It is your responsibility to keep your contact information with [us] up to date, and to open and read notices from [us]. Unless [we] determine to allow otherwise, there is no right to an in-person hearing with the board. If you fail to request a hearing within 60 calendar days of receipt of the notice, you will be expelled. You may submit any complaints about your pending expulsion or expulsion to NCUA’s Consumer Assistance Center if the complaint cannot be resolved with the credit union. [We] will confirm any expulsion with a letter with information on the effect of the expulsion and how you can request reinstatement. Expulsion or withdrawal from membership does not relieve a member of liability to the credit union, and we may demand immediate repayment of the money you owe to us after expulsion, subject to any applicable contract terms and conditions. For additional information on expulsion and a copy of our expulsion policy, see [Article XIV of our Bylaws]. * * * * * [FR Doc. 2023–15715 Filed 7–25–23; 8:45 am] BILLING CODE 7535–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA–2023–1500; Project Identifier MCAI–2023–00642–T; Amendment 39–22511; AD 2023–14–11] RIN 2120–AA64 Airworthiness Directives; Bombardier, Inc., Airplanes Federal Aviation Administration (FAA), DOT. ACTION: Final rule; request for comments. AGENCY: The FAA is adopting a new airworthiness directive (AD) for certain Bombardier, Inc., Model BD–100–1A10 airplanes. This AD was prompted by reports of unexpected pitch upset upon autopilot disconnect. This AD requires revising the Non-Normal Procedures section of the existing airplane flight manual (AFM) associated with Auto Flight. The FAA is issuing this AD to address the unsafe condition on these products. DATES: This AD is effective August 10, 2023. The Director of the Federal Register approved the incorporation by reference of certain publications listed in this AD as of August 10, 2023. The FAA must receive comments on this AD by September 11, 2023. SUMMARY: PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 48067 You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods: • Federal eRulemaking Portal: Go to regulations.gov. Follow the instructions for submitting comments. • Fax: 202–493–2251. • Mail: U.S. Department of Transportation, Docket Operations, M– 30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE, Washington, DC 20590. • Hand Delivery: Deliver to Mail address above between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. AD Docket: You may examine the AD docket at regulations.gov under Docket No. FAA–2023–1500; or in person at Docket Operations between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this final rule, the mandatory continuing airworthiness information (MCAI), any comments received, and other information. The street address for Docket Operations is listed above. Material Incorporated by Reference: • For service information identified in this final rule, contact Bombardier Business Aircraft Customer Response Center, 400 Coˆte-Vertu Road West, Dorval, Que´bec H4S 1Y9, Canada; telephone 514–855–2999; email ac.yul@ aero.bombardier.com; website bombardier.com. • You may view this referenced service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 2200 South 216th Street, Des Moines, WA. For information on the availability of this material at the FAA, call 206–231–3195. It is also available at regulations.gov under Docket No. FAA–2023–1500. FOR FURTHER INFORMATION CONTACT: Deep Gaurav, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516– 228–7300; email: deep.gaurav@faa.gov. SUPPLEMENTARY INFORMATION: ADDRESSES: Comments Invited The FAA invites you to send any written relevant data, views, or arguments about this final rule. Send your comments to an address listed under ADDRESSES. Include ‘‘Docket No. FAA–2023–1500; Project Identifier MCAI–2023–00642–T’’ at the beginning of your comments. The most helpful comments reference a specific portion of the final rule, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this final rule because of those comments. E:\FR\FM\26JYR1.SGM 26JYR1

Agencies

National Credit Union Administration

[Federal Register Volume 88, Number 142 (Wednesday, July 26, 2023)]
[Rules and Regulations]
[Pages 48055-48067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15715]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AF51


Federal Credit Union Bylaws

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: On March 15, 2022, Congress enacted the Credit Union 
Governance Modernization Act of 2022 (Governance Modernization Act). 
Under the statute, the NCUA has 18 months following the date of 
enactment to develop a policy by which a Federal credit union (FCU) 
member may be expelled for cause by a two-thirds vote of a quorum of 
the FCU's board of directors. The NCUA Board (Board) is issuing this 
final rule to amend the standard FCU bylaws (FCU Bylaws) to adopt such 
a policy.

DATES: The final rule is effective August 25, 2023.

FOR FURTHER INFORMATION CONTACT: John Tamashiro, Director, Division of 
Consumer Access; Paul Dibble, Consumer Access Program Officer, Office 
of Credit Union Resources and Expansion; Lisa Roberson, Deputy 
Director, Office of Consumer Financial Protection; Rachel Ackmann, 
Senior Staff Attorney; or Ian Marenna, Associate General Counsel, 
Office of General Counsel; 1775 Duke Street, Alexandria, VA 22314-3428. 
John Tamashiro can be reached at (703) 548-2577, Paul Dibble can be 
reached at (703) 664-3164, Lisa Roberson can be reached at (703) 548-
2466, Rachel Ackmann can be reached at (703) 548-2601, and Ian Marenna 
can be reached at (703) 518-6554.

SUPPLEMENTARY INFORMATION: 

I. Background

    Under the Federal Credit Union Act (FCU Act) and standard FCU 
Bylaws prior to the effective date of this final rule, there were two 
ways a member may be expelled, namely: (1) by a two-thirds vote of the 
membership present at a special meeting called for that purpose, and 
only after the individual is provided an opportunity to be heard; and 
(2) for non-participation in the affairs of the credit union, as 
specified in a policy adopted and enforced by the board.\1\ These 
requirements were set out in the standard FCU Bylaws in appendix A to 
part 701 of the NCUA's regulations.\2\
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    \1\ 12 U.S.C. 1764.
    \2\ 12 CFR part 701, appendix A. Section 108 of the FCU Act 
requires the Board to prepare periodically a form of bylaws for use 
by FCU incorporators and to provide that form to FCU incorporators 
upon request. 12 U.S.C. 1758. FCU incorporators must submit proposed 
bylaws to the NCUA as part of the chartering process. Once the NCUA 
has approved an FCU's proposed bylaws, the FCU must operate 
according to its approved bylaws or seek agency approval for a bylaw 
amendment that is not among permissible options in the standard FCU 
Bylaws. 12 CFR 701.2(a).
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    The FCU Bylaws were last amended by the NCUA Board in 2019 (2019 
FCU Bylaws Final Rule).\3\ The 2019 FCU Bylaws Final Rule was a 
comprehensive update that sought to modernize, clarify, and simplify 
the FCU Bylaws and was the culmination of several years of engagement 
between the NCUA and factoring in an assessment of stakeholder input. 
During the 2019 FCU Bylaws Final Rule rulemaking, several commenters 
expressed concern that the FCU Act expulsion provisions discussed 
previously made it difficult to proactively limit security threats or 
financial harm caused by violent, belligerent, disruptive, or abusive 
credit union members. Specifically, commenters were concerned about the 
burden from requiring members to call a special meeting to seek to 
expel such members.
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    \3\ 84 FR 53278 (Oct. 4, 2019).
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    The 2019 FCU Bylaws Final Rule, however, did not modify the 
procedures for expelling an FCU member as the procedures for expelling 
a member are governed by the FCU Act. Instead, the 2019 FCU Bylaws 
Final Rule added a new section to the FCU Bylaws on limiting services 
for certain members. The 2019 FCU Bylaws Final Rule created the concept 
of a ``member in good standing.'' \4\ So long as a member remains in 
good standing, that member retains all the rights and privileges 
associated with FCU membership. A member not in good standing, however, 
may be subject to an FCU's limitation of services policy. For example, 
an FCU may limit all or most credit union services, such as ATM 
services, credit cards, loans, share draft privileges, preauthorized 
transfers, and access to credit union facilities, to a member who has 
engaged in conduct that has caused a loss to the FCU or that threatens 
the safety of credit union staff, facilities, or other members in the 
FCU or its surrounding property.
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    \4\ 12 CFR part 701, appendix A, Art. II, sec. 5.
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    The 2019 FCU Bylaws Final Rule was clear that certain actions 
warrant immediate limitation of services or access to credit union 
facilities, such as violence against other credit union members or 
credit union staff in the credit union facility or the surrounding 
property. The Board also stated clearly that an FCU may immediately 
take actions such as contacting local law enforcement, seeking a 
restraining order, or pursuing other lawful means to protect the credit 
union, credit union members, and staff. Nothing in the FCU Act or the 
FCU Bylaws prevents an FCU from using whatever lawful means it deems 
necessary to address circumstances in which a member poses a risk of 
harm to the FCU, its property, its members, or its staff and officials.
    Even a member deemed not in good standing, however, retains 
fundamental rights as a credit union member. For example, a member not 
in good standing has the right to attend, participate in, and vote at 
the annual and special meetings of the members and the right to 
maintain a share account.\5\ Those rights may be terminated only 
through a member's expulsion, and the Board explained in the 2019 FCU 
Bylaws Final Rule that it cannot amend the statutorily prescribed 
expulsion procedures for members.
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    \5\ The Board understands that a restraining or protective order 
from a court would bar a member from attending such meetings in 
person.
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    In March 2022, however, Congress enacted the Governance 
Modernization Act to revise the FCU Act procedures for expelling 
members.\6\ The legislative history of the Governance Modernization Act 
focused on FCUs' concerns that their ability to address violent and 
aggressive behaviors of certain members was inadequate. Like comments 
raised during the 2019 FCU Bylaws Final Rule rulemaking, the 
legislative history included concerns that FCUs lacked the tools to 
adequately protect employees and other members

[[Page 48056]]

from violent and abusive members and included concerns that members had 
threatened the life of an employee or in another case physically 
attacked a service representative. To address these concerns, Congress 
modified the FCU Act to provide FCUs with an option for expelling a 
member for cause by a two-thirds vote of a quorum of the board of 
directors. The legislative history also described the need for using 
this authority as a rare option and focused on more extreme examples of 
member behavior. This statutory authority, however, is not self-
executing. The legislation gave the Board 18 months following the date 
of enactment of the statute to develop and promulgate pursuant to a 
rulemaking a policy that FCUs may adopt to expel members for cause.
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    \6\ Public Law 117-103 (Mar. 15, 2022).
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    The Board notes that it is focused on improving access to financial 
services, in part, through its Advancing Communities through Credit, 
Education, Stability and Support (ACCESS) initiative.\7\ As part of 
this initiative, the NCUA is working to expand the availability of 
credit to stimulate economic growth and improve the financial well-
being of all Americans. This work also aims to ensure that the credit 
union system achieves its statutory mission of meeting the credit and 
savings needs of people, especially those of modest means.\8\
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    \7\ https://www.ncua.gov/support-services/access.
    \8\ Public Law 105-218, 112 Stat. 912 (Aug. 7, 1998).
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    The Board believes the expulsion of members is an extreme remedy 
that may have the effect of denying individuals access to financial 
services. In addition, as financial cooperatives, a credit union's 
expulsion of a member-owner is a particularly significant action 
resulting in financial exclusion. Therefore, consistent with certain 
statements in the legislative history, use of the authority under the 
Governance Modernization Act should be rare and used only for egregious 
member behavior.

