FROM: Richard S. Schulman, Associate General Counsel
SUBJ: Nonstandard Bylaw Amendment - [redacted]
(Your March 27,1995, Memorandum)
DATE: May 1, 1995
We are responding to your request for an opinion of five nonstandard bylaw amendments proposed by [redacted]. The Proposed amendments and our opinions are discussed individually below.
Article II, Section 2
The proposed nonstandard amendment would change the requirement for membership from "subscription to at least one share of this credit union and the payment of the initial installment thereon" to "subscription to a Membership Account (one share of this credit union) and the payment for such share." We have no legal objection to the establishment of a separate membership account equal to the value of one share. We have previously opined that "it would be permissible for an FCU to require members to purchase one share to be held in a regular share account, and then require additional payments to be made into another type of share or share certificate account." (November 16, 1990, Letter from Hattie M. Ulan, AGC to [redacted].
We would object to the requirement that full payment of the share be made rather than allowing for payment by installment. Section 109 of the FCU Act, states, in part:
Federal credit union membership shall consist of the incorporators and such other persons and incorporated and unincorporated organizations, to the extent permitted by the rules and regulations prescribed by the Board, as may be elected to membership and as such shall each subscribe to at least one share of its stock and pay the initial installment thereon ...
(Emphasis added). Clearly, the FCU Act permits membership upon payment of only one installment of a share. Further, relying on Letter to Credit Unions No. 70, we have required FCUs to give a member at least six months to pay for one share when par value of a share exceeds $5. (See attached May 24, 1989, Memo from Hattie M. Ulan, AGC [redacted]). The Proposed bylaw imposes a greater burden on those seeking membership, and thus conflicts with the FCU Act and Letter to Credit Unions No. 70.
Article II, Section 4
This Proposed amendment only allows a member to withdraw all of the funds in the membership account upon which membership is automatically terminated. This proposal does not conflict with the FCU Act or NCUA Regulations. The limitations would be imposed through the account agreement and would have to be agreed to by the member. Although not a violation of the FCU Act or Regulations, which do not address the issue, the proposal is the opposite of current policy. The current policy, as expressed in Article III, Section 4 of the bylaws, is that a member be allowed 6 months to bring his/her account back to par prior to termination of membership. We defer to your judgment as to the policy implications of such a proposal.
Article III, Section 1
The proposed amendment sets the par value of each share at $25 and requires immediate full payment. For the reasons discussed above under Article II, Section 2, this proposed bylaw conflicts with the FCU Act and should not be approved.
Article III, Section 3
The Proposed amendment prohibits a member from withdrawing the share in the membership account until all other deposit accounts have been withdrawn, and all loans have been paid in full. As stated in your memo, we have Previously opined that:
an FCU has no right to force an individual to pay off a loan simply because his membership in the credit union has been terminated. Repayment of a loan is governed by the repayment terms set out in the contract, and an FCU may not unilaterally amend that contract. Neither the Act nor the Regulations provides any basis for accelerating a loan solely on the basis of termination of membership.
February 28, 1991, Memo from Hattie M. Ulan, AGC to [redacted]. For the reasons stated above, this proposed bylaw should not be approved.
Delete Article III. Section 4
We have no legal objection to the deletion of this amendment which relates to share transfers between members. We defer to your judgment as to the safety and soundness of the proposal.