Compliance Blog

Greetings, Compliance folks! The joy of the holiday season is upon us – decorations adorn most buildings, holiday music is playing in stores, and kids (including my own) are eagerly awaiting their presents. This time of year also means that federal credit unions (FCUs) are also trying to plan for the upcoming calendar year, including planning their annual meetings. NCUA recently released a new letter to federal credit unions on the topic of planning annual meetings. Letter 22-FCU-03 has announced that starting January 1, 2023, federal credit unions (FCUs) can no longer hold annual meetings in an entirely virtual format. Instead, FCUs must move to a hybrid model that has an in-person attendance option. As explained below, this letter reverts the rules around annual meetings back to the pre-pandemic way of doing things.

Ghosts of Meetings Past

Let’s review how things were prior to March 2020 when the COVID-19 pandemic struck the nation. Before the pandemic, NCUA updated the FCU Model Bylaws through a 2019 Final Rule – the new bylaws would take effect on January 1, 2020. Commenters had asked NCUA to provide a fully virtual option for FCUs to hold their annual meetings, but NCUA stated (in the preamble to the final rule) that “[a]t this time, the Board does not favor completely virtual meetings.” The final rule discussed how fully virtual meetings could disenfranchise members who do not have access to electronic devices or who live in areas without broadband internet. Instead, NCUA permitted FCUs to host “hybrid” annual meetings – in which virtual attendance is allowed, but the FCU would also be required to offer an option for in-person attendance at a location within 100 miles of an office of the FCU. The FCU model bylaws also contained a “fill-in-the-blank” provision that allowed FCUs to choose the method through which members would cast their votes for the board of directors elections, with one of the options being to vote via electronic device. Voting via electronic device was particularly suited to hybrid meetings in which some of the members were attending remotely – however, the bylaws required the FCU to allow members to vote via mail-in ballot to avoid disenfranchising members who lacked access to an electronic device.

For board of directors meetings, the model bylaws required the board to meet monthly. Of the twelve board meeting per year, eleven of them were permitted to be held virtually. One board meeting per year was required to be held in-person.

Ghosts of Meetings Present

When the COVID-19 pandemic began, NCUA issued letter to FCUs 20-FCU-02, which sought to address how FCUs would hold their annual meetings in a world of social distancing and lock downs. The letter provided a bylaw amendment that FCUs could adopt through a 2/3 vote of their board of directors. The bylaw amendment, if adopted, would allow an FCU to hold its annual meetings in a completely virtual format, so long as a few conditions were met, including a declared state of emergency and the issuance of “general or specific guidance” from NCUA that it was appropriate to hold fully-virtual meetings. The letter served as the “general guidance” that virtual annual meetings would be appropriate for the rest of the 2020 calendar year.

The requirement for the NCUA to issue “general or specific guidance” to authorize use of fully-virtual meetings created some uncertainty for the credit union industry. As the end of each calendar year approached, FCUs would have to wait to see what NCUA would say about annual meetings in the upcoming calendar year.  The NCUA did issue guidance authorizing fully-virtual annual meetings for both 2021 and 2022. Additionally, the guidance for those years also noted that FCUs could use the virtual meeting bylaw amendment to hold all twelve board meetings in a fully-virtual format, rather than requiring one meeting per year to be held in-person.

As mentioned above, this guidance was in place for the 2022 calendar year, meaning that it is still in place as of this publication.

Ghosts of Meetings Future

Last week the NCUA finally issued their guidance on meetings for 2023, in the form of letter 22-FCU-03. The letter stated “[t]he NCUA does not believe that current circumstances continue to warrant federal credit unions to invoke the subject bylaw provision beyond year-end 2022.” Thus, current use of the virtual meeting bylaw amendment will expire on December 31, 2022. The letter notes that these virtually meeting bylaw amendments will essentially go dormant and can be reactivated at a future time if there is a state of emergency and NCUA issues new guidance stating that it is appropriate to have fully-virtual meetings once more.

So what does this mean for FCUs in 2023? It means that FCUs can still have annual meetings with a virtual attendance option, but that those meetings must also offer members the option to attend in-person for those who wish to do so. This would be a “hybrid” annual meeting as originally conceptualized in the 2019 Final Rule amending the model bylaws. According to the model bylaws, the in-person attendance option must be provided at a location within 100 miles of an office of the FCU.

Importantly, Letter 22-FCU-03 did clarify that members who attend virtually will still count towards the quorum for the annual meeting. This is a clarification that NAFCU had sought in a recent letter to NCUA on this topic.

For board of directors meetings, at least one of the twelve monthly meetings must be held in-person (though the FCU model bylaws notes that the in-person requirement only applies to having a quorum – once a quorum has been reached, any attendees beyond the quorum amount may attend virtually).

The NAFCU Compliance Blog will continue to update credit unions on any future developments on this topic.

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