II. The Proposed Rule

    At its September 22, 2022, meeting, the Board issued a proposed 
rule to amend the FCU Bylaws to adopt an expulsion policy consistent 
with the Governance Modernization Act.\9\ The proposal provided for a 
60-day comment period, which ended on December 2, 2022. The Board 
received 26 comments from FCUs, credit union leagues and trade 
associations, and a law firm. All commenters were generally supportive 
of increased flexibility for FCU boards of directors to expel members 
for cause. Almost all commenters, however, raised additional 
considerations for the Board, and several commenters recommended 
specific changes to the proposed rule. The comments are discussed in 
detail in the next section.
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    \9\ 87 FR 59740 (Oct. 3, 2022).
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III. The Final Rule

    The NCUA Board is now issuing a final rule to adopt a policy by 
which an FCU member may be expelled for cause by a vote of two-thirds 
of a quorum of an FCU's board of directors. The final rule also makes 
conforming changes to Article II of the FCU Bylaws regarding members in 
good standing.

Member in Good Standing

    As discussed previously, the 2019 FCU Bylaws Final Rule codified 
the concept of a ``member in good standing.'' So long as a member 
remains in good standing, that member retains all the rights and 
privileges associated with FCU membership.\10\ A member not in good 
standing, however, may be subject to an FCU's limitation of services 
policy. The primary reason for permitting FCUs to adopt a limitation of 
services policy was to provide FCUs with an alternative to holding a 
special meeting to address certain egregious member behavior.\11\ The 
enactment of the Governance Modernization Act, however, has provided 
FCUs' boards of directors with direct authority (subject to the NCUA 
Board promulgating a rule, described in the legislation as a policy) to 
expel a member for cause.
---------------------------------------------------------------------------

    \10\ 12 CFR part 701, appendix A, Art. II, sec. 5.
    \11\ 84 FR 53278 (Oct. 4, 2019).
---------------------------------------------------------------------------

    The proposed rule retained the provisions on limitation of 
services. The proposed rule discussed several reasons for retaining 
these provisions, including additional flexibility for FCUs to address 
certain disruptive member behaviors through less severe restrictions, 
the ability of FCU boards to restrict access and services in the case 
of a violent or abusive member who has yet to be expelled,\12\ and to 
provide FCUs an easier and more expeditious tool to address abusive and 
disruptive members. A board vote is not required under the limitation 
of services policy. All commenters who discussed the issue supported 
retaining the limitation of services policy in the FCU Bylaws. The 
Board agrees and continues to believe retaining the limitation of 
services policy provides important flexibility to FCU boards, and the 
final rule includes the limitation of services policy as proposed.
---------------------------------------------------------------------------

    \12\ An FCU may immediately take actions such as contacting 
local law enforcement, seeking a restraining order, or pursuing 
other lawful means to protect the FCU, its members, and staff, and 
nothing in the FCU Act nor the FCU Bylaws prevents an FCU from using 
whatever lawful means it deems necessary to address circumstances in 
which a member poses a risk of harm to the FCU, its property, its 
members, or its staff or officials.
---------------------------------------------------------------------------

    The proposed rule also included a few substantive changes to the 
limitation of services provisions. Specifically, the definition of a 
member not in good standing was removed. This definition included a 
list of behaviors that if engaged in by a member could trigger 
limitation of FCU services. However, the Governance Modernization Act 
also includes a list of behaviors that may warrant termination of 
membership. Instead of including two separate lists of disruptive, 
abusive, or violent behaviors, the proposed rule defined a member not 
in good standing as a member who has engaged in any of the conduct 
listed in the Governance Modernization Act, as implemented in Article 
XIV of the FCU Bylaws.
    Commenters differed on whether the final rule should include the 
same set of ``for cause'' behaviors for both expulsion and limitation 
of services. Many commenters thought the same behaviors should be used 
for both actions. Other commenters recommended a more expansive list of 
behaviors available to trigger a limitation of services. For these 
commenters, expulsion is a more extreme remedy than the limitation of 
services and the conduct triggering each remedy should not be 
synonymous. The Board has not made changes in response to these 
commenters. The Board believes the list of ``for cause'' behaviors is 
already expansive and includes the types of actions that are reasonable 
grounds for limiting services or expulsion.
    The proposed rule also made other technical conforming changes. For 
example, the proposed rule amended the requirement that the disruptive, 
violent, or abusive behavior have a logical relationship between the 
objectionable activities and the services to be suspended. This 
provision was removed because it is not included in the Governance 
Modernization Act. The Board sought comment on whether it should retain 
the existing language regarding a logical relationship between the 
``for cause'' behavior and limitation of services. Many commenters 
recommended removing this qualification as it is not included in the 
Governance Modernization Act. The final rule does not include the 
express provision related to the nexus between the behavior and the 
limitation of services; however, the Board expects each FCU's board of 
directors to use

[[Page 48057]]

appropriate discretion and only limit services when necessary.
    The proposed rule also included a question on whether the abusive 
or disruptive conduct must occur at the FCU. Many commenters objected 
to limiting expulsion to behaviors that occur at the FCU. Some of these 
commenters discussed electronic communications. For example, one 
commenter stated in an increasingly digital world with more channels 
for members to interact with an FCU, abusive behavior can occur over 
the phone, on social media, or through other channels that may not fit 
this physical location definition. These communications would likely be 
covered under the proposed rule, which stated dangerous or abusive 
behavior includes conduct while on credit union premises and through 
the use of telephone, mail, email, or other electronic method.
    Other commenters raised concerns about certain abuses that would 
not likely be covered under the proposed definition. Some examples of 
behavior that would not likely be included under the proposed rule 
include threats made at a location other than the credit union (such as 
a community event), stalking or assaulting of an employee that occurs 
at another location, or a violent crime committed by a member. The 
Board agrees with the commenters that these behaviors should be grounds 
for expulsion, and the final rule includes a catchall category of other 
behaviors related to credit union activities. Therefore, any conduct 
that is dangerous or abusive and related to a credit union's 
activities, regardless of the location of the conduct, may be grounds 
for limitation of services or expulsion. The catchall category would 
not include violent crime or dangerous or abusive behavior that is 
unrelated to the credit union's activities. The Board believes conduct 
that is unrelated to credit union activities should not be grounds for 
limitations of services or expulsion and is more appropriately handled 
through law enforcement.
    Finally, a few commenters suggested the final rule should clarify 
that limitation of services does not require a notice or hearing. The 
Board is clarifying that use of the limitation of services policy does 
not require notice or a hearing.

Expulsion and Withdrawal

    Under the Governance Modernization Act, a member may be expelled 
for cause by a two-thirds vote of a quorum of the FCU's board of 
directors. An FCU may only use this process to expel a member after the 
NCUA Board has developed a corresponding policy for expulsion and 
implemented such policy through rulemaking within 18 months following 
the date of enactment (March 15, 2022), and the FCU has adopted the 
related standard Bylaw amendment. The final policy for member expulsion 
is discussed below.

Notice of the Expulsion Policy

    Under the Governance Modernization Act, an FCU's directors may 
expel a member only if the FCU has provided, in written or electronic 
form, a copy of NCUA's expulsion policy to each member of the credit 
union. The proposed rule sought comment on whether the final rule 
should include a standard disclosure form of the NCUA expulsion policy 
outside of the language in Article XIV of the FCU Bylaws. Many 
commenters stated the final rule should include an optional model 
standard disclosure. A few commenters characterized a potential model 
as a safe harbor. In response to commenters' request, the Board has 
provided an optional standard disclosure. The disclosure is provided at 
the end of the standard FCU Bylaws.\13\
---------------------------------------------------------------------------

    \13\ The optional standard disclosure has been added for FCUs' 
convenience. However, it may not serve as a ``safe harbor'' as 
requested by commenters in all cases. Use of the standard disclosure 
would provide a ``safe harbor'' from potential NCUA action; however, 
members may have rights and potential remedies they could pursue 
under other laws than the Governance Modernization Act.
---------------------------------------------------------------------------

    A few commenters also requested that the Board clarify that FCUs 
may add the expulsion policy notice to the membership/account terms and 
conditions. The Board has no objection to FCUs adding the policy to 
membership and account terms and conditions.
    One commenter stated that the final rule should specify that the 
requirement for ``each'' member to receive a copy of the expulsion 
policy does not permit members to avoid expulsion by an operational 
error as to whether another member has received a copy of the policy. 
However, the requirement for ``each'' member to receive the policy is 
from the Governance Modernization Act, and the Board may not modify the 
requirement.
    The proposed rule also sought comment on whether FCUs should be 
required to get NCUA approval for all bylaw amendments related to 
expulsion procedures. Specifically, should certain modifications be 
considered fill-in-the-blank type provisions and therefore not require 
NCUA approval. Most commenters who discussed this issue believed the 
final rule should include some fill-in-the-blank type options for FCUs 
to customize their expulsion procedures without receiving NCUA 
approval. For example, a few commenters stated that if an FCU decides 
to allow an in-person hearing, NCUA approval should not be required.
    The final rule does not require NCUA approval to require an in-
person hearing. Additionally, as discussed subsequently, the NCUA will 
not consider hearing procedures such as the order of speakers or the 
length of the hearing as amendments to an expulsion policy. Therefore, 
hearing procedures do not require NCUA approval, provided the 
procedures are not inconsistent with the terms of NCUA's expulsion 
policy. Any variation to the express terms of NCUA's expulsion policy, 
or Article XIV, constitutes a bylaw amendment and is subject to NCUA 
approval.
    Finally, the Board sought comment on whether it should require both 
mail and electronic delivery of notices, even if the member has elected 
to receive electronic communications. No commenters who discussed this 
issue supported both mail and electronic delivery of notices, and the 
final rule does not require both mail and electronic delivery of 
notices for those members electing to receive electronic 
communications.

