When things go south: Limitation of services

Like the start of any relationship, the beginning of a credit union’s relationship with a member is full of hope and optimism. Unfortunately, things don’t always work out as planned. Sometimes a credit union may find itself wanting to limit services to the member, such as in response to egregious conduct. However, there are some specific rules that apply to these situations, particularly when a share account is involved.

NCUA has recognized a federal credit union’s (FCU) right to adopt a “limitation of services” policy, and even added a discussion of those policies into the current version of the NCUA Model Bylaws. Under NCUA legal opinion letters and the model bylaws, this policy should be in writing, approved by the board of directors, and communicated to the credit union’s members. The policy can only be utilized against members who are no longer in “good standing” – which includes (but is not limited to) members who have caused a loss to the FCU, who are significantly delinquent on a loan, or who have engaged in conduct that is violent, belligerent, disruptive or abusive. Additionally, there must be a “logical relationship” between the member’s offending conduct and the services to be limited. For example, limiting the ability to write checks may be appropriate for a member who has bounced numerous checks, but likely would not bear a “logical relationship” if the member is merely delinquent on a loan.

NCUA has discussed which services may be limited in this legal opinion letter, as well as in the preamble to the 2019 Final Rule which adopted the most recent version of the model bylaws. The 2019 preamble stated: “An FCU has broad discretion to deny, as it deems appropriate, all or most credit union services, such as ATM services, credit cards, loans, share draft privileges, preauthorized transfers, and access to credit union facilities…” (emphasis added).

 

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