ALEXANDRIA, Va.–The NCUA board, by a 2-0 vote, has passed its revised field of membership rules.
The subject of more comment than any other NCUA proposal in history—11,380 letters—the rule has been designed to make requested field of membership changes more efficient for credit unions, according to the agency.
The board voted to defer two of the more controversial components of the proposal, the first of which would have allowed various online “communities” to be considered communities as part of a credit union’s field of membership; the second of which would have allowed congressional districts, up to an entire state, to be considered a well-defined community.
Some analysts have suggested the agency may have deferred action on those proposals in response to the risk of litigation being filed by the banking industry over any new field of membership rules. The bankers currently have a lawsuit filed against NCUA over its recently passed rules expanding member business lending for credit unions.
Both NCUA Chairman Rick Metsger and Board Member Mark McWatters spoke strongly in favor of the proposed changes to the field of membership rules, with Metsger emphasizing how the world and communities have changed since passage of the FCU Act in 1934.
NCUA staff noted that of the more than 11,000 letters received over the 60-day comment period, approximately one-third of the comments came from banks or bank associations. Given the volume of letters, and what both Metsger and McWatters referred to as thoughtful input and suggestions, the board also voted 2-0 to put out for 30-day comment proposed changes to Appendix B, Chartering and Field of Membership Manual. Those changes reflect some of the comments received.
In remarks to the NCUA board, five members of the agency’s staff–Matthew Biliouris, deputy director; Robert Leonard, director, with the Division of Consumer Access; Rita Woods, director, Division of Consumer Access South, Office of Consumer Protection; Senior Staff Attorney Steven W. Widerman, and Staff Attorney Marvin Shaw from the Office of General Counsel–spent considerable time on issues related to core-based statistical areas, combined statistical areas, and metropolitan statistical areas, which have long been the criteria used for any FOM expansion requests where non-narrative criteria are not involved.
Under the new rule:
· Federal credit unions will be able to apply to convert to a community charter or expand an existing community charter without having to serve the core area if electing to serve a portion of a CBSA. NCUA staff said on several occasions it will continue to review the credit union’s ability to serve the requested area through its business and marketing plan.
· Under the proposal, NCUA’s population limit of 2.5 million people will apply to a Core Based Statistical Area or any well-defined portion thereof.
· Federal credit unions will be able to apply to serve combined statistical areas, as designated by the Office of Management and Budget.
· Federal credit unions will be able to apply to serve an outside area contiguous to its existing Core Based Statistical Area or single political jurisdiction. A federal credit union must provide a written narrative to demonstrate interaction or common interests of the proposed expanded community as a whole, when seeking to add an area adjacent to a Core Based Statistical Area. Note: the proposal does note the larger the adjacent area is the more challenging it may be to demonstrate it is a well-defined local community.
· For FCUs, a rural district population limit is increased to 1,000,000—regardless of the state in which the majority of the district’s population is located.
· FCUs will continue to be able to serve a rural district to cross the boundaries of other states, but under the rule NCUA will limit any multi-state expansion to only those states with borders immediately bordering the state containing the federal credit union’s headquarters or main office.
· Under the new rule, NCUA will re-calculate the concentration of facilities ratio analysis, excluding any non-depository institutions or non-community credit unions or both from the concentration of facilities ratio. However, a second analysis under this scenario would still include other multiple common bond credit unions already serving the underserved area as a community, NCUA said.
· NCUA will now consider alternative methods a federal credit union can rely on to determine whether a proposed area is underserved by other financial institutions, provided the analysis relies on NCUA data or another federal banking agency’s data.
· Under the new rule, for purposes of recognizing the occupational affinity between a select employee group sponsor’s own employees and those of each sponsor’s contractors, NCUA said it will not make a distinction between a single common bond credit union and a multiple common bond credit union. The new rule extends to multiple occupational common bond credit unions the ability to add persons who work regularly for an entity that is under contract to any of the multiple select employee group sponsors listed in its charter, provided the contractor has a strong dependency relationship with the sponsor in each case.
