Amending Credit Union Bylaws and Codes of Regulations

By John B.C. Porter, Partner

As part of a credit union’s strategic planning, the topic of amending (or more appropriately modernizing) the credit union’s bylaws or code of regulations often surfaces as a priority. With advances in technology comes opportunity with respect to how the board of directors and members convene and vote. It is imperative for credit unions to appreciate the legally permissible options.

Federally-chartered credit unions (FCU) have it easy; the National Credit Union Administration Board (NCUA Board) periodically approves new versions of Federal Credit Union Bylaws (FCU Bylaws). The most recent version was adopted in October 2007. Unless adopted by an FCU before November 30, 2007, all prior versions of the FCU Bylaws are no longer in effect. Although FCUs may retain any previously approved version of the bylaws, the NCUA Board encourages FCUs to adopt the revised bylaws because it believes they provide greater clarity and flexibility for credit unions and their officials and members.  FCUs may also adopt portions of the revised bylaws and retain the remainder of previously approved bylaws, but the NCUA Board cautions FCUs to be extremely careful as they run the risk of having inconsistent or conflicting provisions because of the various options the revised bylaws provide as well as other revisions in the text.

The FCU Bylaws contain several provisions allowing FCUs to select from an option or range of options and fill-in-the-blank. Changes to fill-in-the-blank provisions are, in fact, changes to the FCU’s bylaws and require a two-thirds vote of the board. As long as the FCU selects from the permissible options for completing the blank, the FCU need not submit the change for NCUA approval. FCUs continue to have the flexibility to request other bylaw amendments if the need arises; NCUA must approve any bylaw amendments. FCUs may no longer adopt amendments from the “Standard Bylaw Amendments” booklet because the 1999 revisions to the bylaws included sufficient flexibility to make the separate list of standard bylaw amendments superfluous. Thus, NCUA no longer differentiates between “standard” and “nonstandard” bylaw amendments.

State-chartered credit unions (SCU), depending on which state the SCU is chartered, may have less clearly defined requirements of the content of its bylaws or code of regulations. In Ohio, for example, the Ohio Revised Code (ORC) outlines the permissive provisions of a Code of Regulations (Code) in that state:

• The time and place for holding, the manner of and authority for calling, giving notice of, and conducting, and the requirements of a quorum for, meetings of members;
• The minimum age of a voting member;
• The number, classification, manner of fixing or changing the number, qualifications and term of office of directors;
• The time and place for holding, the manner of and authority for calling, giving notice of, and conducting, and requirements of a quorum for, meetings of directors;
• The appointment of an executive and other committees of the directors, and their authority;
• The titles, qualifications, duties, term of office, compensation or other manner of fixing compensation, and removal of officers and directors;
• Defining, limiting, or regulating the exercise of the authority of the credit union, the directors, the officers, or all of the members; any provisions regulating rights respecting the purchase, ownership, method of payment for, alienation or transfer of shares;
• Rules governing loans, the furnishing of statements of account, investments, reserves and losses, and dividends;
• Emergency regulations permitted corporations under ORC § 1701.11.

ORC § 1733.07(B). That being said, the Ohio Division of Financial Institutions (ODFI) has developed its own sample Code, which while instructive, contains provisions in excess of the permissive provisions contained within ORC § 1733.07(B).  The superintendent of the ODFI must approve an SCU’s proposed Code within 30 days of receipt.  ORC § 1733.07(D).  SCUs may experience difficulty in Ohio receiving the required approval of the ODFI if it submits a Code that does not contain provisions mirroring all of the provisions in the ODFI’s sample Code.

Regardless of whether an FCU or an SCU, it is incumbent upon every credit union to fully understand the ramifications of amending or adopting wholesale new bylaws or code of regulations. FCU Bylaws, and the latitude FCUs have therewith, are fairly straightforward. SCU’s bylaws or code of regulations, and the provisions required therein, may be less clear, but do not shy away from pressing the credit union’s regulator for authority for including the provision requested within the credit union’s bylaws or code of regulations.