CU Trades to NCUA: Update Field of Membership Rules

Both CUNA and NAFCU call for revamped FOM regulations to help credit unions expand membership.

The NCUA should amend its field of membership (FOM) rules to make it easier for people to join credit unions and help those institutions grow, the two national industry trade groups told the agency this week.

“CUNA strongly believes that all consumers have the right to improve their financial well-being through the services of not-for-profit financial cooperatives,” Luke Martone, CUNA’s senior director of advocacy, told the NCUA. “To that end, credit union boards of directors must have significant flexibility to determine their fields of membership to enhance safety, soundness, and service.”

Ann Petros, vice president of regulatory affairs at NAFCU, was on the same page, telling the NCUA, “Although legislation is necessary to amend portions of the FCU Act’s limitations on chartering, the credit union industry as a whole will benefit from the continued modernization of the NCUA’s chartering and FOM procedures, as well as removing all non-statutory constraints on FOM chartering and expansion.”

The comments come from detailed letters the two groups submitted to the agency as part of the NCUA’s regulatory review process. Each year, the agency solicits comments on one-third of its rules. This year, the agency’s list included FOM rules and several other regulations.

Inside the CUNA Letter

In his letter, Martone said that competition among credit unions is beneficial to members and that cooperation among those financial institutions is essential to extending credit union services to more potential members.

“While we recognize that the NCUA is restricted by provisions of the Federal FCU Act, we believe additional changes can update the regulation’s requirements so they are current with today’s economic and technological environment,” he wrote.

Martone revealed FOM changes are a top issue for the trade group and its members. He noted that CUNA’s federal and state-chartered credit union members have said the federal charter is falling behind many state charters and has become a barrier to the flexibility needed to operate effective financial institutions.

He recommended that the NCUA eliminate the 2.5 million population limit in the definition of “well-defined local community,” and that if the NCUA is opposed to eliminating that limit, it should be increased to ten million people.

Martone said that federal law gives the NCUA board extensive authority to define “low-income members” for the agency’s limitations on accepting non-member deposits, member loan limits and access to supplemental capital. CUNA asked the agency to “exercise its statutory authority to the fullest extent possible” in defining credit unions “serving predominantly low-income members.”

The NCUA also could adopt other approaches for credit unions to qualify as low-income, including the possibility that a credit union could use a narrative approach rather than a statistical analysis to apply for a low-income designation.

“Further, we have heard of instances of credit unions being denied LICU (low-income) designation where the facts are such that even NCUA officials are perplexed as to why the credit union does not qualify,” Martone added, requesting that the agency provide more information to credit unions explaining how they may qualify.

CUNA also raised the possibility that the NCUA could adjust the thresholds used to determine who qualifies as a “low-income member.”

In addition, Martone asked that the NCUA establish a Regulatory Reform Task Force, patterned after the group that was formed in 2017. That group issued two reports recommending changes to agency rules. This time, the task force should include representatives of credit unions and their trade groups, he stated.

Inside the NAFCU Letter

In her letter, Petros stressed that strengthening the credit union chartering system is imperative to the well-being of the credit union system. She noted that in recent years, several states have been much more progressive in modernizing their FOM rules than the federal government has been.

As a result, she said, several credit unions have converted to state charters because they have been unable to grow under a federal charter.

Petros added that because of the pandemic, more employees have been working remotely and do not live close to their place of employment. Recognizing this, she contended that the NCUA should consider allowing community credit unions to include people in their FOM whose place of employment falls within the FOM but who live outside the community.

“These individuals clearly constitute ‘persons who live, work, or worship’ within the community and the NCUA should recognize that with the changing nature of the workplace, remote employees should be considered part of the community,” she wrote.

NAFCU also remains disappointed that the NCUA did not include ATMs, online- and mobile banking platforms in their 2021 rule defining service facilities, the letter stated.

Petros further asserted that increased flexibility under the FOM rules would assist federal credit unions in reaching potential members who need affordable financial services. It would likewise provide regulatory relief by streamlining the process, she said.