Regulatory Q&A with the Texas Credit Union League

Texas Credit Union League
April 19, 2010 | COMMENTS

Question: What liabilities does the board of directors assume in its position?

A credit union director (or officer) is referred to as a “fiduciary” by law. This means a director holds a position of trust. A director has an affirmative duty to care for the property of others and can be held liable for failing to perform that duty. Because the members of a credit union are too numerous to handle any but the most basic decisions for the credit union, the law provides for them to elect directors – fiduciaries to act on their behalf.

A director has several duties:

• A duty of loyalty.
• Fiduciary duty.
• The duty of due care. This is displaying the degree of care, which an ordinarily prudent and diligent person would exercise under similar circumstances. Further, if the credit union is suffering financial problems, directors are required to devote extra time and effort to the affairs and activities of the credit union.

When directors are the target of lawsuits, they may be named individually, or the board may be named as a group. When the suit involves a policy decision, the board as a whole might be named. Individual directors are most often named when they had some personal involvement in the disputed issue, though they are sometimes targeted as a form of harassment.

A director, can be held liable for many different types of activities, such as:

• Failure to act when necessary
• Acting when they should not have

People or organizations can sue the credit union or directors personally, such as:

• Members
• Individuals or companies who enter into contracts with the credit union
• National Credit Union Administration and/or state regulator (if state chartered)
• Fellow directors
• Bonding company

Reprinted with permission from LoneStar Perspectives, a publication of the Texas Credit Union League.