ALEXANDRIA, Va.–The NCUA board has voted 3-0 in favor of reinstating rules around field of membership and chartering that have been years in the making, after surviving numerous court challenges by bankers’ groups.
The rules were initially approved by the NCUA board in 2016, a proposal now known as “FOM One.”
The newly approved rule, officially Final Rule, Part 701, Appendix B and also known as “FOM 3”:
- Re-adopts a provision to allow an applicant to designate a combined statistical area (CSA), or an individual, contiguous portion CSA, as a well-defined local community, provided that the chosen area has a population of 2.5 million or less
- Provides further explanation and support for eliminating the urban-core requirement for local communities based on CBSAs, as provided for in the 2016 FOM rule
- Provides express authority for the NCUA to reject a credit union application for CSAs and CBSAs if the agency determines that the FOM selection reflects discrimination (the ABA had argued that the 2016 rule would allow credit unions to engage in redlining; this addresses that concern)
FOMs Reinstated
As CUToday.info reported, the D.C. Court of Appeals ruled largely in favor of the NCUA in the ABA lawsuit in August 2019 and sought additional explanation of the NCUA's decision to eliminate the urban-core requirement for local communities based on core based statistical areas. Putting an end to the litigation, the U.S. Supreme Court declined ABA's petition to hear the lawsuit after the appeals court declined to rehear the case en banc.
What Rule Would Do
Following the Supreme Court decision, the NCUA began reinstating FOMs that were removed due to litigation and resumed processing the rural district FOM applications for those credit unions that had them held during the litigation period. It also began accepting new applications for those fields of membership.
According to NCUA staff, the proposal received 128 comment letters, including numerous form letters from banks in opposition to the proposal.
Prior to the vote, NCUA Chairman Rodney Hood said the court ruling was “welcome news,” adding, “I believe this decision will help credit unions grow and further reach members in rural and underserved areas. We will now take some critical next steps.”
Hood said NCUA has reinstated 18 rural districts that had previously been rolled back.
“I take access to financial services very seriously, and am delighted the enhanced rule addresses potential discrimination,” said Hood.
Harper Comment
NCUA Board Member Todd M. Harper also praised the new rule, saying it “results in a stronger FCU charter by making our FOM rules more competitive with the chartering regimes in many states. I am very pleased the NCUA board is moving quickly to finalize the FOM 3 rule.”
Harper shared the story of one credit union that has been on a three-plus years long roller coaster of FOM approvals and rollbacks—including adding a new branch in one Pennsylvania county where it was then unable to add new members—that can now finally move forward.
Harper also called for expanded exams for compliance with a several consumer protection laws, as he has at previous meetings.
Of 100 CUs with largest potential FOMs, staff said in response to a Harper question, 91 are state charters, nine are federal charters.
“I think that’s a really illustrative analysis,” said Harper. “I know the bankers like to attack the NCUA, but in fact they need to address their concerns to the states that have expanded more quickly. We are merely bringing our standards up to theirs.”
What About Redlining?
What about redlining? asked Harper.
Staff told Harper the agency plans to “proceed with a robust process” to evaluate a CU’s business and marketing plan to show they have the ability to provide products and services to underserved markets and to meet the demographic characteristics of the proposed community. That monitoring will continue for three years after approval, staff said. Fair lending exams will also protect against redlining, staff told Harper.
McWatters’ Comments
McWatters said he welcomed the opportunity to finalize the FOM 3 rules, noting the work has gone on for many years.
‘Our success in the federal courts did not occur by happenstance,” said McWatters. “I assure you that after 38 years of legal practice I would not have assisted…in the FOM rules unless I was absolutely confident they are based upon sound public policy and fall squarely within the Federal Credit Union Act. Today’s rule was prepared in strict compliance” with the D.C. Appeals Court ruling.
McWatters said the rural district rule deserves special consideration in providing ready access to rural residents to federal credit unions, “offering consumers a viable choice relative to those lenders who operate under a less-consumer friendly business model…This helps to transform financial deserts into communities of financial choice.”
CUNA Response
In response to the NCUA vote, CUNA President/CEO Jim Nussle said, "NCUA finalizing this rule completes an important modernization of FOM requirements that will allow credit unions to serve more Americans. This is particularly important when people around the country are feeling the impact of the pandemic. Consumers around the country will benefit from NCUA’s determination to modernize its field of membership rules, and CUNA and Leagues were proud to stand by the agency as bankers tried hard to deprive consumers of safe an affordable options for financial services.”
NAFCU Comments
“NAFCU applauds NCUA Chairman Rodney Hood and Board Members Todd Harper and J. Mark McWatters for modernizing FOM rules that will allow credit unions to grow stronger and serve more Americans,” said NAFCU President and CEO Dan Berger. “NAFCU has long supported modernized FOM rules, and we have actively worked to beat back bank lobbyists’ unrelenting opposition to these reforms. At a time when the coronavirus crisis is severely impacting our local communities, particularly many underserved, this rule will provide greater access to financial services for consumers across our nation.”