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


=======================================================================
-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AE86


Federal Credit Union Bylaws

AGENCY: National Credit Union Administration (NCUA).

ACTION: Advance notice of proposed rulemaking.

-----------------------------------------------------------------------

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

[[Page 12284]]

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

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

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

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

SUPPLEMENTARY INFORMATION:

I. Background

    FCU incorporators must present proposed FCU bylaws along with an 
organization certificate to the Board for its approval prior to 
commencing business as an FCU.\1\ To simplify the organization of FCUs, 
the Federal Credit Union Act (FCU Act) requires the Board to prepare 
``from time to time'' a form of FCU bylaws to be used by FCU 
incorporators and to make that form available upon request.\2\ The FCU 
Act grants the Board considerable discretion in drafting this form 
``from time to time,'' provided that the FCU bylaws are consistent with 
basic corporate governance procedures set out in the FCU Act. Those 
corporate governance procedures are designed to protect fundamental FCU 
member rights that underpin the cooperative principles that serve as 
the cornerstone of the credit union movement.\3\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 1754, 1758.
    \2\ 12 U.S.C. 1758.
    \3\ Specifically, these rights include the right to: (1) 
Maintain a share account; (2) maintain FCU membership; (3) have 
access to credit union facilities; (4) participate in the director 
election process; (5) attend annual and special meetings; and (6) 
petition for removal of directors and committee members. See Federal 
Credit Union Bylaws, 72 FR 30984, 30986 (Aug. 6, 2007) (proposed 
rule).
---------------------------------------------------------------------------

    The FCU bylaws and accompanying guidance were not part of the 
NCUA's regulations for almost 25 years.\4\ During that time, in 
consultation with the NCUA, FCUs had considerable discretion to adopt 
reasonable FCU bylaws provisions provided that they did not conflict 
with the FCU Act, the NCUA's regulations, established federal policy, 
or otherwise pose a safety and soundness risk to the FCU.\5\ 
Accordingly, the Board did not view FCU bylaws disputes predominantly 
as a federal regulatory matter. Instead, the Board believed that state 
corporate law and state courts were the appropriate vehicles through 
which FCU officials and members could settle FCU bylaws disputes where 
state corporate law was not preempted by federal law.
---------------------------------------------------------------------------

    \4\ Federal Credit Union Bylaws, 72 FR 61495, 61496 (Oct. 31, 
2007) (final rule) (codified at 12 CFR 701, App. A).
    \5\ Id.
---------------------------------------------------------------------------

    However, the Board observed a number of troubling cases in which 
members were unable to enforce fundamental FCU member rights in state 
courts.\6\ Moreover, the Board began to see troubling precedents 
developing in federal courts holding that FCUs do not have fiduciary 
duties to their members despite the clear status conferred by the FCU 
Act on a credit union member as a partial owner of the FCU.\7\ Treating 
FCU bylaw disputes as largely matters of state corporate law also 
diminished the NCUA's ability to take proactive enforcement measures in 
this area. Accordingly, the Board incorporated the standard FCU bylaws 
as part of the NCUA's regulations and required all FCUs that had not 
adopted bylaws prior to November 30, 2007 to adopt the standard FCU 
bylaws.\8\ FCUs that had adopted bylaws prior to that date were allowed 
to retain their then current bylaws. However, the Board strongly 
encouraged those FCUs to adopt the standard FCU bylaws.
---------------------------------------------------------------------------

    \6\ See 72 FR at 30985 (Aug. 6, 2007) (observing member 
difficulties obtaining redress in state courts); see also Bruns v. 
Nat'l Credit Union Admin., 122 F.3d 1251, 1257 (9th Cir. 1997) 
(citing Montford v. Robins Fed'l Credit Union, 691 F. Supp. 347, 
351-52 (M.D. Ga. 1988)) (NCUA appropriate body to hear FCU bylaw 
complaints).
    \7\ Id.; see also. Miur v. Navy Fed'l Credit Union, 529 F.3d 
1100, 1107-8 (D.C. Cir. 2008) (applying the Virginia Commercial 
Code).
    \8\ 12 CFR 701, App. A, Instruction A.
---------------------------------------------------------------------------

