Credit Union Legal Update - Fall 2005

Revisions to Federal Credit Union Bylaws

What happens when a board member resigns? When must an annual meeting be held? Can a board of directors vote on items electronically, via email? Must there be paper ballots for an election for the board? What about membership fees and share balances below par value? To find the answers to these questions look to the credit union bylaws. All credit unions must follow NCUAs 'standard' bylaws, and when a credit union seeks to modify a bylaw, or modify a pre-approved bylaw amendment, the process can be time consuming and burdensome. NCUA last revised its standard Federal Credit Union bylaws in 1999. NCUA has recently requested input on ways to update, clarify and simplify federal credit union bylaws. All comments are due to NCUA by October 13, 2005. Now is the time to let your views be known.

Some of the proposed revisions that NCUA is considering include:

  • a new introduction addressing the legal nature of the bylaws, the amendment process and NCUAs position on internal bylaw disputes;
  • increased flexibility for federal credit unions to establish policies regarding membership, joint account holders, select rules of procedure for meetings and provide election notices by email;
  • requiring federal credit unions to include a paper ballot and instructions for voting by electronic device;
  • requiring that the federal credit union board adopt policies regarding training board members and other volunteers, in areas such as ethics, fiduciary responsibility, compliance, and accounting;
  • increase from 500 to 750 the maximum number of member signatures required to call a special meeting.

For more information, including a list of the various methods for submitting comments, visit NCUAs website, www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html

No Slowdown in Branch Expansion

There does not appear to be any slowdown in the number of branches that credit unions are opening. Whether it is a new branch taking over a previous or existing facility or building new brick and mortar location, many credit unions are expanding branch locations to enhance their profile.

A Callahan & Associates report finds that many credit unions as well as their members, have concluded that the human interaction and outreach that occur in physical branches are critical factors in the future growth and success of credit unions. The report notes that automated systems such as ATMs and online home banking networks fill definite needs, but many members conclude that only a face-to-face meeting with a financial officer can provide the true assurance that members seek with services such as a first car loan or a home mortgage loan. For more information on this report entitled, A Brave New Brick-and-Mortar World, please visit www.creditunions.com/research

'Brag Box'

As many of the readers of this newsletter know, Andy Keeney takes pride in representing credit unions and has a unique subspecialty of assisting credit unions with complex real estate matters. The following are a few of his success stories. This information is now public knowledge:

  • ABNB Federal Credit Union completed its build to suit of a state-of-the-art new headquarters building in Chesapeake, Virginia. Contact: Carl Ratcliff (Email: crat@abnb.org)
  • Arlington Virginia Federal Credit Union purchased land and a commercial building in Northern Virginia and is now proceeding with significant construction to accommodate a new branch and a new headquarters location. Contact: Brenda Turner (Email: bturner@arlingtonvafcu.org)
  • Commonwealth One Federal Credit Union completed the acquisition and construction of its Harrisonburg, Virginia Regional Sales Center. Contact: Greg Seubert (Email: gseubert@cofcu.org)
  • Educational Systems Federal Credit Union completed a complex sale and short-term leaseback of it headquarters building and negotiated and finalized a long-term lease for a branch and new headquarters location in Greenbelt, Maryland. Contact: Chris Conway (Email: jcconway@esfcu.org)
  • IR Federal Credit Union addressed its need for progressive real estate with a sale and leaseback of their headquarters building until they can occupy their new headquarters in Riverdale, Maryland. Contact: Dave Bunch (Email: dbunch@irfcu.org)
  • MCT Federal Credit Union completed the design and construction of a new headquarters building and branch in Rockville, Maryland. Contact: Linda Ramsey (Email: LindaR@MCTFCU.ORG)
  • Elected to the Board of Directors of Langley Federal Credit Union

Identity Theft

The Federal Trade Commission ('FTC') has released model forms and procedures that can be used to report identity theft to credit unions and other creditors as well as to credit reporting agencies. The FTC materials include an identity theft affidavit. Many credit unions have elected to accept this affidavit as a standard form and it can be used to resolve disputes. In addition to the suggested form affidavit, the FTC has also provided sample letters that identity theft victims can use to dispute fraudulent charges to an existing account. There are also suggested sample letters that can be used to inform a consumer reporting agency to block fraudulent activity accounts from a persons credit report. A booklet, along with all of its sample forms and letters, is available on the FTCs identity theft website at www.consumer.ftc.gov/features/feature-0014-identity-theft.