Expulsion Vote and Notice of Pending Expulsion

    The Governance Modernization Act provides that an FCU's board of 
directors may vote to expel a member for cause by a two-thirds vote of 
a quorum of the directors of the credit union. If a member will be 
subject to expulsion, the member shall be notified of the pending 
expulsion, along with the reason for such expulsion. The Board sought 
comment on how prescriptive the final rule should be regarding the 
content of the pending expulsion notice. A few commenters stated the 
proposed requirements are too prescriptive or vague and may lead to 
conflict with examiners, and a few commenters requested the Board 
provide a standard disclosure for the notice of pending expulsion. One 
commenter stated that the Board should outline the categories of 
information required to be included in a pending expulsion notice and 
do so by a published form document.
    The Board does not believe a standard disclosure is appropriate for 
the notice of pending expulsion as the Board expects each notice to be 
tailored to the specific member and their pending expulsion. In 
response to commenters, however, the final rule does include additional 
clarifying information on

[[Page 48058]]

what is expected in the notice. Specifically, the final rule provides 
that relevant dates, sufficient detail for the member to understand the 
grounds for expulsion, how to request a hearing, the procedures related 
to the hearing and, if applicable, a general statement on the effect of 
expulsion related to the member's accounts or loans at the credit union 
must be included in the pending expulsion notice.
    The proposed rule required that the reason for the pending 
expulsion be specific and not just include conclusory statements. For 
example, a general statement saying the member's behavior has been 
deemed abusive and the member is being subject to expulsion procedures 
is insufficient as an explanation. Instead, the FCU should include the 
date(s) of the interaction(s) and specific information describing the 
interaction(s), including a description of the member's conduct. 
Likewise, a notice stating the member violated the membership agreement 
also is insufficient as an explanation for the pending expulsion.
    One commenter stated that the pending expulsion notice should not 
require the identification of any specific FCU employee and instead 
generic terms such as ``loan officer'' should be sufficient. The Board 
agrees and is clarifying that FCUs do not need to identify any employee 
by name or branch location and generic terms such as ``customer service 
representative,'' ``loan officer,'' or ``teller'' are sufficient.
    The notice should, however, include specific information about how 
the member violated the agreement or engaged in dangerous or abusive 
behavior and include other relevant information as appropriate. The 
member is relying on the provided notice if a hearing is requested. As 
such, the notice must include sufficient detail for the member to 
understand why he or she is being subject to expulsion so that the 
member has a meaningful opportunity to present their case against 
expulsion and an opportunity to respond to the FCU's concerns in a 
requested hearing.
    The notice must also tell the member that any complaints related to 
their potential expulsion should be submitted to NCUA's website if the 
complaint cannot be resolved directly by the credit union.\14\ Several 
commenters expressed concerns with this proposed requirement. One 
commenter questioned how this process would align with the general 
process to forward certain complaints to the Consumer Financial 
Protection Bureau, or CFPB. One commenter questioned the NCUA's 
authority for this requirement. One commenter requested specific 
timelines for when the NCUA receives the complaint compared to the 
hearing date and whether the NCUA would share the complaint with the 
FCU. One commenter asked that the NCUA only accept complaints after the 
hearing.
---------------------------------------------------------------------------

    \14\ Currently complaints can be submitted to the NCUA at either 
https://mycreditunion.gov/consumer-assistance-center or https://ncua.gov/consumers.
---------------------------------------------------------------------------

    The Board has made two changes in response to these comments. The 
final rule provides that complaints should be raised with the NCUA only 
if the member has first tried to resolve the complaint directly with 
the credit union and clarified complaints should be sent to NCUA's 
Consumer Assistance Center. The Board believes credit unions should 
have an opportunity to address members' complaints first. However, the 
Board believes contacting the NCUA is an appropriate avenue for 
members' concerns or complaints. Therefore, the Board has not removed 
the requirement to notify the members of their right to complain to the 
NCUA. Additionally, the Board notes that notifying members of their 
right to complain is not providing members any new rights, and the 
notice is intended solely to remind members of their existing rights.
    Additionally, the Board does not believe notification of the right 
to file complaints is novel when considering routine FCU activity. For 
example, loan denial notices also include similar language regarding 
member complaints. The Board also does not believe including the 
statement on complaints presents a burden to FCUs. Finally, the NCUA 
generally has the right to remedy violations of laws, rules, or 
regulations, which would include the Governance Modernization Act and 
this rule, under 12 U.S.C. 1786.

Hearing

    Under the Governance Modernization Act, a member has 60 calendar 
days from the date of receipt of a notification of pending expulsion to 
request a hearing from the board of directors of the FCU. The proposed 
rule discussed that the member has 60 calendar days from the date of 
receipt, not the date the FCU provides the notice. Further, the 
proposed rule stated that the member has 60 calendar days to provide 
the FCU with a request for a hearing. Therefore, the member may mail 
the notice 60 days after receiving the notice. As such, the FCU may not 
receive the notice within 60 calendar days, and the Board recommended 
that FCUs provide sufficient time for both the member's receipt and the 
FCU's receipt before expelling a member.
    Many commenters had concerns about these provisions and requested 
that the Board incorporate a presumption of receipt by the member. 
Suggestions for this presumption ranged from three to five business 
days after the FCU mailed the expulsion letter to the address on file. 
One FCU expressed concerns about situations in which the FCU does not 
have a current address on file. Another commenter raised concerns if 
the member denied receipt of a mailing, and another recommended that a 
Certificate of Mailing should satisfy this requirement.
    The Board has not amended the final rule to add a presumption of 
receipt. A member who objects to an expulsion due to the lack of 
receipt of a notice may either file a complaint with the NCUA or pursue 
a private right of action in court.\15\ The NCUA would consider a 
letter that was properly addressed and mailed as received by its 
intended recipient absent conclusive evidence it was not received, but 
local jurisdictions may have their own procedures regarding 
presumptions of receipt. These are evidentiary issues related to due 
process that the Board encourages FCUs to consider in developing their 
procedures, to reasonably ensure they withstand potential legal 
challenges.\16\
---------------------------------------------------------------------------

    \15\ The NCUA will not investigate matters that are the subject 
of a pending lawsuit or offer legal assistance. Additionally, the 
NCUA will not represent consumers in settling claims or recovering 
damages.
    \16\ The FCUs have the option of sending notices by certified or 
registered mail as an additional step to preemptively address 
potential legal challenges from a member on the adequacy of notice.
---------------------------------------------------------------------------

    Another commenter objected to the proposed policy to provide the 
member 60 days to mail a hearing request, instead of 60 days for the 
FCU to receive a hearing request. This commenter recommended the final 
rule provide that the deadline for requesting a hearing is past if the 
FCU has not received the notice within 60 days after the member's 
receipt of the notice. The Board has not made any changes to the final 
rule in response to this comment.
    While rules in each jurisdiction may vary, often items postmarked 
by deadlines are considered timely. Further, any formal appeal by the 
member would likely be in the form of a private right of action and not 
to the NCUA, as the Governance Modernization Act does not include 
appeal rights to the NCUA. The Board suggests FCUs consider consulting 
with local counsel regarding the requirements in their jurisdiction

[[Page 48059]]

regarding receipt and timeliness of mailings.
    Other commenters generally objected to the Governance Modernization 
Act's requirement that a member has 60 days to request a hearing. A few 
commenters recommended this period be reduced. Some commenters 
recommended 30 days. Other commenters recommended the Board allow FCUs 
to expel certain members immediately. Another commenter recommended the 
Board interpret the Governance Modernization Act to allow for an 
immediate expulsion and then a 60-day period after expulsion to request 
a hearing.
    The Governance Modernization Act provides that the FCU must provide 
``Notification of pending expulsion.'' The statute also uses the term 
``in advance of the expulsion'' and then provides for expulsion after 
60 days if the member does not request a hearing. Therefore, the Board 
finds no authority in the statute to permit immediate expulsions or to 
allow a shorter timeframe than 60 days to request a hearing.
    The proposed rule provided that the FCU must maintain a copy of the 
notice provided for its records. The Board sought comment on whether 
this requirement is burdensome. In response, two credit unions stated 
that this requirement is not a burden, one commenter stated state law 
should determine this requirement, and one commenter generally stated 
if the notice is not retained, then the FCU should maintain a written 
record of the facts. The Board has not made any changes to the final 
rule in response to commenters as it believes the requirement 
represents only a small burden to credit unions and would assist 
examiners in any review of an FCU's expulsions. It also ensures an FCU 
has records available in the event of legal disputes over an expulsion.

