NYSBL 470 and 471
August 22, 2005
Re: [ ] Credit Union [ ] of the Bylaws
Dear [ ]:
You have asked us to review [ ] Credit Union "s[ ] bylaws to determine whether this section is consistent with New York State Banking Law ("NYSBL"). This section states that "the members by a majority vote of all shareholders shall have the power to review the acts and reverse the decisions of the Board of Directors."
NYSBL Section 470 provides that the Board of Directors of every credit union "shall have the general management of the affairs, funds and records of the corporation." NYSBL Section 471 states that "the directors..... shall discharge the duties of their respective positions in good faith and with that degree of diligence, care and skill which a prudent person would exercise under similar circumstances in like positions." The Banking Department is of the view that [ ] CU's bylaws is inconsistent with NYSBL Sections 470 and 471. Pursuant to these provisions of the Banking Law, the board of directors is charged with the management of the credit union and each director has a fiduciary duty to act in good faith for the best interests of the corporation. This [ ] bylaw essentially undermines the board of directors' ability to manage the credit union and could allow shareholders, who have no fiduciary duty to the corporation, to, in effect, manage [ ].
The Legal Division also contacted the National Credit Union Administration ("NCUA") to ascertain its views on the appropriateness of the subject bylaw. The NCUA informed us that it was their opinion that such a bylaw provision, if found in the bylaws of a Federal credit union, would contradict the provisions of the Federal Credit Union Act that vest the management of a credit union in its board of directors (i.e. the Federal counterpart of Section 470) and, consequently, the NCUA would not authorize such a provision to be included in the bylaws of a Federal credit union.
Should you have any other questions, please feel free to contact me at (212) 709-1642.
Christine M. Tomczak