Compliance Blog

Posted by Anthony Demangone

OK, this really is my last blog post!

Good morning, folks.  I hope everyone had a great weekend.  Das Twins, Mandy and I ventured to the Baltimore Zoo this weekend with friends.  I always love any visit to "Charm City," and the zoo was fantastic. 

Now, back to our regulatory zoo.

NCUA.  They released the agenda for this Thursday's NCUA Board Meeting.  I was expecting to see a CUSO rule, but it was nowhere to be seen.  Here are the items of interest:

1. Final Rule - Part 740 of NCUA's Rules and Regulations, Accuracy of Advertising and Notice of Insured Status.
2. Final Rule - Part 745 of NCUA's Rules and Regulations, Share Insurance and Appendix.
3. Final Rule - Part 750 of NCUA's Rules and Regulations, Golden Parachute and Indemnification Payments.
4. Proposed Rule - Part 705 of NCUA's Rules and Regulations, Community Development Revolving Loan Fund.
5. Voluntary Prepayment of Stabilization Fund Assessment.
6. Insurance Fund Report.

ALLL.  NCUA has released the agenda for an "Allowance for Loan and Lease Losses" webinar that will be held on May 26.   In NCUA's words:

The webinar will facilitate credit unions’ understanding of the 2006 Interagency Policy Statement on the topic. Credit unions have worked to understand how qualitative and environmental (Q&E) adjustments can better inform their estimates of inherent losses existing in the loan portfolio. The NCUA presenters will benchmark best practices in this area. The webinar will be interactive with opportunities for two-way communication.

I've said this before, and I'll say it again.  Regulators don't offer these webinars just for kicks.  They must see some problems or confusion in this area.  For that reason, find the person at your credit union responsible for the ALLL process, and make sure they know about this webinar. 

Term limits for directors.  We get quite a few questions each year about term limits for federal credit union directors.  The theory behind a term limit is that it forces turnover on a board.  Proponents of term limits say that such policies bring fresh ideas to a board that may have stagnated.  Opponents say such policies push great directors out the door for no reason.  NCUA's official position on this issue is clearly laid out in this legal opinion.   

It is our long-standing position that the only eligibility requirements for federal credit union board membership are those contained in the Act. That is, as long as an individual is a member of the FCU (Section 111 of the Act, 12 U.S.C. ~1761) and has not been convicted of a crime involving dishonesty or breach of trust (Section 205(d) of the Act, 12 U.S.C. ~1785(d)) (or if he has been convicted of such a crime, the NCUA Board has waived the Section 205(d) prohibition), he is eligible for election to the board of directors. Article VI, Section 7 of the Standard Federal Credit Union Bylaws permits an FCU's board of directors to set a minimum age requirement.

We have consistently rejected proposed nonstandard bylaw amendments or FCU policies that restrict completely any member's eligibility to run for the board of directors. In our view, such proposed bylaws and policies are impermissible because they serve as an absolute bar against an FCU member running for and serving on the board for a particular term, in conflict with the Act.

This does not, however, preclude an FCU's board and nominating committee from having a policy of nominating only individuals who have served less than three consecutive three year terms on the board of directors. Article VI of the Standard Federal Credit Union Bylaws gives the nominating committee discretion to set standards for determining which members it deems worthy of nomination. The FCU board can provide guidance on this policy. Thus, the nominating committee can have a term limit policy. However, all members other than those nominated by the nominating committee may run for the board by submitting the appropriate petition and/or by being nominated from the floor, whichever the FCU's bylaws allow. Individuals who are nominated by petition or from the floor are not subject to the nominating committee's standards, and may not be precluded from running for the board of directors as long as they meet the criteria specified in the Act and the FCU's bylaws.

There you have it.