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The terms and conditions of this bulletin govern amendments to the conditions of residence, occupation, or association which qualify persons for membership in a state-chartered credit union. Such conditions are set out in a credit union’s by-laws as required by G.L. c. 171, s. 9. Any amendments to such conditions are required to meet the provisions of G.L. c. 171, s. 10, which include a majority vote of the members present and entitled to vote, and the approval of the Division of Banks (Division). The matters addressed herein will also be helpful to those seeking to establish a state-chartered credit union pursuant to G.L. c. 171, s. 2.
The clarity of the by-law governing membership is vital to a credit union and the Division. Since the governance of a credit union is vested in its membership, there must be certainty as to eligibility to participate in its affairs. From a regulatory compliance standpoint, the credit union must be able to determine to whom it may make loans and receive deposits since only members can obtain its services.
The Division has issued this bulletin to assist in these matters and to facilitate the regulatory approval process. The bulletin supplements and provides commentary on the statutory requirements and the application procedures necessary to complete the process to amend the membership by-law.
A. Procedural Matters
The significance of the by-law on membership is evidenced in statute by the requirement that a change necessitates a majority vote of the membership present and entitled to vote on the matter. Concurrent with that required vote is the expectation that the membership is knowledgeable on the extent of the changes before them. It is the position of the Division that such knowledge can be ensured by clear language and defined terms set out directly in the by-law. The result of such drafting will benefit both the membership and the Division’s review of compliance with applicable laws.
A vote on a membership by-law change must occur at the credit union’s annual meeting or at a special meeting. Notice and posting and/or publication of either such meeting must comply with other provisions of G.L. c. 171 as well as any by-laws of the credit union. Such meetings have time and expense considerations which are recognized by the Division. However, prior to any such meeting of the members the amendment on membership qualification will have been voted on favorably by the credit union’s board of directors (board).
In the past, the Division has not accepted for review membership by-law changes solely on the vote of a credit union’s board. That position was based on the fact that not all statutory requirements had been met. This bulletin changes that position by providing various options to an applicant credit union. A credit union may seek the Division’s approval by following one of these processes.
Under both Options 2 and 3, any approval granted by the Division will be conditioned upon the following:
All submissions for a change to the membership by-law must be submitted and addressed to the Commissioner. As is the standard existing policy of the Division, a credit union may send a courtesy copy to any staff of the Division it chooses.
This process represents the existing application procedure of the Division. Accordingly, a credit union proceeding under the option would be subject to the following:
A credit union proceeding under Option 1 should also take a vote of the membership to amend the proposed by-law change to meet the comments of regulators during the application process.
Under G.L. c. 171, s. 10, a membership by-law provision becomes effective upon compliance with applicable law and approval by the Division. This bulletin establishes two alternative procedures to the standard application process for obtaining the Division’s approval. However, under each alternative, such approval will be affirmatively conditioned upon the subsequent compliance with the statutory requirement for a membership vote. Accordingly, upon the occurrence of a membership vote in favor of the amendment which meets all requirements of law, the by-law will become operative.
The filings required under Section 3 above will serve only to evidence to the Division that statutory compliance has been attained and to ensure that the records of the Division are complete relative to the transaction and the by-laws of the credit union. The Division reserves the right to revoke any prior approval if the filings under said Section 3 reflect a failure to comply with all applicable provisions.
aa. Under Option 1, upon the submission of an application referenced in clause (iii) addressed and submitted to the Division;
bb. Under Option 2, upon the submission of the documents referred to in clause (i) addressed and submitted to the Division.
aa. A telephone discussion with staff of the Division;
bb. The mere submission of a letter with an attached vote of the board of directors.
As discussed herein, the contents of the membership by-law must have certainty to both the credit union and the Division in order to obtain the dual goals of membership governance and compliance with applicable laws. Accordingly, the language, word choice, and punctuation used should be clear and appropriate. All terms must be defined within the by-law. The following are examples of insufficiently defined terms:
A recurring issue concerns an intent to include a credit union member’s family within the eligibility for services as a member of the credit union. However, family, immediate family, or similar wording is not clear since the degree of kinship is not set out. Therefore, all specific relationships intended must be specifically mentioned, such as spouse, son, daughter, mother, father, sister, or brother, for example.
Similarly, geographic words or terms must be precise. References to the "immediate area" or "Eastern Massachusetts" can lead to questions on a person’s eligibility that cannot be resolved. Such terms require further clarification which can be provided by a listing of individual municipalities or a larger recognized geographical area such as a county.
The most problematic issues presented to the Division concern terms related to business relationships. Various submissions have included references to "subsidiaries," "affiliate," "spin-off," "service related," "industry," and "successor" without any definition of such terms or identification of a corporate organization chart or agreement which would clarify such terms. To eliminate the problems and delays created by such undefined terms this bulletin establishes two clear alternatives to a credit union seeking to amend its by-laws to cover such possibilities.
The first alternative is for the board of a credit union to define each such term within the membership by-law. Those definitions would be reviewed by the Division on a case-by-case basis and resolution of the definitions would occur prior to the membership vote. Subsequent to final approval of the by-law provision, the board will be authorized to extend membership to employees of such entities if the board is able to articulate specific and complete facts which reflect that the entity meets an applicable defined term in the by-law, the exact term is identified and the record of this analysis is set out in the minutes of the boards’ meeting on this matter.
The second alternative for a credit union is to specifically list by name each company, corporation, group or entity to be covered by the membership by-law. Under this option any additions to the listing will require a separate vote of the membership. No by-law submission will be approved under this option, which delegates the authority to add entities to the board acting alone.
C. Other Matters
Membership in a credit union cannot be extended or made available to employees of the credit union who are otherwise not so eligible without following the procedures set out in this Bulletin. Such procedures include the required vote of the membership and approval by the Division. The statute does not grant automatic membership to such employees.
By operation of law, regardless of whether it is stated in the membership by-law, a credit union may receive deposits in the name of a member on a joint account with a non-member. Such other person shall not be deemed a member.
D. Prohibited Practices
This bulletin was first issued in March 1995 as Administrative Bulletin 35-1 and was revised on January 15, 1998. The bulletin was revised on May 8, 2012.
G.L. c. 171 ss. 2, 9 and 10.