Closing Accounts and Expulsion
The Compliance Team here at America's Credit Unions is frequently asked about closing member accounts and expulsion. While the operational reasons for closing an account can vary (for instance: fraudulent activity, negative balance, etc.), it's important to understand the broader compliance implications when closing a member's only share account. So, first, I'll start with this important disclaimer: federal credit unions (FCUs) should be aware that closing a member's only share account would essentially be viewed as a termination of their membership. As we all know, "once a member, always a member" is one of the slogans behind which credit unions stand. Just read the NCUA's FCU model bylaws:
"(a) Once a member, always a member. Once a member, always a member until the person or organization chooses to withdraw its membership or is expelled under the Act and Article XIV of these bylaws."
For some additional context, NCUA Legal Opinion Letter 08-0431 (Letter 08-0431) identifies two inalienable rights under the Federal Credit Union Act (FCU Act): the right to maintain a share account and the right to vote. Thus, each member of an FCU has a fundamental right to maintain at least one share account. Letter 08-0431 also reiterates that "a credit union cannot terminate a member's right to vote in annual elections or maintain a share account without complying with the FCU Act's requirements for expulsion."
For expulsion procedures, FCUs will need to review their own bylaws for more information. For example, has your credit union adopted the most recent provision in the FCU model bylaws? Per the model bylaws:
"Section 1. Expulsion procedure. A credit union may expel a member in one of three ways. The first way is through a special meeting. Under this option, a credit union must call a special meeting of the members, provide the member the opportunity to be heard, and obtain a two-thirds vote of the members present at the special meeting to expel a member. The second way to expel a member is under a nonparticipation policy given to each member that follows the requirements found in the Act. The third way to expel a member is by a two-thirds vote of a quorum of the directors of the credit union. A credit union can only expel a member for cause and through a vote of the directors of the credit union if it follows the policy for expulsion in section 2."
In summary, to expel a member, an FCU has three options:
- Through a special meeting of the members.
- Through the use of a nonparticipation policy.
- Through a two-thirds vote of a quorum of credit union directors.
Please note, utilizing the third expulsion method (expelled for cause by a two-thirds vote of a quorum of the directors of the credit union) requires an FCU to have adopted the most recent version of the bylaws and to have provided notice to all members regarding this newer expulsion power.
However, there is an instance where an FCU does not have to follow expulsion procedures when terminating a member's membership. Article II, Section 3 of the model bylaws provides that:
"Section 3. Maintenance of membership share required. A member who withdraws all shareholdings or fails to comply with the time requirements for restoring his or her account balance to par value in Article III, section 3, ceases to be a member. By resolution, the board may require persons readmitted to membership to pay another entrance fee."
However, it's important to note, as NCUA Legal Opinion Letter 93-1216 indicates, that "NCUA suggests that members be notified when their accounts are drawn to zero, or have negative balances, so that they may correct the situation before their FCU membership is terminated. At a minimum, members should be aware of the FCU's policy of closing an account when it falls below par value due to absorption through fees or charges. NCUA has recommended such disclosures under the requirement that Truth in Savings disclosures reflect the terms of the legal obligation between the member and FCU."
In such cases, the termination of membership does not go through the formal expulsion process. But again, it's important that credit unions review their own bylaws for more information.
While there are operational scenarios that may lead a credit union to consider closing a member's account-such as suspected fraud or inactive accounts (all cases which require credit unions to review the account agreement regarding any contractual rights/requirements) - the important takeaway is this: if the member only has a single share account, closing it can amount to terminating their membership. In nearly all cases, proper expulsion procedures must be followed. For this reason, FCUs should review their bylaws and may want to consider consulting with counsel before proceeding. State-chartered credit unions should review their relevant state laws for more information on closing accounts and terminating membership.
Credit unions that are considering terminating a member, should keep in mind that on August 7, 2025, President Trump issued the Guaranteeing Free and Fair Banking for All Americans Executive Order (EO). Under the EO, financial regulators, such as the National Credit Union Administration, are ordered to investigate instances where financial institutions may have terminated or rejected a relationship due to political or ideological beliefs and whether these terminations may have violated laws such as the Equal Credit Opportunity Act. Credit unions that are terminating a membership should ensure that the decision is based on objective factors (such as the examples previously discussed in this blog - fraud, negative balances, inactive accounts, etc.), avoiding any reference to political affiliations, religious beliefs, or vague "reputation" concerns. For more information on the EO, America's Credit Unions' members can review a summary/analysis on this subject here.
For questions on this topic or others, America's Credit Unions' members can contact the Compliance Team at compliance@americascreditunions.org.