Form of the Hearing

    Under the Governance Modernization Act, if a member does not 
request a hearing, the member is automatically expelled after the end 
of the 60-day period. If a member requests a hearing, the board of 
directors must provide the member with a hearing. The statute is silent 
on whether the hearing must be in person, and the proposed rule 
permitted in-person or virtual hearings and permitted members an option 
to offer only written testimony. The Board sought comments on whether 
fairness, other principles, or other laws may call for an in-person 
hearing or other hearing procedures. No commenter expressed support for 
mandatory in-person hearings.
    Commenters had wide ranging suggestions on the form of the hearing. 
Several commenters stated the final rule should permit FCUs to choose 
between in-person, virtual, and hearings conducted solely through 
written submissions (referred to as on-the-paper hearing), especially 
in cases of a violent or abusive member. Some commenters stated that 
there should be no hearing, just a written response if the member is 
dangerous or abusive. A few commenters recommended permitting 
telephonic hearings. For example, if a violent member does not have 
access to a computer to conduct a videoconference hearing, then the FCU 
should offer a telephonic hearing. One commenter recommended requiring 
members to appear virtually (and not permitting only written testimony 
as is permitted under the proposed rule). Another commenter, however, 
recommended requiring written testimony in addition to any oral 
testimony.
    In response to commenters, the final rule does not require in-
person hearings, as the Board continues to believe it is not necessary 
and may be problematic in cases of expulsion due to violence or 
threatened violence. Further, the Board agrees with commenters that a 
telephonic hearing would be appropriate if a member cannot participate 
by videoconference.\17\ Therefore, the final rule has been amended to 
permit the option of a telephonic hearing if the member cannot 
participate through a virtual hearing.
---------------------------------------------------------------------------

    \17\ For clarity, the final rule uses the terms videoconference 
and telephonic instead of the term virtual.
---------------------------------------------------------------------------

    The Board continues to believe that telephonic hearings and written 
hearings should not be the primary means of conducting hearings and are 
more appropriate forums for a hearing only if a virtual or in-person 
hearing is not a viable option. Therefore, the Board is not amending 
the rule to permit FCUs to offer members only telephonic hearings or 
written hearings. Members who are potentially subject to expulsion 
should have the option of orally presenting their case through a 
virtual hearing, or in-person if there are no safety concerns.

Hearing Procedures

    The proposed rule did not include many prescriptive requirements 
related to the structure and procedure for the hearing and included 
only general principles related to the fairness of the hearing, such as 
the FCU could not raise any reason or rationale for expulsion that is 
not explicitly included in the notice to the member. The proposed rule 
did not, for example, include provisions for the order of testimony at 
the hearing, time limits for members, or whether the member or board 
members may ask questions.
    Several commenters stated that the Board has provided sufficient 
guidance in the proposal regarding the structure and procedure of an 
expulsion hearing, and no further guidance is necessary. Other 
commenters objected to the proposed requirements not found in the 
Governance Modernization Act and characterized these elements as 
turning the expulsion process into something closer to the due process 
afforded a student facing expulsion at a public university than the 
termination of a consumer finance relationship. One commenter requested 
that the Board clarify that hearings do not need to follow the 
parliamentary procedure noted in Article IV, section 4(k) of the FCU 
Bylaws. One commenter suggested that the final rule include time limits 
for members at the hearing, such as 15 minutes. This commenter also 
requested that the final rule state FCU boards have no evidentiary 
burden.
    The Board agrees with the commenters who stated the proposed rule 
included sufficient guidance regarding the structure and procedure of 
an expulsion hearing and no further guidance is necessary. The Board 
believes that each FCU should have the flexibility to conduct a hearing 
as it deems appropriate and standard procedures across all FCUs are 
unnecessary. As requested by a commenter, the Board is clarifying that 
the hearings do not need to follow the same procedures as meetings of 
the members.
    To simplify the requirements for the hearing, the Board has also 
removed the proposed requirement that subsequent conduct cannot be 
raised at the hearings. Commenters discussed that subsequent conduct is 
relevant to the hearing, this requirement is not part of the Governance 
Modernization Act, and the hearing is not a criminal trial. Therefore, 
subsequent conduct could be discussed at an expulsion hearing; however, 
the subsequent conduct must be related to the conduct outlined in the 
notice for fairness reasons. For example, if the original conduct and 
rationale for proposed expulsion was abusive personal conduct, and the 
person repeated abusive conduct after the notice was sent that could be 
discussed at the hearing.
    But, at the hearing the credit union should not raise a violation 
of the membership agreement related to a loan loss as that is a new 
unrelated rationale

[[Page 48060]]

for the expulsion and the member would not be on notice of the new 
rationale. A member should not be expected to address new rationales 
not discussed in the notice of pending expulsion. In adopting their own 
hearing procedures, FCUs should do their best to ensure they adopt 
procedures they reasonably expect are defensible under any applicable 
law and are consistent with the intent of the Governance Modernization 
Act.
    Additionally, the Board is clarifying that hearing procedures are 
not considered amendments to NCUA's expulsion policy and do not require 
Board approval. For example, procedures related to the order, amount of 
time members have to speak, or whether questions will be asked are not 
governed by NCUA's expulsion policy. Each credit union may determine 
its own hearing procedures.
    The final rule generally only requires that hearings provide 
members a meaningful opportunity to present their case to the FCU's 
board orally. The Board expects hearings to be held in a fair, 
reasonable, and consistent manner that provides members a reasonable 
opportunity to present their case, but the final rule does not include 
prescriptive procedures. These general principles are intended to guide 
credit unions and ensure members are given a fair opportunity to 
present their case against expulsion and an opportunity to respond to 
the FCU's concerns without limiting FCU boards from determining the 
structure of their own hearings. Finally, the Board notes that members 
can file complaints with the NCUA if the complaint cannot be resolved 
directly with the credit union or consider the possibility of 
independent legal action if the FCU does not provide fair and 
reasonable hearing procedures.\18\
---------------------------------------------------------------------------

    \18\ The NCUA will not investigate matters that are the subject 
of a pending lawsuit or offer legal assistance. Additionally, the 
NCUA will not represent consumers in settling claims or recovering 
damages.
---------------------------------------------------------------------------

    One commenter also requested that if a member does not attend a 
hearing, the final rule should state the FCU may proceed with the 
expulsion vote. The Board agrees. If a member requests a hearing and 
does not attend, the FCU board may proceed with the expulsion vote.

Appeal Rights

    The Board also sought comment on whether the final rule should 
include an appeal right for members. No commenters expressed support 
for an appeal right, and several stated that a request for 
reinstatement is a form of an appeal. A few commenters also explicitly 
stated that the final rule should not require supervisory committees to 
review records related to expulsion, but it would make sense for the 
FCU to review expulsions as part of an internal audit. A few commenters 
mentioned that there may be a private right of action related to 
expulsion, and therefore, formal appeal rights are unnecessary.
    The Board has not adopted formal appeal rights in the final rule. 
As discussed previously, a member's concern about fairness can be 
addressed through complaints to the NCUA or consideration of private 
rights of action. The Board encourages FCUs to discuss the potential of 
private rights of action with local counsel, particularly when they are 
inclined to adopt more restrictive hearing procedures.
FCU Board Vote
    After the hearing, the FCU board of directors must hold a vote in a 
timely manner on expelling the member. The proposed rule defined a 
timely manner as within 30 calendar days. A few commenters stated that 
this timeline was reasonable, several thought the final rule should 
provide discretion to boards of directors, and two commenters thought 
90 days is a more appropriate timeline.
    The final rule provides 30 calendar days for the Board vote. The 
Board believes 30 days represents a reasonable time to hold a vote and 
that 90 days would be too long to provide the member with a resolution 
to the notice of pending expulsion. In addition, a three-month delay in 
an expulsion vote may undermine the board of director's position on the 
severity of the member's activity that the Board expects as 
justification for the potential expulsion.
Notice of Expulsion
    Under the proposed rule, once a member is expelled the FCU must 
provide notice to the member. The notice should state the reason for 
the member's expulsion, and if a hearing was conducted or written 
testimony provided, the FCU should provide a response to the member's 
statements. The notice must also provide information on the effect of 
the expulsion, including information related to account access and any 
deductions related to amounts due.
    One commenter recommended the Board provide model language for the 
expulsion notice. The Board is declining to provide model language 
covering these aspects of an expulsion. The Board believes each 
termination notice should be tailored to the specific member subject to 
expulsion. For example, the effect of expulsion may depend on the 
accounts held by the member at the FCU and the contract terms of those 
accounts. Additionally, without a standard form it is more likely FCUs 
would be intentional about articulating the grounds for expulsion in a 
manner that best protects the credit union and provides appropriate 
rights and notice to the member. Therefore, the Board does not believe 
this type of disclosure is appropriate for a standard form.
    Under the final rule, if a member is expelled, either after the 
board votes to expel the member following a hearing or 60 days after 
receipt of the notice if no hearing is requested, the FCU must provide 
written notice of the expulsion. The notice must provide information on 
the effect of the expulsion, including information related to account 
access and any withdrawals by the FCU related to amounts due.
    Specifically, the notice should include pertinent information to 
the member, including that expulsion does not relieve a member of any 
liability to the FCU and that the FCU will pay all the member's shares 
upon their expulsion less any amounts due. The notice should include a 
line-by-line accounting of any deductions related to amounts due. The 
notice should also include when and how the member will receive any 
money in their accounts. The written notice must be provided to the 
member in person, by mail to the member's address, or electronically if 
the member has elected to receive electronic communications from the 
credit union.
    The proposed rule explicitly asked whether the final rule should 
include a minimum amount of time before an FCU is permitted to call an 
existing obligation or offset amounts owed. Many commenters stated that 
the final rule should leave the option to call the member's outstanding 
loans or other obligations to the FCU. Commenters generally stated that 
an option to freeze any available funds would prevent the member from 
withdrawing funds and leaving the FCU with a potential loss. One 
commenter stated that FCUs should call closed-end secured credit (such 
as an auto loan) and offset any available funds, assuming the contract 
permitted such an action. The final rule does not include any 
restrictions on calling or offsetting existing obligations. Instead, 
the Board believes this is a matter that should be left to state 
contract law, consumer protection laws, and FCU boards' discretion.

