Ever since the bylaw dispute at DFCU Financial there have been a lot of questions about NCUA's role in bylaw enforcement.
In the case of DFCU, members obtained the necessary number of signatures needed to call a special meeting, but the credit union denied the request. The dispute is now in court and has yet to be decided. It is also very likely that the Lafayette FCU voting fiasco will wind up in court because members are claiming the CU ignored its own bylaws governing election procedures.
Should NCUA have stepped in and enforced the bylaws in the DFCU case? Many believe so. Taking a 30,000-foot view and not considering precedent and the current rules and regulations, I too wish the regulator ruled on the matter. They could have sent all credit unions a message that bylaws are more than just words on paper, they are living, breathing rules of the institution that are enforceable
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But of course there is always more to the story. Here is what we know. NCUA has a standard set of bylaws that can be adopted by credit unions. If a credit union wants to add to that or have its own unique set of bylaws, they must get NCUA approval. NCUA clearly does have a say in how bylaws look–they approve them! Also, bylaws based on statutory requirements, such as credit union annual meetings, are more likely to be enforced by the regulator.
The fact is though that about 12 years ago NCUA deregulated the bylaws, that is they removed them from the rules and regulations. NCUA's position in the DFCU matter was that bylaws are a contract between members and the credit union and it is up to those parties to settle disputes. If that involves a lawsuit, so be it. NCUA has been consistent. The DFCU case garnered a lot of attention, but NCUA's approach was nothing new. The regulator has stuck to this hands-off approach in the many bylaw disputes that occur each year.
It seems a little weak. Shouldn't the regulator be able to step in when members' rights are being squashed? I think so, but there are issues.
NCUA has to be careful. For one, there can be hundreds of bylaw disputes a year, and it is a resource drain to rule on all of them. On the other hand, only ruling on some of those disputes is very tricky. How do you draw distinctions between them? Why is one bylaw dispute any more important than the other? Imagine what would have happened if NCUA had ruled in the DFCU case and the bankers went back and looked at NCUA's record on bylaw enforcement. "So NCUA doesn't rule on bylaw disputes, except when it involves a credit union trying to become a bank. How convenient," the bankers would say. This is where the agency needs to get its act together.
NCUA should establish its own bylaws on bylaw disputes. It needs to develop a set of standards that defines what specific circumstances will dictate that it rule on bylaw disputes. Apparently there has been a lot of talk going on at NCUA about what its powers are with bylaws. It seems the agency could get involved if it really wanted, but it would be going back on its position of bylaws being a contract between the members and the credit union.
It is time to take away the grey areas by developing standards! For example, NCUA could make any bylaw disputes over special meetings an area where it will provide enforcement. It can get much more specific and say it will only rule on special meeting bylaw disputes where directors or officers may be removed from office.
NCUA is the expert here. They know the volume of disputes and the nature. It is in the best position to set these standards. It may want to stay out of disputes over board member term limits for example, but rule on bylaws governing election procedures.
Maybe I am not going in the right direction at all. Maybe NCUA should simply rule on any bylaw dispute that involves some minimum number of members so it stays out of one-on- one battles.
There are a ton of scenarios that can play out on when NCUA would or wouldn't get involved, but it's time for NCUA to show some leadership on bylaw enforcement. It needs to recognize that high-profile cases like DFCU and Lafayette are hurting the democratic nature of credit unions. To the outside world, it doesn't appear that the members have much of a say in these credit unions, when in fact it is their credit union. They might as well be bank customers. –Comments? E-mail [email protected]
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