Electronic Remote Deposit Service for Members

Credit unions are continuing to strive to achieve creative means to provide new services to their members. Recently, a federal credit union sought an opinion from the NCUA Office of General Counsel regarding a promise or commitment by a member to electronically deposit funds at a future date, yet to be able to borrow against such a provisional credit to an account. The credit union proposed to permit members meeting certain criteria, with electronic access to the credit unions website, to identify funds the member intended to deposit to the members account within 10 days. Upon receiving the electronic information, the federal credit union would provide provisional credit to the members account. The funds, from that point on, would earn dividends and would also be available for withdrawal. The member would be required to physically present their deposit in person or through the mail within 10 days. The member would be responsible for immediately reimbursing the credit union if the member failed to make the deposit within 10 days or if an item is returned unpaid. The credit union did not intend to assess interest for the provisional credit and would not impose a fee for the service.

NCUA concluded that this program was permissible, but cautioned that individual as well as aggregate loan limits should be established, as well as safety and soundness concerns addressed. Compliance with various legal requirements relating to the extension of credit were also noted. Credit unions entering into such new services are encouraged to consult legal counsel.

In a lengthy legal analysis, NCUA noted that the service is legally permissible under the federal regulation governing the availability of deposited funds as well as the Uniform Commercial Code. NCUA will allow this new and rather creative program, pending confirmation of a credit unions compliance with the law and a review by legal counsel of the policies, procedures and disclosures. Click here to download a copy of the NCUAs opinion letter in PDF format.

NCUA Insurance Coverage for 529 College Savings Plans

There continues to be increased interest in college savings plans created under Section 529 of the Internal Revenue Code. NCUAs General Counsel was recently asked about share insurance coverage for such plans. The General Counsels office concluded that current rules allow
pass-through of share insurance coverage for college savings plans, as long as the account owner is a member of the federally insured credit union where the account is maintained and the account is properly titled.

The FDIC has recently addressed this issue and has adopted an interim final rule to allow pass-through share insurance for these 529 accounts. The opinion letter reiterated that agent or nominee accounts are insured as individual accounts, and, with other individual accounts an owner might have at the same credit union, are insured up to $100,000 in the aggregate. The account owners name must be ascertainable from the credit union or state records.

The bottom line is that the NCUA insurance regulation requires the account owner to be a member or otherwise eligible to maintain an insured account in a credit union. This membership requirement is true for insurance coverage for any account under the NCUA insurance regulations. A copy of this NCUA opinion letter can be downloaded in PDF format by clicking here.

US Supreme Court Paves Way for More Age Lawsuits

On March 30, 2005, the U.S. Supreme Court ruled that employers may be sued under the Age Discrimination in Employment Act ('ADEA') for neutral actions that have a disparate impact on older workers. This highly publicized decision, Smith v. Jackson, Miss., involved the claims of older police officers and dispatchers against the city of Jackson, Mississippi for adopting a pay plan that allegedly favored younger co-workers. However, the pay plan was part of a legitimate effort by the city to raise compensation levels of lower level employees to bring salaries in line with neighboring police forces.

Even though the Supreme Court rejected the discrimination claims of the employees in this case, it recognized the 'disparate impact' theory of recovery in age claims. Thus, it is now clear that an employer may be liable for a practice or policy that disproportionately harms older employees even if the employer never intended such a result. On the other hand, the ruling allows employers to prevail if they can provide a reasonable explanation for the action in question.

The General Counsel for the Equal Employment Opportunity Commission ('EEOC') characterized this decision as 'one of the most significant EEOC rulings in recent years.' The decision was also commended by advocates for older workers like the AARP. Bottom line - this decision recognizes potential liability for employers which had not previously been recognized under the ADEA.