[[Page 48061]]

For Cause
    Under the Governance Modernization Act, an FCU's board may expel a 
member for cause, which means the following: (a) a substantial or 
repeated violation of the membership agreement of the credit union; (b) 
a substantial or repeated disruption, including dangerous or abusive 
behavior (as defined by the NCUA Board pursuant to a rulemaking), to 
the operations of a credit union; or (c) fraud, attempted fraud, or 
other illegal conduct that a member has been convicted of in relation 
to the credit union, including in connection with the credit union's 
employees conducting business on behalf of the credit union.
    For repeated violations of the membership agreement that are non-
substantial, the proposed rule required prior notice to the member. A 
few commenters disagreed on the need for repeated notice for non-
substantial violations. One commenter stated that members have already 
received the expulsion policy and a member can raise exculpatory 
information at the hearing. The same commenter also stated that the 
Governance Modernization Act does not specify that the same provision 
of the membership agreement needs to be repeatedly violated to trigger 
expulsion. Therefore, the Board should permit an FCU to expel a member 
who violates any provision or combination of provisions of the 
membership agreement repeatedly.
    The Board has not made changes in response to these comments, and 
the final rule requires notice for repeated non-substantial violations 
of the membership agreement. First, FCU boards have considerable 
discretion to determine what violation is non-substantial, and an 
initial notice is only required for non-substantial violations. If an 
FCU board determines a violation is non-substantial, then it is likely 
the member would be unaware the conduct could result in expulsion. 
Second, the Board believes an initial notice is necessary to ensure 
members are aware that they may be expelled for repeated, non-
substantial violations of the membership agreement.
    The warning notice before the notice of expulsion is only for 
potential expulsions related to repeated violations that are deemed 
non-substantial. The FCU's board may act to expel a member immediately 
for substantial violations of the membership agreement and does not 
need to provide a warning notice for substantial violations of the 
membership agreement. The Board does not believe the added burden or 
time required by an extra notice is outweighed by the potential benefit 
to members who may be unaware that their conduct is grounds for 
expulsion.
    The Board also specifically sought comment on whether the final 
rule should limit the time between the FCU's notice of a violation and 
the repeated behavior. Many commenters stated any repeated behavior 
should be grounds for expulsion regardless of the time between the 
events. One commenter favored a maximum amount of time for non-
substantial repeated violations to qualify as grounds for expulsion. 
The commenter noted, however, the FCU should retain the flexibility to 
limit services prior to that time. The Board agrees, and the final rule 
includes a two-year limit on the amount of time that may occur between 
non-substantial repeated violations to qualify as grounds for 
expulsion. The Board believes that non-substantial conduct that occurs 
less frequently than every two years does not present sufficient 
disruptions to the FCU's operations to warrant expulsion.
    The Board also solicited comments on typical violations of a 
membership agreement that cause concern for FCUs and whether FCUs 
consider causing a loss to be a substantial violation of the membership 
agreement. One commenter recommended examples of substantial violations 
of the membership agreement. FCUs provided many examples of potential 
grounds for expulsion related to violating the membership agreement, 
including red flags for money laundering, participation in restricted 
activities (for example, personal share draft accounts being used for 
business transactions), causing property damage or engaging in 
fraudulent activities, causing physical or mental harm to an employee, 
members sharing account access devices with unauthorized individuals, 
account service abuse, engaging in conduct that would give rise to a 
bond or insurance claim, and causing a financial loss to the credit 
union (or conduct that would have caused a loss but for the FCU's loss 
prevention).
    A few FCUs raised examples of concerns that the Board does not 
universally agree should be grounds for expulsion. The Board is 
commenting on these examples to provide guidance to FCUs in how the 
agency will interpret and administer the final rule. One credit union 
stated failing to keep accounts secure (for example, keeping the PIN 
with the debit card) should be grounds for expulsion. In such a case, 
the Board recommends limiting services and access to debit cards if the 
credit union believes access should be limited. The Board has 
intentionally kept the limitation of services policy for credit unions 
to have a variety of remedies available for problematic conduct. One 
FCU stated that a member filing bankruptcy should be considered per se 
or automatic material loss, and another commenter stated that the final 
rule should permit FCUs to expel people who could target credits unions 
after being forced out of a bank.\19\ The Board disagrees.
---------------------------------------------------------------------------

    \19\ The Board notes that there may be statutory restrictions 
outside of the FCU Act on FCUs taking certain actions based on a 
member's bankruptcy filing. The Board recommends FCUs consult with 
counsel before engaging in any expulsion solely due to a member's 
bankruptcy filing.
---------------------------------------------------------------------------

    The Board considers both examples to be sources of potential harm 
to the FCU and, without more, not actual disruptions or violations. 
Additionally, the Board is concerned a policy that states filing 
bankruptcy is a per se loss might unfairly impact members who have 
prioritized loan payments to the FCU. For example, a member who has 
prioritized paying an auto loan should not be subject to expulsion due 
to filing bankruptcy from overwhelming medical debt.
    The final rule, however, provides FCU boards discretion to 
determine what behaviors constitute substantial violations of the 
membership agreement or dangerous or abusive behaviors. The Board 
believes such a determination would be dependent on the particular 
facts and would be difficult to determine through a universal policy 
applicable to all FCUs. Therefore, the final rule does not define or 
otherwise limit an FCU's discretion to determine what behavior or 
violation of the membership agreement is substantial.
    One commenter also discussed that not all FCUs have a document 
called a ``membership agreement,'' and many read the term as a 
combination of several documents. The Board believes the term should 
generally be defined as any documents customarily provided to the 
member at account opening that include terms and conditions of FCU 
membership and terms and conditions of the account being opened.
    Under the proposed rule, a member may also be expelled by an FCU 
board for a substantial or repeated disruption, including dangerous or 
abusive behavior, to the operations of a credit union. The proposed 
rule defined dangerous or abusive behavior as follows: (1) violence, 
intimidation, physical threats, harassment, or physical or verbal abuse 
of officials or employees of the credit union, members, or agents of 
the credit union (this includes actions while on FCU premises, through 
use of telephone,

[[Page 48062]]

mail, email, or other electronic method, or otherwise related to the 
credit union's activities); (2) behavior that causes or threatens 
damage to FCU property; or (3) unauthorized use or access of FCU 
property.
    The proposed rule generally relied on the current definition of a 
member not in good standing to define dangerous or abusive behavior. 
The proposed rule also stated that expressions of frustration with the 
FCU or its employees through elevated volume and tone or repeated 
interactions with employees are insufficient to constitute dangerous or 
abusive behavior. One trade association urged the Board to remove this 
statement. The commenter stated that depending upon the facts and 
circumstances, these behaviors may well constitute harassment or verbal 
abuse and a valid basis for restricting services as harassment.
    The Board wants to be clear that racist, sexist, personally 
insulting, or otherwise offensive language is grounds for limiting 
access to FCU employees or expulsion. However, the Board also wants to 
be clear that members who are upset, frustrated, or otherwise agitated 
with an FCU should not be expelled on that basis alone. The Board 
believes this determination is likely dependent on the context and 
should be considered on a case-by-case basis. Deciding which side of 
the line a member is on is not a simple matter insofar as it requires 
the credit union to balance the need to preserve the safety of 
individual staff, other members, and the integrity of the workplace 
with the rights of the affected member.
    As with repeated violations of the membership agreement, if the 
FCU's board acts to expel a member for repeated disruptions that are 
non-substantial, the FCU must have first provided written notice to the 
member after an instance of such disruption. In contrast, substantial 
disruptions, including any conduct that would constitute dangerous or 
abusive behavior, may be grounds for immediate action and termination 
of membership.
    This distinction and requirement to put a member on notice of 
conduct that, if repeated, may lead to expulsion, stem from the 
Governance Modernization Act, which defines ``cause'' in part as ``a 
substantial or repeated disruption.'' Additionally, as discussed 
previously in connection with limitation of services policies, an FCU 
may immediately take actions such as limiting services, contacting 
local law enforcement, seeking a restraining order, or pursuing other 
lawful means to protect the credit union, its property, credit union 
members, staff and officials, and nothing in the FCU Act or the FCU 
Bylaws prevents an FCU from using whatever lawful means it deems 
necessary to address circumstances in which a member poses a risk of 
harm to the FCU, its members, or its staff.
    A member may also be expelled for cause if the member has engaged 
in fraud, attempted fraud, or been convicted of other illegal conduct 
in relation to the credit union, including in connection with the 
credit union's employees conducting business on behalf of the credit 
union. The Board solicited comments on whether it should define fraud 
or attempted fraud. Many commenters stated the Board does not need to 
define the term fraud. The final rule does not include a definition of 
fraud or attempted fraud. One commenter suggested clarifying in the 
regulatory text that a conviction is not necessary for fraud or 
attempted fraud. The Board agrees and has made this clarification.

Reinstatement

    Under the Governance Modernization Act, a member expelled by a two-
thirds vote of an FCU's board of directors must be given an opportunity 
to request reinstatement of membership. The member may be reinstated by 
either a majority vote of a quorum of the directors of the FCU or a 
majority vote of the members of the FCU present at a meeting, which the 
proposed rule said must be a special meeting. Two commenters 
recommended the Board clarify how the determination is made between the 
two options. These commenters recommended that the decision be at the 
sole discretion of the FCU. The Board agrees and is clarifying that FCU 
boards have discretion to choose between the two options.
    One commenter stated that if an FCU opts for a member vote the 
final rule should permit the vote to occur at an annual meeting. The 
Board agrees. Under the final rule, the FCU may act on a reinstatement 
request through a majority vote of a quorum of the directors of the 
credit union, a majority vote of the members of the credit union 
present at a special meeting, or majority vote of members at an annual 
meeting provided that the annual meeting occurs within 90 days of the 
member's reinstatement request.
    The final rule requires that if the FCU addresses the reinstatement 
request through an annual meeting, this meeting must occur within 90 
days of the reinstatement request. The Board believes a previously 
expelled member should not have to wait up to one year (which may be 
necessary if an annual meeting occurs just before the member requests 
reinstatement) for a resolution to their reinstatement request. 
Finally, the rule clarifies that an in-person vote is not required if 
the FCU holds a meeting of the members to vote on the reinstatement 
request.
    The proposed rule also specified that an FCU is required to hold a 
board vote or special meeting in response to a reinstatement request 
only once. Many commenters agreed that FCU boards should not have to 
vote on reinstatement more than once. Some commenters suggested the 
final rule provide a minimum amount of time before an FCU must act on a 
reinstatement request (for example, one year after expulsion). The 
final rule does not include a minimum amount of time for a 
reinstatement request. Members are only entitled to one reinstatement 
request, and the Board believes each member should be able to make that 
request based on that member's own circumstances.
    Finally, the Board solicited comments on whether a member convicted 
of other illegal conduct should be automatically reinstated if the 
conviction is later overturned. No commenters who discussed this issue 
were in favor of automatic reinstatement. The final rule does not 
include automatic reinstatement if the conviction is overturned. Each 
FCU board could take this into consideration if a member requests 
reinstatement. The overturning of a conviction might cause the FCU to 
reconsider its expulsion decision, but the underlying conduct that led 
to expulsion may still be relevant. In this area, the Board believes 
that FCUs should exercise sound judgment and consult with counsel if 
they need further guidance.