· The new rule allows multiple common bond federal credit unions, to include in its field of membership, employees of an industrial park’s tenants, such as retail tenants of a shopping mall, business tenants of an office building or complex. The group listed in the charter would be the office or industrial park itself, and it would not be necessary to list each tenant as a group sponsor individually. Inclusion of such office/industrial park group within a multiple common bond credit union would be subject to two conditions: 1) each tenant within the group must have fewer than 3,000 employees working at a facility within the park, and 2) only those employees who work regularly at the park during their employer’s tenancy are eligible for federal credit union membership. New tenants to the industrial park are eligible for membership subject to the above conditions.
· Multiple common bond credit unions will be more easily able to add groups of between 3,000 and 4,999 members using a streamlined form.
· The new rule adds an “affinity clause” for honorably discharged veterans and their families. That change will allow those individuals to maintain membership (and add members) with a credit union serving the military branch with which they feel a strong affinity.
Deferred Decision
At the recommendation of staff, the board deferred a decision on whether to modify the definition of “service facility” for multiple common bond federal credit unions to include a transactional website or mobile platform that permits—at a minimum—accepting shares for members’ accounts, accepting loan applications or dispersing loans, as well as an expansion of the rules to recognize an individual Congressional district as a well-defined local community and permit a federal credit union to serve an area consisting of the geographic boundaries of an individual Congressional district.
Agency staff acknowledged that many commenters expressed concern some of the changes would essentially allow credit unions to serve wealthier areas while redlining other, lower-income areas.
“We think it is appropriate to hold credit unions accountable for implementation of business and marketing plans,” staff told the board, “in contrast to a requirement forcing a credit union to serve the core area outside the service area or scale of operations.”
Widerman said the change to a combined statistical area as a means of expanding a field of membership is based on census data that measures the rate of employment interchange between the areas. “This is the measure of interaction and common interests among residents of an area. The beauty of this is with combined statistical areas you can pick an area regardless of the boundaries of the MSA, so that you can have a portion. This is something that gives credit unions more flexibility than they have. It is still subject to evaluation of the business and marketing plans to verify whether they have the capability and commitment to serve the entire community.”
Agency staff said some of the changes around serving underserved areas was based on correcting “flaws” in some of the ratios that have traditionally been used, including how FDIC data was interpreted.
“Bankers didn’t like the concept of the ratio but said if you’re going to use it you should at least fix it so it works right,” the board was told. “So it’s been fixed to be consistent with the letter and the spirit of the Act. One of the limitations was that it looks at the presence of financial institutions, not the level or quality of the services available.”
Rural Districts
Leonard told the board the increase to one-million people from 250,000 when it comes to rural districts will benefit both credit unions and consumers.
“Eighty-seven percent of non-metropolitan counties in the U.S. qualify as middle income or lower,” he said. “Credit unions will have a greater incentive for outreach into rural areas.”
Rural districts are defined as those with a population of 100 people or fewer per square mile. Agency staff again noted no FOM expansion into such areas will be OK’d if the CU can’t demonstrate an ability to effectively serve it.
Woods, from the agency’s Division of Consumer Access, addressed the issue of the ideal group size needed to make a credit union viable. She said that 80% of CU failures have occurred at CUs of fewer than 5,000 members, which is the reason for the streamlined application for groups of between 3,000 and 4,999 members.
Other Board Items
Also, the board unanimously approved three other actions:
- NCUA approved a final rule on the Statutory Inflation Adjustment of Civil Money Penalties. The final rule made no changes to the proposal that was issued in June, the agency stated.
- NCUA approved a joint agency proposal on flood insurance. The proposal, out for a 60-day comment period following publication in the Federal Register, would require lenders to accept private flood insurance on a discretionary basis and subject to certain restrictions. The proposal, which fulfills the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012, is being released jointly by the NCUA, the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC and the Farm Credit Administration.
- The board approved a final rule that made a slight change to the name for Office of Consumer Protection. The office will be re-named the Office of Consumer Financial Protection and Access, reflecting its role in facilitating access to credit unions through the chartering and field-of-membership functions, the agency said. McWatters noted that the Office of Consumer Financial Protection helps to provide access to affordable financial services to the underserved and underbanked. “I am not certain a lot of people now you do that,” McWatters told office’s director, Gail Laster. “Hence the name change.”