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Member Access to Credit Union Records and Bylaws

by Stephen J. Edwards, Esq.

This year may be a good time to examine closely the election procedures for board members that are set forth in your credit union Bylaws.  Quite often elections are held in the same manner year after year, with the board and management just doing what it did in the prior year, or  following what the prior officials did.  Unfortunately, this procedure sometimes does not follow the rules set forth in the Bylaws.  However, as long as the election is not contested no one looks closely at the election procedures.

Every year a certain number of credit unions have contested elections where the losing side is not content with the outcome of the election.  After the election the losers sometimes mount a challenge to the elected board.  In the past this has generally taken the approach of complaining to NCUA and hoping the regulator will investigate on behalf of the dissatisfied challengers.  NCUA usually takes the approach that it will not intervene unless allegations are made, and supported, that lead them to believe that the safety and soundness of the credit union is impacted.  When NCUA amended its regulations several years ago to make the Bylaws a part of the regulations, it stated as follows:

“NCUA has discretion to take administrative actions when a credit union is not in compliance with its Bylaws. If a potential violation is identified, NCUA will carefully consider all of the facts and circumstances in deciding whether to take enforcement action. NCUA will not take action against minor or technical violations, but emphasizes that it retains discretion to enforce the Bylaws in appropriate cases, such as safety and soundness concerns or threats to fundamental, material credit union member rights.”

In addition, at about the same time the regulations were further amended to allow members the right to inspect the books, records and minutes of the credit union.  The regulation allowing members access to credit union records is likely to be felt most noticeably in this area of contested board elections.  Members don’t generally delve into what the board does.  However, a contested board election, where the losers are dissatisfied with the results, is fertile ground for those members to demand to inspect books, records and minutes of the board.  Those records may indicate that the Bylaws were not followed to the letter.  Not for any nefarious reason, but just because “that’s the way it was always done”.  There are many aspects of the election process that can inadvertently be violated, from the appointment of the Nominating Committee to the actual voting procedure itself.  The NCUA Bylaws provide for four methods of voting and it is not uncommon for credit union boards and management to get confused and combine aspects of several of them.

As a result of the above this may be a good time to review your Bylaws to make sure they are up to date and that your election procedures are in accordance with your Bylaws.  The NCUA Bylaws can be found at http://www.ncua.gov/Legal/Regs/Pages/Bylaws.aspx .  Note that there are 3 different sets of Bylaws – 1999, 2006 & 2007.  A credit union can continue to use its old Bylaws and does not have to update to the newer versions.  It can also adopt portions of the new Bylaws to supplement its existing Bylaws.  A review now may avoid a great deal of aggravation in the future.

DISCLAIMER: The foregoing is provided for informational purposes only, and does not constitute legal advice. It is not a substitute for legal or professional advice. Any legal advice should be tailored to specific clients and their specific needs. No attorney-client relationship is created by any use of this website. You should not act on the information contained in any of the materials on this website without first consulting a competent attorney licensed to practice in your jurisdiction.

Sustained negative balance fees under the CARD Act

by Drew Edwards, Esq.

We all know that the recent CARD Act prohibits fees on debit card overdrafts without an opt-in.  But what if your account agreement includes a continuing or monthly fee for existing negative balances?  According to the official interpretation of the rule*, such fees are also prohibited:

[T]he fee prohibition in §205.17(b)(1) applies to all overdraft fees or charges for paying those transactions, including but not limited to daily or sustained overdraft, negative balance, or similar fees or charges. Thus, where a consumer’s negative balance is solely attributable to an ATM or one-time debit card transaction, the rule prohibits the assessment of such fees unless the consumer has opted in.

There you have it: as long as the negative balance is solely attributable to ATM or one-time debit transactions you can’t assess any fees without an opt-in.  However, this blanket prohibition isn’t the whole story.  If the negative balance is partly due to check or ACH transactions, you are permitted to charge continuing or sustained fees based on the fact of a negative balance (you still can’t assess fees for the individual debit transactions of course).  As always, if you have any questions about your fee policy or a specific account situation, speak to your lawyer or compliance officer.

DISCLAIMER: The foregoing is provided for informational purposes only, and does not constitute legal advice. It is not a substitute for legal or professional advice. Any legal advice should be tailored to specific clients and their specific needs. No attorney-client relationship is created by any use of this website. You should not act on the information contained in any of the materials on this website without first consulting a competent attorney licensed to practice in your jurisdiction.

*The official interpretation is contained in Supplement I to 12 CFR Part 205

Credit Union Liability for Federal Benefit Payments to Decedents

by Drew Edwards, Esq.

You may be familiar with the case of Thomas Prusik-Parkin, a Brooklyn man who disguised himself as his deceased mother in order to fraudulently accept her social security benefit payments. Between his mother’s death in 2003 and his eventual arrest in 2009, he received $115,000.00 in payments. While it seems obvious that an individual would be liable for accepting benefit payments made to a dead woman, you might be surprised to learn that financial institutions can also incur liability in these situations. Don’t assume that a deceased member’s surviving relatives are responsible for stopping federal benefit payments that are coming to your credit union: if a credit union knows that a member has died and takes no action to return ACH federal benefit payments, it is on the hook for the full amount of payments made after death. This may sound unfair, but there are certain ways that your credit union can prevent liability in these situations, as long as you understand the law.

In order to be fully liable for federal benefit payments made after death, two things must be true: the credit union must know that the member has died, and the credit union must have failed to return post-death payments to the government. In the case of Mr. Prusik-Parkin, his financial institution would not be liable to the government because he hid the fact of his mother’s death from his bank. It’s not enough, however, to simply turn a blind eye and claim ignorance. You will also be liable in the absence of actual knowledge if you failed to follow “commercially reasonable” business practices that would have alerted you to the death. The regulators made this language intentionally vague: what “commercially reasonable” means will vary depending on the size and resources of your credit union.

Once you learn that a member has died, you need to determine whether any post-death deposits were ACH federal benefit payments. Fortunately, the federal government has published a guide to federal benefits payments known as the Green Book (no relation to Muammar Gaddafi’s book of the same title) which details how to spot federal benefit ACH transactions. You can get the Green Book here: look on page 2-6 for information on identifying federal benefit payments.

Even if you limit your liability by promptly identifying and returning post-death payments once you learn of the member’s death, your liability is not reduced to zero. You are still required to return the full amount of federal benefit payments made within 45 days of the member’s death. Unfortunately, there is often no way to protect yourself against this liability. If a member dies and a joint account holder withdraws post-death federal benefit payments before you learn of the death, you are on the hook for the first 45 days of payments (with certain minor exceptions), even though you did nothing wrong. You would then have to collect these funds from the person who withdrew them.

The Green Book has several examples in its section 5, “Reclamations,” explaining the liability of financial institutions in these situations. However, truth is always stranger than fiction and you should consult with your attorney about your specific situation if you have any questions.

DISCLAIMER: The foregoing is provided for informational purposes only, and does not constitute legal advice. It is not a substitute for legal or professional advice. Any legal advice should be tailored to specific clients and their specific needs. No attorney-client relationship is created by any use of this website. You should not act on the information contained in any of the materials on this website without first consulting a competent attorney licensed to practice in your jurisdiction.