Class of Members

    Under the Governance Modernization Act, an expulsion of a member by 
an FCU's board of directors must be done on an individual, case-by-case 
basis. Further, neither the NCUA Board nor any FCU may expel a class of 
members. The proposed rule stated that a class of members included a 
class of members that have caused a loss. One commenter was opposed to 
this interpretation. The Governance Modernization Act, however, is 
clear that expulsion must be done individually on a case-by-case 
basis.\20\
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 1764(e).
---------------------------------------------------------------------------

    Further, all anti-discrimination laws and regulations remain 
applicable, and expulsions of a class of members based on any class or 
characteristic such as, but not limited to, race, color, religion, 
national origin, gender, sexual

[[Page 48063]]

orientation, gender identity, age, familial status, or disability 
status, are strictly prohibited. An FCU may have liability if it 
exercises its discretion in a manner that has a discriminatory purpose 
or effect or disparate impact under anti-discrimination laws. In 
addition, members cannot be expelled due to or in retaliation for their 
complaints to the NCUA or any other regulatory agency or law 
enforcement, such as the CFPB, and members who are employees or former 
employees of the FCU cannot be expelled for any protected whistleblower 
activities.\21\
---------------------------------------------------------------------------

    \21\ See 12 U.S.C. 1790b. The final rule clarifies that 
retaliation is impermissible even if other reasons motivate the 
expulsion. In particular, the relevant text in appendix A has been 
revised to remove the qualifier ``solely.''
---------------------------------------------------------------------------

    The proposed rule also sought comment on whether the possibility of 
FCUs expelling some members but not others for engaging in certain 
behavior is a cause for concern. A few FCUs stated this concern would 
likely be addressed through adoption of policies on expulsions. Another 
commenter, however, stated FCUs should not be required to adopt any 
policy on expulsion. One commenter generally thought this would not 
likely be an issue because FCUs are focused on growing membership and 
would not arbitrarily expel members. One commenter thought private 
rights of actions would address this concern.
    FCUs should be aware of the potential for discrimination, including 
disparate impacts on and arbitrary treatment of members. An FCU must 
ensure that its implementation of the authority to expel members for 
cause is done consistently and does not violate anti-discrimination 
laws or regulations. The Board recommends each FCU consider adopting a 
policy related to when its board should expel members, especially if 
the FCU intends to expel members for violations of the membership 
agreement. Each FCU should periodically review its past expulsions to 
ensure there is not a disparate impact created from its expulsion 
policy.
    To enable NCUA examiners to review relevant information related to 
expulsions, the proposed rule required FCUs to maintain records 
relating to expelled members for five years. Commenters provided a 
variety of responses to this proposed requirement. One stated any 
record retention policy should align with other member documents that 
must be retained after account closing. One commenter suggested setting 
the requirement at seven years as that should meet or exceed most 
statutes of limitation. One stated the proposed five-year retention 
period is reasonable and not a compliance burden. This commenter 
recommended FCUs retain evidence of the member behavior leading up to 
the expulsion decision, all formal written communications to the member 
related to the behavior and the expulsion decision, and documents used 
or introduced in the hearing. One commenter recommended that the 
retention of clear copies (and not originals) is sufficient.
    The final rule has increased the retention period to six years. The 
Board agrees with the commenter who recommended aligning the retention 
period with state statute of limitation laws. The Board believes that 
six years is likely the most common statute of limitations for 
contracts under state law. The Board also wants FCUs to retain records 
over a sufficient period so examiners can review the records and have 
the necessary data to ensure expulsions do not have a disparate impact 
on a protected class.\22\
---------------------------------------------------------------------------

    \22\ FCUs should be aware that any minimum retention period 
required by regulation may be extended if litigation develops, and 
the final rule does not purport to preempt the requirements of 
judicial forums with respect to ongoing record preservation for 
reasonably anticipated litigation.
---------------------------------------------------------------------------

    The rule does not specify necessary documents for the record or the 
format for retention, but the Board expects a record to include general 
documents related to the member, such as the member's last known 
contact information, membership agreement, loan files, and specific 
documents related to the cause of the member's expulsion, including 
written communications from the credit union regarding the expulsion, 
the board's decision to expel the member, any written response from the 
member, and information or minutes relating to any hearing, should one 
occur.

Past Member Conduct as Grounds for Expulsion

    The proposed rule discussed whether FCUs may only expel members for 
conduct that occurs after a certain date, such as when notice of the 
policy is provided to members, when the FCU board adopts a bylaw 
amendment, or when the Governance Modernization Act was enacted. A few 
commenters stated that the final rule should provide the option of 
reviewing past behavior of the member. Many offered the date the 
Governance Modernization Act was signed into law.
    The final rule does not prescribe a date after which member conduct 
must occur for the conduct to serve as grounds for expulsion. The Board 
agrees there are some reasonable examples of past conduct that could 
serve as grounds for expulsion and does not want to remove the option 
for FCUs to expel these members. The Board, however, recommends that 
FCUs consider fairness issues and litigation risk when considering past 
conduct as grounds for expulsion. For example, expelling a member who 
currently is subject to a limitation of services for a violent action 
would be more reasonable than expelling someone for past conduct that 
has not led to a limitation in services.
    More broadly, while Congress did not specifically constrain an 
FCU's reliance on past conduct, the legislation requires each FCU to 
provide a copy of its expulsion policy to each member before an FCU may 
implement it. Relying on conduct that occurred before an FCU provides 
the policy to each member may raise legal risks for the FCU.

Other Comments

    A few commenters raised issues with aspects of the proposal that 
were from the Governance Modernization Act and outside of the Board's 
discretion. One commenter stated that FCU management, and not FCU 
boards of directors, should make the member expulsion decision. One FCU 
recommended that the expulsion procedures mirror or be significantly 
similar to that of state-chartered credit unions.
    One commenter requested that the Board provide a flow chart to help 
FCUs understand the expulsion process. The Board does not believe the 
rule is sufficiently complex that a flow chart is warranted as part of 
this final rule.
    One commenter stated that there should be no private right of 
action under the Governance Modernization Act. The Board notes that the 
Act does not include an express private right of action. The Board 
neither intends to establish a private right of action with this final 
rule nor preclude a private right of action that may be available under 
existing law. FCUs should consider legal risks when establishing their 
policies.
    Finally, one commenter discussed whether FCUs could take steps to 
address delinquencies without invoking the limitation of services 
policy. The commenter asked that Article II provide either of the 
following: (a) the standard is not ``significantly delinquent'' but 
rather the old standard of ``loss,'' or (b) the concept of limitation 
of services for members not in good standing does not prohibit day-to-
day collections activities, actions resulting from the creditworthiness 
of members, or targeted responses to abuse in a single

[[Page 48064]]

account or communications channel. The Board is clarifying in this 
preamble that the limitation of services policy is not intended to 
limit day-to-day collections activities, actions resulting from the 
creditworthiness of members, or targeted responses to abuse in a single 
account or communications channel.

Implementation

    After the effective date of this final rule, FCUs have the option 
to amend their bylaws to provide their boards of directors with 
authority to expel members for cause. FCUs seeking to adopt these 
authorities must amend their bylaws through a two-thirds vote of their 
boards of directors. Such FCUs do not need to submit the amendment to 
the NCUA for its approval provided the amendment is identical to the 
language included in this final rule or only includes additional 
language on hearing procedures as discussed in the preceding 
paragraphs. FCUs may adopt amendments immediately after the effective 
date of the final rule or at any point in the future. However, the 
amendment included in this final rule is optional, and FCUs do not need 
to amend their bylaws or take any other action in response to this 
final rule. Those FCUs electing not to act in response to this final 
rule, however, could expel a member solely through a special meeting of 
the members or on the basis of a violation of a nonparticipation 
policy.