Practical Pointer

Since roughly one half of the nations workforce is over 40 years old, it is not surprising that employers are facing more and more ADEA lawsuits. These cases can be difficult because juries tend to sympathize with older employees claiming they were mistreated by their employers. The Smith v. Jackson decision sends a message that employers should be cautious when considering any policy or practice that may have a negative effect on older workers. Employers are well-advised to make sure they can document a reasonable explanation unrelated to age for any action that might have a negative impact on older employees.

New Federal Poster Must Be Displayed

Employers should be aware that a new federal posting requirement recently went into effect. Congress amended the Uniform Services Employment and Re-employment Rights Act ('USERRA') to include a requirement that employers display a USERRA poster along with all other federal and state required postings.

USERRA generally requires re-instatement to employment following a period of military service with no loss in salary or seniority. This law is enforced by the U.S. Department of Labor (DOL), Veterans Employment and Training Services. A copy of the required poster can be downloaded at the DOL website, www.dol.gov.

Bank Secrecy Act Compliance

CUA reminded all credit unions of their need to comply with the Bank Secrecy Act ('BSA'). Compliance is a key component with BSA, and it is critical to the detection and prevention of money laundering and terrorist financing. In a recent letter to all federally insured credit unions, NCUA encouraged them to carefully review their practices for compliance with the BSA and make improvements a top priority. A compliance review of BSA is required under NCUAs risk focused examination program. Several credit unions have already been cited for violations of the BSA.

To establish consistent understanding with BSA issues, NCUA has created a list of Frequently Asked Questions and Answers (FAQs) that can be downloaded in PDF format by clicking here. Please note, that the guidance provided by the FAQs does not supersede the requirements established in the NCUA Rules and Regulations.

Additionally, a BSA and anti-money laundering examination manual focusing on credit unions, banks, and thrifts was released jointly by NCUA, the federal bank and thrift agencies and Treasurys Financial Crimes Enforcement Network. The manual, which provides narrative guidance and resources rather than specific exam procedures, applies to all institutions, regardless of their asset size. Click here to download a copy of the BSA examination manual in PDF format.

10 Consumer Tips for ATM Safety and Security

Compiled by Laura Bruce - Bankrate.com

ATMs are a great convenience, but they can compromise your safety. A robber looking for easy prey only has to stake out an ATM in a low-traffic, dimly lit area and bide his time.

There is no central repository for statistics on ATM crime, but reports of ATM robberies frequently can be found in just about any local newspaper.

Cash machines at banks are probably the safest bet, but that doesnt mean you have to steer clear of the ones at malls, airports and sports venues. You can avoid becoming a victim by using some good old common sense and by planning ahead for ATM withdrawals.

The Electronic Funds Transfer Association and the Los Angeles Police Department have provided some great tips for making sure your visit to the ATM is uneventful.

  1. Always pay close attention to the ATM and your surroundings. Dont select an ATM at the corner of a building - corners create a blind spot. Use an ATM located near the center of a building. Do your automated banking in a public, well-lighted location that is free of shrubbery and decorative partitions or dividers.
  2. Maintain an awareness of your surroundings throughout the entire transaction. Be wary of people trying to help you with ATM transactions. Be aware of anyone sitting in a parked car nearby. When leaving an ATM make sure you are not being followed. If you are, drive immediately to a police or fire station, or to a crowded, well-lighted location or business.
  3. Do not use an ATM that appears unusual looking or offers options with which you are not familiar or comfortable.
  4. Do not allow people to look over your shoulder as you enter your PIN. Memorize your PIN; never write it on the back of your card. Do not re-enter your PIN if the ATM eats your card - contact a bank official.
  5. Do not wear expensive jewelry or take other valuables to the ATM. This is an added incentive to the assailant.
  6. Never count cash at the machine or in public. Wait until you are in your car or another secure place.
  7. When using a drive-up ATM, keep your engine running, your doors locked and leave enough room to maneuver between your car and the one ahead of you in the drive-up line.
  8. Maintain a supply of deposit envelopes at home or in your car. Prepare all transaction paperwork prior to your arrival at the ATM. This will minimize the amount of time spent at the machine.
  9. Closely monitor your bank statements, as well as your balances, and immediately report any problems to your bank.
  10. If you are involved in a confrontation with an assailant who demands your money, COMPLY.

Source: The Electronic Funds Transfer Association, and the Los Angeles Police Department.

The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances.


The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2017.

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