ALEXANDRIA, Va.—The NCUA board has approved a final rule on associational common bonds that includes several changes based on credit union comments.
The new rule passed by a 2-1 vote, with Board Member Mark McWatters voting against it.
Key changes from the proposed rule include increasing the number of associational groups automatically approved to 12 from five, removing the one-year requirement from the threshold test—which precedes the totality of the circumstances test—and reducing restrictions concerning corporate separation between the credit union and the association, essentially allowing the association to share an address with a credit union.
NCUA explained that the factors determining corporate separateness have been reduced to one—the books, records and accounts of the association and the credit union cannot be intermingled.
The FOM rule has taken fire from credit unions regarding how it limits growth. Experts have stated that the proposal was originally issued in response to banker allegations that many associations inside CU FOMs are created simply to expand field of membership.
Credit unions have argued that the proposal penalized the entire industry for the excesses of a few.
NCUA Chairman Debbie Matz emphasized that the agency carefully reviewed the 43 comments credit unions sent—comments that Vice Chairman Rick Metsger has been urging CUs to send in in large numbers due the impact FOM rules have on CU growth. Metsger has made FOM a key issue.
Matz stated that the final rule is not a “barrier or a burden” for any qualifying association. She pointed out that if the final rule were in place in January 2014, 99% of all of the association applications CUs sent to NCUA would have been approved, 87% automatically.
“That puts the impact of this rule into perspective,” Matz said.
Matz contended that increasing the number of pre-approved associational groups reduces regulatory burden and streamlines the addition process.
“For example, under the final rule, we automatically approve any organization that meets the very general purpose of promoting social interaction or educational initiatives among persons sharing a common occupational profession,” Matz said. “I requested this open-ended definition to give federal credit unions flexibility to automatically add any well-established workplace association.”
But McWatters, in casting the lone dissenting vote, shared a different viewpoint, saying the final rule’s attempt to provide regulatory relief is not reflected in the reg.
He explained that the rule should not apply additional regulatory burden and should focus on only preventing the “bad apples” from taking advantage of the rule.
“The final rule, except for the regulatory relief provided with the pre-approval process, accomplishes little except to increase the regulatory burden on the vast bulk of credit unions that remain in full compliance with the letter and spirit of associational common bond rules,” he said.
McWatters termed the new threshold requirement, which serves as a test to determine whether the groups being added were created primarily for the purpose of expanding credit union membership, as “burdensome.”
“Those who operate federal credit unions certainly appreciate this regulation injects more uncertainty and time delay into the FOM regulatory process.”
McWatters said the final rule increases the regulatory burden associated with the totality of the circumstance test by adding an additional factor of corporate separateness. “Adding the corporate separateness to the totality of the circumstances test confuses substance and form and accomplishes little except to increase the cost of incorporating an association into a federal credit union’s field of membership.”
Despite NCUA’s statement that all approved associations would be grandfathered into the new rule, McWatters shared concerns for quality assurance reviews of existing associations—something credit unions have also shared concerns over. McWatters emphasized the importance of “due process” in the final rule.
“I remain troubled by any such rule that does not incorporate resilient standards of objective transparency, a meaningful period for a FCU to cure or remedy any non-compliance issue after a written and timely notice by NCUA and a fair-minded process where a credit union could appeal an adverse determination by NCUA.”
CUNA President and CEO of Jim Nussle supported NCUA’s changes to the final rule.
“CUNA thanks for the NCUA board for listening and adopting CUNA-backed changes in their final rule for associational common bond,” said Nussle in a released statement. “We’re pleased NCUA allowed automatic approval for an additional five categories of association, removed the one year requirement from the threshold test and reduced the corporate separateness factor which will allow for an association to share an address with a credit union. These changes will ensure that millions of hardworking Americans will continue to have access to credit unions.”
NAFCU was less certain about the final outcome, saying the trade association, while supporting an effort toward regulatory relief, has “ongoing concerns” about the rule’s threshold-determination requirement.
Noting the final rule includes 12 groups automatically deemed suitable for inclusion in FCU membership fields, NAFCU Director of Regulatory Affairs Alicia Nealon said in a statement, “While NAFCU appreciates NCUA’s efforts to streamline certain requirements for amending a federal credit union’s field of membership, we have continued concerns about the incorporation of a threshold-determination requirement.”
Nealon said NAFCU is reviewing the rule and will provide an overview of its impact in a Final Regulation for member credit unions.
Matz stressed that the agency will continue to deliver ways to help credit unions expand.
“Even as we finalize this rule, the field of membership working group is gathering information from stakeholders across the country, discussing ideas for additional regulatory relief and process improvements to streamline field of membership expansion by credit unions. After the working group makes recommendations to the board, we plan to propose new rules for more expansive community charters, underserved areas and occupational charters by the end of this year.”
Other board meeting actions:
- The board unanimously approved a final rule on technical amendments to the corporate CU rule, addressing corporate retained earnings.
- The board unanimously approved a proposed rule on aggregate lending limits for corporates, which includes allowing corporates to make CLF bridge loans to natural-person credit unions.
- The board unanimously approved a proposed rule to provide share insurance coverage for IOLTAs
- The agency shared first quarter NCUSIF performance:
- Q1 the fund recorded income of $54.3 million, $25 million in net income.
- Operating expenses were $43.8 million.
- Camel code 4-5 CUs decreased by a net of 18
- Camel code 3 CUs decreased by a net of 56.
- Three CU failures this year have cost the NCUSIF $1.7 million, with none of the costs due to fraud, the agency noted. At least or now that is a change from previous years. Of the $40.4 million in NCUSIF losses from CU failures in 2014, $36.5 million were due to fraud, the agency stated. And, of the $63.9 million in losses from CU failures in 2013, $58.8 were fraud related.