The NCUA’s new Field of Membership rule took effect Monday, despite the Drumpf administration’s temporary freeze on all new regulations.
Among its many changes, the new rule addresses the new reality of electronic services, for instance, allowing a transactional website to meet the “reasonable proximity” requirements for membership.
Another big change is the ability for a credit union to “rely on narrative proof of common interest for defining an adjacent community,” says Pam Perdue of compliance specialists Continuity.
There’s much more, much of it revolving around the definition of common bonds.
“There are no clear downsides of the new criteria,” Perdue says, noting that the record number of comments received (more than 10,000) favored the rule by a 3-1 margin.
Regulatory Relief, Not Regulatory Burden
While the regulator is technically independent of the executive branch, it might seem advisable to go with the flow for now. But not a problem, the NCUA’s new board chair says.
“It’s regulatory relief, not a regulatory burden. So we’re going forward with this,” Mark McWatters told listeners last week on an NCUA webinar about the new rule.
The three-member panel has but two members right now. Republican McWatters took the chair from Democratic member Rick Metsger after the new administration assumed power.
Metsger and McWatters had both voted for the rule at their Oct. 27 meeting. The ABA decried it as a “controversial rule further expanding the already loose fields of membership from which credit unions can draw their customers.” Then it filed suit.
The regulator says it was ready for that. “We were particularly vigilant in reviewing this rule, working with NCUA staff to ensure it complies in full with the Administrative Procedure Act and the Federal Credit Union Act,” McWatters says.
He says he expects the litigation to continue and that he hopes for a similar outcome as the Independent Community Bankers Association’s lawsuit over the new MBL rule. A federal judge dismissed that suit last month.
The new FOM rule is intended to make affordable, responsible financial services more available to a wider swath of rural and urban areas, especially in underbanked, underserved communities. That’s generally seen as a good thing.
“We’re pleased to see any changes to FOM that expand choices to Americans to select the best financial services provider for their needs, improve the viability and sustainability of relatively small, locally focused credit unions by extending their reach — both geographically and among SEG bases — in ways that make sense, or that improve the ability to credit unions to serve Americans of small and modest means,” says Chris Howard, senior vice president at Callahan & Associates.
Howard says the new rule would do all three. The one concern is, he says, is “who controls this narrative?” Credit unions cannot afford to let the American Bankers Association frame this story, Howard says.
Serving The Underserved, Unbanked
Credit union attorney Katherine Weber of The Weber Firm in Media, PA, says this: “The NCUA's new field of membership rule is not only a win for credit unions, more importantly it is a win for the underserved and unbanked.”
She points to the regulatory relief of adding the ability to submit narrative explanations that “demonstrate the reality of these communities” beyond the still-required population statistics.
“Additionally, streamlining documentation requirements, increasing common bond groups, and honoring our veterans by including them as an affinity group, will increase service to previously underserved communities,” Weber says.
Scott Butterfield of the Your Credit Union Partner consultancy says the evolving definition of community and the ability to serve members electronically has increased credit unions’ ability to serve large markets remotely.
He says the new rule will help credit unions gain FOM expansions that would have been denied under the previous rule.
“These are good credit unions that wanted to expand into large, underserved rural markets, and urban credit unions located in gentrifying neighborhoods that didn’t qualify for expansion because of narrowly defined communities,” Butterfield says. “I’m hopeful that the new rule will help credit unions seek out and find more communities to serve.”
Calling For More
Some are calling for more. For instance, Tom O’Shea, president and CEO of Aspire Federal Credit Union ($181.5M, Clark, NJ), says he would like to see the requirement of proximity to a service center eliminated.
“Aspire is a digitally oriented credit union, like our members and all millennials. We don’t have a branch network; our branch is in your pocket: your smart phone. We’re always available to our members,” he says.
O’Shea says the current rule forces credit unions to “maintain a connection to the antiquated concept of a branch network connection, and to the expenses that go along with it.
“When I see banks installing Amazon locker pickup locations in their branches, you know they are stretching to justify those branches,” he says.