    Since incorporating standard FCU bylaws into the NCUA's 
regulations, the NCUA has periodically solicited comment from 
stakeholders on ways to streamline, clarify, and improve the standard 
FCU bylaws to provide FCUs with greater operational flexibility. For 
example, the NCUA's Office of General Counsel met with stakeholders in 
2013 to discuss possible revisions to the standard FCU bylaws. Those 
stakeholders provided valuable input on particular provisions of the 
standard FCU bylaws. Their comments and recommended changes included: 
(1) Adding flexibility where consistent with law, regulation, and the 
protection of fundamental member rights; (2) removing outdated or 
obsolete provisions and terms; (3) conforming the standard FCU bylaws 
to plain English writing principles; (4) expanding the commentary 
section to provide additional information and guidance; (5) adding 
provisions related to member rights and responsibilities and clarifying 
the permissible actions FCUs can take to address members who are 
abusive or disruptive; and (6) addressing provisions pertaining to 
meeting procedures, quorums, and notice requirements. The Office of 
General Counsel has a record of these comments and continues to take 
them into account.
    Recently, the NCUA's Regulatory Reform Task Force (Task Force), a 
group created by the NCUA Chairman to implement the NCUA's regulatory 
reform agenda, has suggested that more wholesale changes to the 
standard FCU bylaws may be necessary because they have not been 
significantly updated in nearly 10 years.\9\ To ensure that the 
standard FCU bylaws are amended in a transparent manner that affords 
stakeholders enhanced opportunity to participate in the rulemaking 
process, the Task Force recommended that the Board issue an advance 
notice of proposed rulemaking to request comments on ways in which the 
FCU bylaws may be streamlined, clarified, and improved.
---------------------------------------------------------------------------

    \9\ Regulatory Reform Agenda, 82 FR 39702, 39705 (Aug. 22, 
2017). The Task Force's report was adopted by the Board and issued 
for public comment with a comment period ending on November 20, 
2017.

---------------------------------------------------------------------------

[[Page 12285]]

II. Request for Comments on Specific Topics

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

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

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

    \10\ 12 CFR 701, App. A, Instruction C.4.
---------------------------------------------------------------------------

2. How can the Board clarify the FCU bylaws provisions addressing 
limitation of service and expulsion of members?

    In the past, stakeholders have asked for clarification on the FCU 
bylaws provisions addressing limitation of service policies. Article 
II, Sec.  4 of the standard FCU bylaws permits an FCU to limit services 
or access to credit union facilities to ``a member who is disruptive to 
credit union operations.'' \11\ The Office of General Counsel's 
longstanding interpretation of the phrase ``disruptive to credit union 
operations'' is that an FCU may limit services to an FCU member in a 
number of cases, including situations where a member is abusive to FCU 
staff or has caused a loss to the FCU. This is the case provided that 
members have received adequate notice of the limitation of service 
policy and there is some ``logical relationship between the 
objectionable conduct and the services to be suspended.'' \12\
---------------------------------------------------------------------------

    \11\ 12 CFR 701, App. A, Art. II, Sec.  4.
    \12\ Suspension of Service Policy, OGC Op. Letter 08-0431 (Aug. 
12, 2008); Request for Interpretation of Section 118 of the Federal 
Credit Union Act, OGC Op. Letter 96-0530 (June 10, 1996).
---------------------------------------------------------------------------

    However, the Office of General Counsel has also stated that 
contract provisions in account and other member service agreements, as 
well as federal and state laws, may affect an FCU's ability to 
implement a limitation of service policy.\13\ For example, an FCU may 
not implement a limitation of service policy that has a disparate 
impact on a protected class, such as may be the case regarding defaults 
on consumer loans.\14\ The ambiguity surrounding the use of limitation 
of service policies has led to some justifiable stakeholder confusion 
and enforcement issues.
---------------------------------------------------------------------------

    \13\ Id.
    \14\ Regulation B, which implements the Equal Credit Opportunity 
Act, prohibits discrimination on the basis of a protected class. See 
12 CFR 1002.
---------------------------------------------------------------------------

    Accordingly, the Board is particularly interested in specific 
stakeholder comments on ways to improve Article II, Sec.  4 of the 
standard FCU bylaws to provide FCUs with the greatest possible clarity 
regarding the use and misuse of limitation of service policies. The 
Board is also interested in specific stakeholder comments on whether 
this regulatory text should be removed in its entirety and addressed as 
a separate regulation.

