ALEXANDRIA, Va.–The NCUA board has voted 3-0 in favor of a rule for multiple common bond credit unions that allows them to add underserved areas to their fields of membership by counting shared locations, regardless of whether the FCU has an ownership interest in the shared branching network, as well as kiosks/ITMs that can take deposits, accept loan applications, and distribute loans, as “service facilities.”
The rule passed by the board scaled back portions of the original proposal that would have allowed credit union websites, banking applications on mobile phones and leased ATMs to be considered a service facility for a multiple-bond FICU.
The rule continues to require a credit union adding an underserved area to its field of membership to “establish within two years, and maintain, an office or service facility in the community.”
NCUA staff said the agency received more than 700 comments on the proposal, the majority of which objected to the idea of allowing ATMs to count as service facilities in underserved areas.
NAFCU Expresses Disappointment
Following the vote, NAFCU expressed disappointment in one aspect of the rule.
“NAFCU is disappointed in the NCUA’s decision to exclude ATMs under the definition of a service facility in its rule," said NAFCU Vice President of Regulatory Affairs Ann Kossachev. "This final rule falls short in helping credit unions, especially smaller institutions, to provide products and services to their communities, including disadvantaged populations that are often left behind by big banks. We also believe that it is critical for online and mobile banking platforms to be recognized as service facilities as technologies continue to evolve and consumer needs and demands change. A legislative change may be necessary to achieve this, and we look forward to working with Congress to help credit unions better serve their communities and stay competitive.”
Harper: Changes Lead to Support
In his comments, Harper acknowledged he initially opposed the rule when the board issued the proposal in December of 2020—when he cast the dissenting vote, saying at that time the proposal “could render the Federal Credit Union Act requirement a near nullity”--but said he had changed his vote because the agency has “corrected the deficiencies contained in the original plan and because the rulemaking has the potential to expand access to safe, fair, and affordable financial services to individuals, including those who live in underserved communities.”
“As I noted earlier, the federal credit union need not be an owner of the shared branch network for the shared branch or shared video teller or kiosk to be a service facility,” Harper stated. “During this review process, I learned that it does not always make business sense for a credit union to own an electronic facility, because of ever-evolving technology and the cost of continually upgrading obsolete technology.”
Harper said leased ATMs also do not effectively serve under-resourced communities, as residents prefer and need “more personalized service.”
“While an electronic kiosk or video teller may not have an actual person present on the premises, they will allow for greater interaction between a credit union and a member in an underserved area,” said Harper. “The provisions in the final rule for three essential financial services that an eligible electronic facility must provide mitigated my initial concerns about having personalized service.”
Harper said the new rule recognizes the evolution taking place in financial services, but also noted that under the final rule the agency’s Chartering Manual will continue to require a credit union adding an underserved area to its field of membership to “establish within two years, and maintain, an office or service facility in the community.”
What would happen if a shared facility closed? Harper said NCUA will expect the CU to “quickly restore services.”
Hauptman: ‘Reasonable Proximity’ Depends on Where the CU is Located
Hauptman said he did not “dispute the claim” that permitting shared locations to qualify as service facilities will assist multiple common bond FCUs to expand into underserved areas, but then stressed that the “situation already exists under the current rule and has for some time now…By removing the ownership requirement, less-resourced FCUs will most likely benefit.
“The FCU Act requires that a group being added to an FCU is in reasonable proximity to the FCU, but there is no statutory constraint on a specific distance,” Hauptman continued. “The board has prudently declined to establish a parameter not required by the Act. The geographical diversity of the United States makes a proscribed definition of reasonable proximity difficult, if not impossible, e.g., reasonable proximity in Alaska is not the same as in Los Angeles or Texas or Massachusetts.”
Hauptman said he has heard concerns the new rule creates incentives for FCUs to only serve the most desirable portions of underserved areas, but said he is “honestly not sure how this would work because the FCU Act actually includes detailed criteria for what constitutes an underserved area. To qualify as an underserved area, in addition to being a local community under NCUA regulations, the area must be BOTH an “investment area” as defined by CDFI Fund regulations and be underserved by other depository institutions, based on data of the Federal Reserve and other banking agencies.
“Therefore, deciding what constitutes an underserved area is not left to the FCU or even the NCUA’s discretion,” stressed Hauptman.
Not a ‘Looser’ Definition
Hauptman further stated the final rule does not apply a looser definition of a service facility, and also continues to impose more requirements for service facilities in an underserved area than for service facilities for group additions.
“To qualify as a service facility in an underserved area, the shared facility must receive share deposits, accept loan applications, and disburse loan proceeds,” Hauptman repeated.
Hauptman said the rule benefits smaller FCUs that may not be able to afford a proprietary branch or ownership in a shared branch network and which can now use a shared facility to deliver services in underserved communities.
Hood: A ‘Significant’ Change That Should Go Further
NCUA Board Member Rodney Hood called the new rule “significant,” especially for smaller CUs, as the previous ownership interest requirement in shared branching has kept some credit unions that cannot afford an ownership interest from being able to “have this tool in their toolbox.”
“The service facility requirement should really be about service to the member-owner,” said Hood. “When you go to a restaurant, do you care if the restaurant is owned or leased when you order an entrée? It’s not a consideration for the customer. So, I’m glad we will be treating owned and leased service facilities the same way. This is a win for smaller multiple common bond credit unions and gives them a level playing field to compete.”
Hood, who called the rule “critical” for serving underserved markets, said he would have preferred to allow mobile devices to count as a service facility. “The pandemic has changed the way we do business -- in fact, today’s board meeting is being conducted virtually, so these technological advances are not new or novel for the board to consider.’
The reality, Hood said, is that consumers are moving more and more to digital banking.
Being ‘Overlooked’ in the Debate
“In a practical sense, if a credit union installed a kiosk, this will count as an electronic service facility for an underserved area expansion if the credit union is able to demonstrate their ability to fully serve the underserved area,” said Hood. “I think this is a critical component that was often missed during the debate of this rule so it is worth repeating: credit unions just cannot install a kiosk and that’s it. They also must demonstrate their ability to serve these potential new member-owners.”
Saying serving the underserved has been a “hallmark” of his time on the NCUA board, Hood said he expects the change will increase credit union access in rural, minority, and tribal communities, among other communities, where currently all that may exist is a pernicious payday lender.