IV. Regulatory Procedures

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency creates a new or amends existing information collection 
requirements.\23\ For purposes of the PRA, an information collection 
requirement may take the form of a reporting, recordkeeping, or a 
third-party disclosure requirement. The NCUA may not conduct or 
sponsor, and the respondent is not required to respond to, an 
information collection unless it displays a valid Office of Management 
and Budget (OMB) control number. The current information collection 
requirements for FCU Bylaws are approved under OMB control number 3133-
0052. The proposed rule included an estimated burden of 5,227 hours 
associated with the rulemaking. The Board received and considered 
comments on the estimated burden.
---------------------------------------------------------------------------

    \23\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

    Under the final rule, the notice requirements to be provided to the 
member are as follows: (1) the notice of potential expulsion for cause, 
(2) the notice of expulsion, and (3) the notice of expulsion due to 
repeated, non-substantial violations of the membership agreement or 
repeated disruptions for non-substantial conduct. These notices will be 
provided to the member by the FCU as prescribed by proposed sections 2 
and 3 of Article XIV of appendix A to part 701. The information 
collection requirements associated with these disclosure notices vary 
depending on the number of respondents. An estimated total of 5,227 
responses will be generated, taking an hour per response, for a total 
of 5,227 burden hours associated with the notice requirements. 
Additionally, FCUs are required to retain and maintain all records 
associated with the expulsion policy, and it is estimated to average 30 
minutes per FCU for a total annual burden of 1,230 hours. Therefore, 
there is a total burden of 6,457 hours associated with this rulemaking.
    The total burden associated with OMB Control Number: 3133-0052 is 
as follows:
    OMB Control Number: 3133-0052.
    Title of information collection: Federal Credit Union Bylaws, 
Appendix A to Part 701.
    Estimated number of respondents: 3,076.
    Estimated number of responses per respondent: 347.
    Estimated total annual responses: 1,067,833.
    Estimated total annual burden hours per response: 0.35.
    Estimated total annual burden hours: 377,263.
    The total annual burden hours increased due to the disclosure 
requirements.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule or a final rule pursuant to the 
Administrative Procedure Act or another law, the agency must prepare a 
regulatory flexibility analysis that meets the requirements of the RFA 
and publish such analysis in the Federal Register. Specifically, the 
RFA normally requires agencies to describe the impact of a rulemaking 
on small entities by providing a regulatory impact analysis. For 
purposes of the RFA, the Board considers credit unions with assets less 
than $100 million to be small entities.\24\ A regulatory flexibility 
analysis is not required, however, if the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities and publishes its certification and a short, 
explanatory statement in the Federal Register together with the rule.
---------------------------------------------------------------------------

    \24\ NCUA Interpretive Ruling and Policy Statement 15-1, 80 FR 
57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

    The Board does not believe the final rule results in any burden or 
other significant economic impact to small entities. First, adoption of 
the flexibilities included in the rule is optional, and FCUs are not 
required to amend their bylaws. Additionally, even if FCUs revise their 
bylaws in response to the rule, it is within FCUs' discretion to 
exercise the authority provided in the final rule to expel a member. 
The Board also believes that expulsion will continue to be rare, and 
thus, any impact from the rule will be limited. Further, the final rule 
includes no affirmative requirements for small credit unions and will 
not affect the competitive balance between small and large credit 
unions. Therefore, the Board certifies that the final rule does not 
have a significant economic impact on a substantial number of small 
entities.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the Executive order to adhere to fundamental 
federalism principles.
    This final rule applies to FCUs only and does not have substantial 
direct effects on the states, on the relationship between the National 
Government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Any effect the 
final rule might have on state-chartered credit unions or development 
of state law on expulsion would be purely speculative and attenuated. 
The NCUA has therefore determined that this rule does not constitute a 
policy that has federalism implications for purposes of the Executive 
order.

Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998). In particular, the NCUA has reviewed the criteria 
specified in section 654(c)(1) of that act, by evaluating whether this 
rule (1) impacts the stability or safety of the family, particularly in 
terms of marital

[[Page 48065]]

commitment, (2) impacts the authority of parents in the education, 
nurture, and supervision of their children, (3) helps the family 
perform its functions, (4) affects disposable income or poverty of 
families and children, (5) only financially impacts families, if at 
all, to the extent such impacts are justified; (6) may be carried out 
by State or local government or by the family, or (7) establishes a 
policy concerning the relationship between the behavior and personal 
responsibility of youth and the norms of society. Under this statute, 
if the agency determines the rule may negatively affect family well-
being, then the agency must provide an adequate rationale for its 
implementation.
    The NCUA has determined that the implementation of this proposed 
rule would not affect family well-being within the meaning of the 
statute. Of the seven factors in the statute, the factors on disposable 
income and financial impact appear most relevant. Removing access to 
financial services at an FCU may negatively affect a member and their 
family. These actions, however, would be unlikely to affect disposable 
income or poverty directly, so the NCUA finds that the rule does not 
have a negative effect as described in the statute. Moreover, the final 
rule implements a statutory mandate, and the NCUA cannot decline to 
implement the legislation. The NCUA has taken potentially adverse 
effects on members into account in designing the rule.

Small Business Regulatory Enforcement Fairness Act--Congressional 
Review Act

    The Congressional Review chapter of the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA) generally provides for 
congressional review of agency rules.\25\ A reporting requirement is 
triggered in instances where the NCUA issues a final rule as defined in 
the Administrative Procedure Act.\26\ Besides being subject to 
congressional oversight, an agency rule may also be subject to a 
delayed effective date if it is a ``major rule.'' The NCUA does not 
believe this rule is a ``major rule'' within the meaning of the 
relevant sections of the statute. As required by the statute, the NCUA 
will submit this final rule OMB for it to determine if this final rule 
is a ``major rule'' for purposes of the statute. The NCUA also will 
file appropriate reports with Congress and the Government 
Accountability Office so this rule may be reviewed.
---------------------------------------------------------------------------

    \25\ 5 U.S.C. 551.
    \26\ Id.
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Federal credit union bylaws.

    By the NCUA Board on July 20, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons discussed in the preamble, the Board amends 12 CFR 
part 701 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
1. The authority citation for part 701 continues to read as follows:

    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789. 
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.


0
2. In appendix A to part 701:
0
a. Revise Articles II and Article XIV; and
0
b. In Official NCUA Commentary--Federal Credit Union Bylaws, revise 
Articles II and Article XIV.
    The revisions read as follows:

Appendix A to Part 701--Federal Credit Union Bylaws

* * * * *

Article II. Qualifications for Membership

    Section 1. Field of membership. The field of membership of this 
credit union is limited to that stated in Section 5 of its charter.
    Section 2. Membership application procedures. Persons eligible 
for membership under Section 5 of the charter must sign a membership 
application on approved forms. The applicant becomes a member upon 
approval of the application by a membership officer, after 
subscription to at least one share, payment of the initial 
installment, and payment of a uniform entrance fee if required by 
the board. If the membership officer denies a person's membership 
application, the credit union must explain the reasons for the 
denial in writing upon written request.
    Section 3. Maintenance of membership share required. A member 
who withdraws all shareholdings or fails to comply with the time 
requirements for restoring his or her account balance to par value 
in Article III, section 3, ceases to be a member. By resolution, the 
board may require persons readmitted to membership to pay another 
entrance fee.
    Section 4. Continuation of membership.
    (a) Once a member, always a member. Once a member, always a 
member until the person or organization chooses to withdraw its 
membership or is expelled under the Act and Article XIV of these 
bylaws.
    (b) Limitation of services. Notwithstanding any provision of 
these bylaws, the board of directors may adopt a policy that limits 
credit union services to any member not in good standing.
    Section 5. Member in good standing. Members in good standing 
retain all their rights and privileges in the credit union. A member 
not in good standing may be subject to a policy that limits credit 
union services. A member not in good standing is one who has engaged 
in any of the conduct in Article XIV, section 3, related to for-
cause expulsion. In the event of a suspension of service, the member 
will be notified of what accounts or services have been 
discontinued. Subject to Article XIV and any applicable limitation 
of services policy approved by the board, members not in good 
standing retain their right to attend, participate, and vote at the 
annual and special meetings of the members and maintain a share 
account.
* * * * *

Article XIV. Expulsion and Withdrawal

    Section 1. Expulsion procedure. A credit union may expel a 
member in one of three ways. The first way is through a special 
meeting. Under this option, a credit union must call a special 
meeting of the members, provide the member the opportunity to be 
heard, and obtain a two-thirds vote of the members present at the 
special meeting to expel a member. The second way to expel a member 
is under a nonparticipation policy given to each member that follows 
the requirements found in the Act. The third way to expel a member 
is by a two-thirds vote of a quorum of the directors of the credit 
union. A credit union can only expel a member for cause and through 
a vote of the directors of the credit union if it follows the policy 
for expulsion in section 2.
    Section 2. A credit union's directors may vote to expel a member 
for cause if the credit union has provided a written copy of this 
Article or the optional standard disclosure notice to each member of 
the credit union. The communication of the policy, along with all 
notices required under this section, must be legible, written in 
plain language, reasonably understandable by ordinary members, and 
may be provided electronically only in the case of members who have 
elected to receive electronic communications from the credit union.
    If a member will be subject to expulsion, the member shall be 
notified in writing in advance, along with the reason for such 
expulsion. The notice must include, at minimum, (i) relevant dates, 
(ii) sufficient detail for the member to understand the grounds for 
expulsion, (iii) the member's right to request a hearing, (iv) how 
to request a hearing, (v) the procedures related to the hearing, 
(vi) notification that, if a hearing is not requested, membership 
will terminate after 60 calendar days, and (vii) if applicable, a 
general statement on the effect of expulsion related to the member's 
accounts or loans at the credit union. The notice cannot include 
only conclusory statements regarding the reason for the member's 
expulsion. The notice must also tell the member that any complaints 
related to the member's potential expulsion should be submitted to 
NCUA's Consumer Assistance Center if the complaint cannot be 
resolved directly with the credit union. The FCU must maintain a 
copy of the

