Credit unions wanting to take advantage of the NCUA's new field of membership (FOM) expansion might want to get in line. A predicted uptick in in expansion bids could make for a lengthy wait while the agency reviews and decides on each application.
The new rule offers a lot of ways credit unions can expand their reach, including across state lines and electronically, and dramatically changes the population requirements for how an area can be served. Rural districts, underserved areas, and common bond rules also have been loosened.
Want the highlights of the new FOM rule? Check out "Oh What A Relief It Is. The New FOM Rule Is Now In Place" on CreditUnions.com.
Deemed relief rather than expansion, the NCUA went live with the new rule despite the Drumpf administration’s freeze on new regulations. The ABA also has sued.
The courts already have sided with the NCUA on the MBL question. There’ve been no rulings yet on the FOM suit but that’s not a reason to sit on the sidelines, says Bob Fenner, a former NCUA general counsel who now works as a consultant and presented at a webinar on the topic this week for the National Federation of Community Development Credit Unions.
Fenner calls the new FOM regs “a comprehensive liberalization of existing rules that provide significant opportunities for FOM expansion.” For example, there now are five states that under the new rule could individually constitute a single rural district unto themselves: both Dakotas, Alaska, Wyoming, and Vermont. That means any credit union that earns the ability to serve that district gets the entire state as its FOM.
What's the other side of the argument? The ABA Banking Journal lays it out in "Legal Briefs: The Great Credit Union Caper."
Why To Not Wait
Fenner also gives four reasons for credit unions who are interested in applying for FOM expansions to not delay:
The litigation could drag on for very long time.
Even if the NCUA loses, Fenner says, it’s highly unlikely the courts would order credit unions to divest new members added after earning FOM expansion from the NCUA. Fenner says that, based on what he’s seen in the past, the most that would likely happen is that new members couldn’t be added under that expanded authority.
The NCUA processes applications in the order they’re received, so if you decide to wait your expansion request you may be at end of very long line of applicants.
The processing can take several months to complete once you’re at the head of the line.
A Coming Land Rush?
The NCUA approved 905 FOM expansions in 2015 and 2016. In January 2017 it approved 111, before the new rule took effect. John Fairbanks, NCUA spokesman, told the CU Journal in an article posted this week that the regulator has not yet seen a spike in new FOM applications and that “it would be very hard to guesstimate about when and even whether we’ll seen an increase in applications.”
But Michael Emancipator, senior regulatory counsel at NAFCU, told CreditUnions.com that “we absolutely anticipate more FOM expansion requests to the NCUA.”
Why? “Since this was the first substantive federal FOM update in over a decade, there was plenty of latent demand,” Emancipator says, adding that “NAFCU saw a large increase in member inquiries going into the final weeks before the rule's effective date, running the gamut of all charter types.”
Emancipator reiterated NAFCU’s belief that the NCUA’s case is strong and that it acted within its legal authority in enacting the FOM expansion. He then offered this cautionary note: “With any legal matter there is always a degree of uncertainty, and the business decision of whether to expand ultimately lies with a credit union's board.”
Emancipator did say that in general NAFCU agrees with Fenner about moving ahead while the litigation is still pending.
So does Katherine Weber, a credit union attorney with The Weber Firm in Media, PA.
Credit unions that determine they have the ability to serve an expanded field of membership should not be deterred by the bankers' lawsuit, Weber says.
“The law is the current FOM rule in effect and may not be impacted by the litigation at all,” she says. “I also agree that even in a scenario wherein the court would find against the NCUA, it would be unlikely to require current members to close their accounts. To do so would be disruptive to innocent consumers.”
The bank attacks are based on self-interest rather than consumer interest, Weber says, adding, “In today's world, because so many people use online services, the location of a financial institution is practically irrelevant, especially for millennials. Financial institutions operating with a false sense of ‘claimed territory’ are well behind the times.”
Weber says widespread support among credit unions for the new rule also leads her to believe that many credit unions will be analyzing it to see where expansion makes sense, and to ultimately apply for an expansion.
So, it might be time to get in line.