NAFCU director of public relations Patty Briotta adds, “We welcome the final rule but also continue to believe that more can be done. We’ve urged the NCUA to advance changes proposed in October that would increase the population cap for ‘well-defined’ local community and allow for narratives in community charter expansion requests.”
Those further changes also would raise the population cap of a well-defined local area from the 5 million in the new rule to 10 million.
Strengthening Both Charter Types
“We’ve seen federal credit unions converting to state charters primarily due to unnecessary constraints for growth under the federal charter,” says Sharon Lindeman, vice president of regulatory advocacy for the California and Nevada Credit Union Leagues: “With the new definitions of well-defined local communities and rural districts, community charter FCUs will be able to broaden the areas they serve.
Lindeman points to changes to how the “Concentration of Facilities” ratio is determined, changes she says will allow the expansion of service to consumers residing in those areas.
“The new field of membership changes helps to create a more level playing field and supports a strong dual-chartering system,” Lindeman says.
NASCUS spokesman Pat Keefe concurs. He says the NCUA adopted the rule, which applies mostly to federal charters, after observing FOM changes among the states.
“The new FOM rule — which we are glad to see is not subject to the regulatory freeze — is really an example of how the dual-chartering system works,” Keefe says. “It also encourages other states to update their FOM rules for their credit unions, too — another benefit of the dual chartering system.”
Here’s A Rundown
At a high level, application packages will look nearly identical to the ones before, the regulator said at its webinar last week. The main objective is to demonstrate the ability and intent to serve new communities. The NCUA says its goal is to process complete packages within a 60-day timeframe.
Guidance will be issued soon, the regulator says. Meantime, here’s the new rule in its entirety, and a chart comparing it with the previous rule.
And here is a brief look at some key changes:
Core-Based Statistical Areas
The Core-Based Statistical Area (CBSA) is a collective term used for both metropolitan statistical areas (MSA) and micropolitan statistical areas (mSA) as defined by the Office of Management and Budget. One of the biggest FOM changes is that credit unions can now elect to serve any area within a CBSA without having to serve the “core area” or primary municipality.
For instance, the Atlanta MSA has a population of 5.7 million, which meant credit unions previously could not consider a CBSA of more than one county in this area. Under the new rule, credit unions are not limited by the population of the entire area, just the population of the areas that they wish to serve, with a 2.5 million cap.
Adding Adjacent Areas
Credit unions will have the option to serve an area adjacent to a CBSA. This will help serve people who don’t within an immediate location, rather, targeting “presumptive” areas where FCUs are already serving existing communities.
The requirement is that credit unions must demonstrate the interaction and common interest among residents. The NCUA will base its decision on a variety of factors such as, economic hubs, population centers, isolated areas, quasi-governmental agencies, government designations, shared public services, as well as colleges and universities.
Another big change is how many people a district needs for it to be considered rural. The population limit is now increased to 1 million regardless of the state in which most of the district’s population is located. This expansion also allows a rural district to cross state lines, but only if its headquarters is in a county along that state line.
Underserved areas now exclude non-depository institutions and or/community credit unions from the concentration of facilities ratio. This means the NCUA will rely on its data and other federal banking agencies to determine if an area is underserved by other depository institutions.
Multiple Common Bond Inclusion Of SEG Contractors
This expands the inclusion of people working under contract for entities who have a “strong dependency relationship.” A good example is a strip mall that includes a big box retailer. They could serve all the people at that strip mall, but not the big retailer’s employees in other locations.
Similar provisions permit the inclusion of employees of office or industrial park tenants, each with fewer than 3,000 employees.
Groups Of 3,000 To 4,999 People
Groups with 3,000 to 4,999 potential members will no longer need to address all the factors regarding their ability to form a credit union. A short explanation that they do not have the resources, interest, or desire should suffice.
Branches Of The U.S. Armed Services
This change expands a multiple common-bond charter to include honorably discharged veterans of any branch listed in the credit union’s charter. The principal adjustment will be added to the affinity clause text. Credit unions can simply submit an email requesting the amendment.
- Callahan senior analyst Michelle Parker contributed to this blog.