[[Page 48066]]

provided notice for its records. The 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 credit union, 
may be provided electronically.
    A member shall have 60 calendar days from the date of receipt of 
a notification to request a hearing from the board of directors of 
the credit union. A member is not entitled to attend the hearing in 
person, but the member must be provided a meaningful opportunity to 
present the member's case orally to the FCU board through a 
videoconference hearing. The member may choose to provide a written 
submission to the Board instead of a hearing with oral statements. 
If a member cannot participate in a videoconference hearing, then 
the FCU may offer a telephonic hearing. If a member does not request 
a hearing or provide a written submission, the member shall be 
expelled after the end of the 60-day period after receipt of the 
notice. If a member requests a hearing, the board of directors must 
provide the member with a hearing. At the hearing, the board of 
directors may not raise any rationale for expulsion that is not 
explicitly included in the notice to the member.
    After the hearing, the board of directors of the credit union 
must hold a vote within 30 calendar days on expelling the member. If 
a member is expelled, either through the expiration of the 60-day 
period or a vote to expel the member after a hearing, written notice 
of the expulsion must be provided to the member in person, by mail 
to the member's address, or, if the member has elected to receive 
electronic communications from the credit union, may be provided 
electronically. The notice must provide information on the effect of 
the expulsion, including information related to account access and 
any deductions by the credit union related to amounts due. The 
notice must also tell the member that any complaints related to 
their expulsion should be submitted to NCUA's Consumer Assistance 
Center if the complaint cannot be resolved directly with the credit 
union. The notice must also state that the member has an opportunity 
to request reinstatement.
    A member expelled under this authority must be given an 
opportunity to request reinstatement of membership. The FCU may act 
on a reinstatement request through a majority vote of a quorum of 
the directors of the credit union, a majority vote of the members of 
the credit union present at a special meeting, or a majority vote of 
members at an annual meeting, provided the annual meeting occurs 
within 90 days of the member's reinstatement request. If the FCU 
holds a meeting of the members to vote on the reinstatement request, 
an in-person vote is not required. An FCU is only required to hold a 
board vote or special meeting in response to a member's first 
reinstatement request following expulsion.
    FCUs are required to maintain records related to any member 
expelled through a vote of the directors of the credit union for six 
years.
    Section 3. The term cause in this Article means (A) a 
substantial or repeated violation of the membership agreement of the 
credit union; (B) a substantial or repeated disruption, including 
dangerous or abusive behavior, to the operations of a credit union, 
as defined below; or (C) fraud, attempted fraud, or conviction of 
other illegal conduct in relation to the credit union, including the 
credit union's employees conducting business on behalf of the credit 
union.
    If the FCU is considering expulsion of a member due to repeated 
non-substantial violations of the membership agreement or repeated 
disruptions to the credit union's operations, the credit union must 
provide written notice to the member at least once prior to the 
notice of expulsion, and the violation or conduct must be repeated 
within two years after having been notified of the violation. The 
written notice must state the specific nature of the violation or 
conduct and that if the violation or conduct occurs again, the 
member may be expelled from the credit union.
    Dangerous or abusive behavior includes the following: (1) 
violence, intimidation, physical threats, harassment, or physical or 
verbal abuse of officials or employees of the credit union, members, 
or agents of the credit union. This only includes (a) actions while 
on credit union premises or otherwise related to credit union 
activities, and through use of telephone, mail, email, or other 
electronic method; (b) behavior that causes or threatens damage to 
credit union property; or (c) unauthorized use or access of credit 
union property. Expressions of frustration with the credit union or 
its employees through elevated volume and tone; expressions of 
intent to seek lawful recourse, regardless of perceived merit; or 
repeated interactions with credit union employees are insufficient 
to constitute dangerous or abusive behavior. Additionally, members 
cannot be expelled due to or in retaliation for their complaints to 
the NCUA or any other regulatory agency or law enforcement, and 
members who are employees or former employees of the FCU cannot be 
expelled for any protected whistleblower activities.
    Section 4. Expulsion or withdrawal does not relieve a member of 
any liability to the credit union. The credit union will pay all of 
the member's shares upon the member's expulsion or withdrawal less 
any amounts due to the credit union.
    Section 5. An expulsion of a member pursuant to section 2 shall 
be done individually, on a case-by-case basis, and neither the NCUA 
Board nor any credit union may expel a class of members.
* * * * *

Official NCUA Commentary--Federal Credit Union Bylaws

Article II. Qualifications for Membership

    i. Entrance fee: FCUs may not vary the entrance fee among 
different classes of members (such as students, minors, or non-
natural persons) because the Act requires a uniform fee. FCUs may, 
however, eliminate the entrance fee for all applicants.
    ii. Membership application procedures: Under section 113 of the 
Act,\3\ the board acts upon applications for membership. However, 
the board can appoint membership officers from among the members of 
the credit union. Such membership officers cannot be a paid officer 
of the board, the financial board officer, any assistant to the paid 
officer of the board or to the financial officer, or any loan 
officer. As described under section 2 of this Article, an applicant 
becomes a member upon approval by a membership officer and payment 
of at least one share (or installment) and uniform entrance fee, if 
applicable.
---------------------------------------------------------------------------

    \3\ See 12 U.S.C. 1761b.
---------------------------------------------------------------------------

    (iii) Violent, belligerent, disruptive, or abusive members: Many 
credit unions have confronted the issue of handling a violent, 
belligerent, disruptive, or abusive individual. Doing so is not a 
simple matter insofar as it requires the credit union to balance the 
need to preserve the safety of individual staff, other members, and 
the integrity of the workplace, on one hand, with the rights of the 
affected member on the other. In accordance with the Act and 
applicable legal interpretations, there is a reasonably wide range 
within which FCUs may fashion a policy that addresses these 
interrelated responsibilities.
    Thus, an individual who has become violent, belligerent, 
disruptive, or abusive may be prohibited from entering the premises 
or making telephone contact with the credit union, and the 
individual may be severely restricted in terms of eligibility for 
products or services. So long as the individual is not barred from 
exercising the right to vote at annual meetings and is allowed to 
maintain a regular share account, the FCU may fashion and implement 
a policy that is reasonably designed to preserve the safety of its 
employees and the integrity of the workplace. The policy need not be 
identical nor applied uniformly in all cases; there is room for 
flexibility and a customized approach to fit the circumstances. In 
fact, the NCUA anticipates that in some circumstances, such as 
violence or a credible threat of violence against another member or 
credit union staff in the FCU or its surrounding property, an FCU 
may take immediate action to restrict most, if not all, services to 
the member. This may occur along a parallel track as the credit 
union begins the process of expelling the member under Article XIV. 
In other situations, such as a member who frequently writes checks 
with insufficient funds, the FCU may attempt to resolve the matter 
with the member before limiting check writing services. Once a 
limitation of services policy is adopted or revised, members must 
receive notice. The FCU should disclose the policy to new members 
when they join and notify existing members of the policy at least 30 
calendar days before it becomes effective. The credit union's board 
has the option to adopt the amendment addressing members in good 
standing.
* * * * *

Article XIV. Expulsion and Withdrawal

    As noted in the commentary to Article II, there is a wide range 
of measures available to the credit union in responding to abusive 
or unreasonably disruptive members. A credit union can limit 
services under Article II for a member not in good standing. A 
credit union may also expel the member for cause after a two-thirds 
vote of the credit union's

[[Page 48067]]

directors.\11\ Dangerous and abusive behavior is considered any 
violent, belligerent, unreasonably disruptive, or abusive behavior. 
Examples of dangerous and abusive conduct include, but are not 
limited to, a member threatening physical harm to employees, a 
member repeatedly and unwelcomely giving gifts to or asking tellers 
on dates, a member repeatedly using racial or sexist language 
towards employees, and a member threatening to follow a loan officer 
home for denying a loan.
---------------------------------------------------------------------------

    \11\ See 12 U.S.C. 1764.
---------------------------------------------------------------------------

    A credit union must provide notice of the expulsion to the 
member. The notice must include the reason for the expulsion, and if 
a hearing was conducted or written testimony provided, the credit 
union should provide a response to the member's statements. The 
notice must be specific and not just include conclusory statements 
regarding the reason for the member's expulsion. For example, a 
general statement that the member's behavior has been deemed abusive 
and the member is being subject to expulsion procedures would be 
insufficient as an explanation. A credit union is prohibited from 
expelling a class of members under this provision. That would 
include a board acting to remove all delinquent members or class of 
delinquent members.
    If a special meeting of the members is called to expel the 
member, only in-person voting is permitted in conjunction with the 
special meeting, so that the affected member has an opportunity to 
present the member's case and respond to the credit union's 
concerns. However, an in-person meeting is not required if a member 
is expelled by a two-thirds vote of the board of directors. In 
addition, FCUs should consider the commentary under Article XVI 
about members using accounts for unlawful purposes.

Optional Standard Disclosure of Expulsion Policy

    We may terminate your membership in [name of FCU] in one of 
three ways. The first way is through a special meeting. Under this 
option, we may call a special meeting of the members, provide you an 
opportunity to be heard, and obtain a two-thirds vote of the members 
present at the special meeting in favor of your expulsion. The 
second way to terminate your membership is under a nonparticipation 
policy given to each member that follows certain requirements. The 
third way to terminate your membership is by a two-thirds vote of a 
quorum of the directors of the credit union for cause.
    Cause is defined as follows: (A) a substantial or repeated 
violation of [name of membership agreement] with [us]; (B) a 
substantial or repeated disruption, including dangerous or abusive 
behavior, to the credit union's operations; or (C) fraud, attempted 
fraud, or a conviction of other illegal conduct that a member has 
been convicted of in relation to [us], including in connection with 
our employees conducting business on behalf of us.
    Before the board votes on an expulsion, [we] must provide 
written notice to your mail address (or email, if applicable) on 
record or personally provide the written notice. [We] must provide 
the specific reasons for the expulsion and allow you an opportunity 
to rebut those reasons through a hearing if you choose. It is your 
responsibility to keep your contact information with [us] up to 
date, and to open and read notices from [us]. Unless [we] determine 
to allow otherwise, there is no right to an in-person hearing with 
the board. If you fail to request a hearing within 60 calendar days 
of receipt of the notice, you will be expelled. You may submit any 
complaints about your pending expulsion or expulsion to NCUA's 
Consumer Assistance Center if the complaint cannot be resolved with 
the credit union.
    [We] will confirm any expulsion with a letter with information 
on the effect of the expulsion and how you can request 
reinstatement. Expulsion or withdrawal from membership does not 
relieve a member of liability to the credit union, and we may demand 
immediate repayment of the money you owe to us after expulsion, 
subject to any applicable contract terms and conditions.
    For additional information on expulsion and a copy of our 
expulsion policy, see [Article XIV of our Bylaws].
* * * * *
[FR Doc. 2023-15715 Filed 7-25-23; 8:45 am]
BILLING CODE 7535-01-P

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