Managing Dormant Accounts
Frequently, the Compliance Team receives questions regarding what is considered a dormant account. You may be surprised to know that federal credit unions (FCUs) generally have the authority to define what they consider to be a dormant or inactive account.
The Federal Credit Union Act (FCU Act) grants FCUs the authority to determine terms, rates, and conditions for member share accounts, subject to limitations by the NCUA Board. Additionally, federal credit unions are permitted to adopt their own dormant account policy. However, the policy should be disclosed to members, and it must not conflict with other federal laws, state escheat (abandoned property) laws or the credit union's contractual obligations. This information can be referenced in NCUA Legal Opinion Letter 03-0855. Although the letter was written in response to a question about a Louisiana statute, the interpretation provides valuable guidance for all federal credit unions:
"The Act grants an FCU exclusive authority to determine the terms, rates and conditions of member accounts, subject only to limitations prescribed by the NCUA Board. 12 U.S.C. §1757(6). Under NCUA regulations, state laws regulating the opening, maintenance and closing of share, share draft or share certificate accounts are not applicable to FCUs. 12 C.F.R. §701.35(c). Together, these statutory and regulatory provisions permit an FCU to adopt an inactive accounts policy that would be equivalent to, or even more stringent than the Louisiana statute, as long as it discloses the policy to members and it does not conflict with other federal laws, state escheat laws or the FCU's contractual obligations." (Emphasis added).
Importantly, the above letter also notes that "an FCU interested in implementing a dormant account policy must also ensure that it is consistent with the requirements of the Federal Credit Union Bylaws (FCU Bylaws) governing a member's right to bring an account back to par value before being terminated from membership." Specifically, 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."
Furthermore, NCUA Legal Opinion Letter 93-1216 offers additional guidance regarding member accounts that go below par value:
"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." (Emphasis added).
The above guidance underscores the importance of transparency and communication.
Another common question many credit unions ask us is whether they can charge inactivity fees to dormant accounts. As noted earlier, federal credit unions have the authority to set dormant account policies. This would include imposing fees relating to such accounts. However, the amount of any fee and the conditions under which they will be imposed must be included in the account agreement or disclosures. NCUA Legal Opinion Letter 08-1030 states that "an FCU can, 'consistent with this section [§701.35], parts 707 [truth in savings] and 740 [accuracy in advertising], other federal law, and its contractual obligations, determine the type of fees or charges and other matters affecting the opening, maintaining and closing of a share draft or share certificate account.'" (Emphasis added).
As noted above, transparency and communication remain key. Letter 08-1030 also reminds FCUs that such policies, regarding fees, must follow Truth in Savings requirements. As we know, section 707.4(b)(4) requires credit unions to disclose the "amount of any fee that may be imposed in connection with" an account.
As you can see, there is some flexibility when it comes to creating dormant account policies, procedures, and processes. A well-crafted dormant account policy helps avoid confusion and ensures consistency with how dormant accounts are handled. Consulting with legal counsel may also be beneficial when developing related policies, procedures, and processes.
Questions? Please feel free to contact the Compliance Team at compliance@americascreditunions.org.
