September 1, 1998
Thomas R. Folk, Esquire
Hazel & Thomas
3110 Fairview Park Drive
Suite 1400, P.O. Box 12001
Falls Church, Virginia 22042
You have asked whether the Federal Credit Union Bylaws (FCU Bylaws)
prohibit a federal credit union (FCU) director from being employed
by a company that offers products similar to products being offered
by the FCU. As explained below, the bylaws do not prohibit this
form of dual service but there are other legal concerns that must
be addressed.
You have advised that an FCU director is currently the comptroller
of an association that offers its members certain services through
outside vendors. These services include life and health insurance
and financial products through a bank. The association receives
compensation from the bank and insurance companies in proportion
to the number of members who utilize the services. The FCU's
field of membership substantially overlaps the association's membership.
The FCU provides many of the same services offered by the association
either directly or through a credit union service organization.
These services include: deposit products; annuities; medical
supplemental insurance; credit cards; group life insurance; relocation
services; and educational assistance such as loans. By offering
many of the same products to their overlapping memberships, the
FCU and the association are in direct competition.
Article XIX, Section 4 of the FCU Bylaws prohibits a director
from participating in any manner in the deliberation upon or the
determination of any question affecting the pecuniary interest
of any association in which he is directly or indirectly interested.
Under this provision, if any of the matters the board is deliberating
on affect the pecuniary interest of the association, than the
director should recuse himself from the deliberations. This would
need to be addressed on a case-by-case basis.
Mr. Thomas R. Folk, Esquire
Page Two
We are aware of no other FCU bylaw, regulation or statute that
prohibits this form of dual service. Although not a violation
of law, we caution that the individual must be careful not to
breach his fiduciary duty to the credit union. This may be difficult
given the fact that the two entities are in direct competition.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MFR:bhs
SSIC 3000
98-0711