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

    As the credit union movement continues to undergo significant 
changes, the Board is interested in ways that it can improve the FCU 
bylaws to facilitate the recruitment of FCU directors. Article V of the 
standard FCU bylaws sets out four distinct procedures that an FCU may 
choose to follow in order to select directors.\15\ In each case, a 
nominating committee must appoint at least one member to each vacancy, 
including any unexpired term vacancy, for which elections are being 
held. However, these procedures do not provide guidance on how the 
nominating committee should proceed with identifying prospective 
candidates nor do they clarify the criteria that the nominating 
committee may use when selecting candidates.
---------------------------------------------------------------------------

    \15\ 12 CFR 701, App. A, Art. V.
---------------------------------------------------------------------------

    While the Board believes that these matters fall squarely within 
the sound business judgment of each individual FCU, the Board is 
interested in ways that it can amend the standard FCU bylaws to 
facilitate effective business continuity planning. For example, should 
the Board include commentary to Article V of the standard FCU bylaws 
recommending certain non-binding factors that the nominating committee 
may consider when selecting a candidate to fill a particular vacancy? 
If so, what factors should the Board highlight? In addition, should the 
Board include commentary authorizing FCUs to establish standing 
advisory committees designed to recruit potential candidates to fill 
board vacancies? If so, which individuals within the FCU should be part 
of this advisory committee? What safeguards should be put in place to 
prevent conflicts of interest?

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

    A key difference ``between credit unions and other federally 
chartered financial institutions lies in the democratic control and 
management of credit unions.'' \16\ Accordingly, the Board is 
interested in ways that it can improve the standard FCU bylaws to 
encourage active member participation in annual and special meetings. 
Article IV of the standard FCU bylaws sets out the procedures that must 
be followed when an FCU holds a meeting of members.\17\ For an annual 
meeting, the secretary of the FCU must provide members with at least 30 
but not more than 75 days written notice before the date of any annual 
meeting. For a special meeting, the written notice must be at least 7 
days before the date of the special meeting. The Board seeks 
stakeholder input on whether these time periods are adequate to ensure 
that members have sufficient advanced notice to afford an actual 
opportunity to attend annual and special meetings.
---------------------------------------------------------------------------

    \16\ La Caisse Populaire Ste-Marie (St. Mary's Bank) v. U.S., 
425 F. Supp. 512, 517 (D.N.H. 1976).
    \17\ 12 CFR 701, App. A, Art. IV.
---------------------------------------------------------------------------

    In addition, with the rise of e-commerce and mobile banking, the 
Board is interested in stakeholder comments on ways that it may improve 
Article IV of the standard FCU bylaws to allow FCUs to harness new 
technologies, particularly social media and web-based conferencing 
solutions, to allow more members to attend annual and special meetings. 
For example, should the Board allow an FCU to conduct an annual or 
special meeting through teleconference? If so, what market solutions 
exist to allow members to debate issues brought to the floor or to 
securely vote on director nominations? Would the use of such a market 
solution be considered an

[[Page 12286]]

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

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

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

    \18\ 12 CFR 701, App. A, Art. XVI, Sec.  4.
    \19\ 12 CFR 701.4.
    \20\ 12 CFR 701.3.
    \21\ 12 CFR 749.
---------------------------------------------------------------------------

III. Request for General Comments

    In addition to requesting specific comments addressing the issues 
identified above, the Board also requests stakeholder comments on any 
aspect of the standard FCU bylaws that commenters wish to bring to the 
Board's attention to improve the standard FCU bylaws' usefulness and 
ease of use. Further, the Board invites stakeholders that have 
previously commented on proposed changes to the standard FCU bylaws to 
offer additional comments based on recent experiences.
    The Board asks stakeholders, who are requesting a specific change 
to a provision of the standard FCU bylaws, to please provide a brief 
statement regarding whether the FCU Act would permit such a change. 
Some provisions of the standard FCU bylaws are drawn directly from the 
FCU Act and, therefore, may not be legally amended. For example, Sec.  
109 of the FCU Act provides that an FCU may not charge any other fee 
for FCU membership other than a ``uniform entrance fee if required by 
the board of directors.'' \22\ This provision of the FCU Act prohibits 
FCUs from imposing monthly membership fees and other similar charges 
\23\ and was codified in the standard FCU bylaws to simplify compliance 
obligations for FCUs.\24\ Accordingly, any request to change this 
provision or any similar provisions that correspond to a statutory 
requirement set out in the FCU Act, regardless of how compelling the 
stakeholder's arguments, would be impermissible. In providing this 
brief supporting statement, the Board asks that stakeholders not only 
consider whether the statutory text would permit such a change but also 
whether the change fits within the spirit and intent of the FCU 
Act.\25\
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 1759.
    \23\ See Monthly Membership Fees, OGC Op. Letter 15-0902 (May 1, 
2015).
    \24\ See 12 CFR 701, App. A, Art. II, Sec.  2.
    \25\ It is a ``familiar rule that a thing may be within the 
letter of a statute and yet not within the statute, because not 
within its spirit nor within the intention of its makers.'' Mova 
Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1068 (D.C. Cir. 
1998) (citing Holy Trinity Church v. U.S., 143 U.S. 457, 459-60 
(1892)).

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