CUNA Comment Letter
NCUA Proposes Field Of Membership Policy Changes For Federal Credit Unions
February 3, 2003
Ms. Becky Baker
Secretary to the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3486
Re: Proposed Changes to NCUA's Chartering and Field of Membership Manual for Federal Credit Unions (Interpretative Ruling and Policy Statement 02-5)
Dear Ms. Baker:
On behalf of the Credit Union National Association, I am pleased to submit comments to the National Credit Union Administration on the Board's proposal to expand field of membership opportunities for federal credit unions, without jeopardizing safety and soundness or contravening any applicable statutory constraints under the Federal Credit Union Act. By way of background, CUNA represents more than 90% of the nation's over 10,000 state and federal credit unions. This letter was developed under the auspices of CUNA's Federal Credit Unions Subcommittee, chaired by Mr. Chris Jillson, President and CEO of Sandia Laboratory Federal Credit Union, Albuquerque, New Mexico.
Summary of CUNA's Position
- CUNA strongly supports the agency's comprehensive and ongoing effort to review and modify its Chartering and Field of Membership Manual for Federal Credit Unions (Interpretative Ruling and Policy Statement (02-5) to enhance the ability of federal credit unions to add new groups, make charter changes, and better serve their fields of membership.
- Not only are the changes fully consistent with the Act, but also they are fully compatible with reasonable principles of safety and soundness.
- In particular, CUNA supports changes to:
- Vastly curtail the need for overlap analyses.
- Allow credit unions to add new members based on an ATM as a service facility.
- Facilitate the ability of federal credit unions to use shared service centers to add new members by eliminating the requirement that a credit union's ownership interest in such a center must be at least 5%.
- Eliminate the three mandatory requirements for an associational common bond and allow NCUA decisions regarding such common bonds to be based on a "totality of the circumstances."
- Clarify that national associations may qualify for credit union membership in their entirety, if the headquarters of the association is within "reasonable proximity" to the credit union (within the service area of a service facility).
- Allow a single, occupational common bond credit union to have a field of membership based on a "TIP," a well-defined trade, industry or profession.
- Eliminate an economic analysis for groups of less than 3,000 to determine if the group could sustain a separate credit union. (NCUA would continue to perform such an analysis for a group of 3000 or more.)
- Allow a presumption that any city, county, or smaller political jurisdiction is a local community, regardless of size, if other conditions are met. Also, any area that is a metropolitan statistical area (MSA) or its equivalent or a portion thereof, with up to one million residents, may be a local community.
- Allow a presumption that an area of multiple political jurisdictions that are not part of a single MSA, with up to 500,000 residents may be presumed to be a local community.
- Allow a FCU, even if does not meet these criteria, the opportunity to provide sufficient evidence of community interaction and common interests to support a community charter or conversion.
- Clarify that persons or organizations that regularly do business in the community can be included in the community's charter and then be eligible for membership.
- Eliminate the three-year prohibition on converting from occupational, associational, or multiple group charter to another type of charter (this prohibition does not apply to a credit union wishing to convert to a community charter).
- Clarify that a state charter converting to federal charter would be able to retain groups obtained through a state's emergency field of membership provision.
- CUNA requests that NCUA include additional recommendations to:
- Expand and clarify the concept of a common bond based on a trade, industry, or profession to remove unnecessary limitations;
- Permit multiple group credit unions to add groups based on a trade, industry or profession;
- Allow credit unions that have a substantial interest in an ATM network or machine to include new members based on ATM locations, as long as there is sufficient, demonstrable indication of support from the credit union for the area to be served;
- Allow credit unions to use a shared service facility for purposes of adding new members even if the credit union does not have an ownership interest in the facility as long as the credit union's participation in the facility results in a demonstrable connection with the service area. For example, such a connection with the service area could be shown if a sizeable number of the credit union's members use the facility or a sizeable portion of the facility's transactions are on behalf of the credit union's members.
The Credit Union National Association commends the National Credit Union Administration Board for its vision in continuing to facilitate the ability of consumers to belong to credit unions and for its determination in utilizing its authority under the Federal Credit Union Act (Act) to allow federal credit unions to expand to meet the needs of their members and communities. In general, the changes will strengthen the federal credit union system and contribute to the safety and soundness of federal credit unions by supporting their ability to grow.
We also believe the proposal will support dual chartering. That is because the removal of some of the current regulatory limits on federal credit union field of membership expansions, as proposed, will enhance the value of the federal charter in light of revisions in field of membership provisions that several states have made for state credit unions. Further, the proposed changes that relate to the agency's operations will improve NCUA's capacity to process applications for field of membership expansions.
While CUNA strongly supports the proposal, we urge the Board to consider our additional recommendations that are addressed more thoroughly below.
Overlapping Fields of Membership
The Board is proposing to eliminate a number of provisions that address field of membership protection for a federal credit union in a particular market in situations in which its field of membership is identical or closely similar to one or more other credit unions in the same area. The Board must still implement the few statutory provisions in the Federal Credit Union Act that require an overlap analysis, which is a review by NCUA of whether a FOM expansion would have a negative impact on another credit union serving some or all of the same potential members.
Under the proposal, overlaps involving groups of less than 3,000 would be classified as an incidental overlap and no overlap analysis would be required, facilitating the expansion. Currently, NCUA's policy is stricter and requires more thorough overlap analysis. As required by statute, overlap analysis on select group expansions for multiple group credit unions of 3,000 or more would continue.
This would mean that there would be no overlap analysis in situations where a single group federal credit union's membership is identical or closely similar to any other charter; where a multiple group credit union overlaps a community credit; or where a multiple group credit union overlaps another multiple group credit union and the group involved is less than 3,000. Only additions of 3,000 involving a multiple group credit union would be still subject to overlap analysis.
After careful consideration of these issues, CUNA supports the changes to the agency field of membership policy that would vastly curtail overlap protection and limit overlap analysis requirements to multiple group additions of 3,000 or more.
NCUA's proposed changes are fully consistent with CUNA's policy, as restated in CUNA's Renaissance Commission Report, June 2001, which emphasizes that every consumer should have the right to join one or more credit unions of his or her choice. A corollary to that principle is that while competition among credit unions for members ultimately benefits the membership, cooperation among credit unions is essential for the further growth and evolution of the credit union system.
CUNA is mindful that overlap protection, which has been steadily eroding for a number of years, was designed to protect smaller credit unions operating in the same market as larger ones. However, overlap protection did not achieve the results NCUA intended in protecting smaller credit unions. As has been shown in any number of areas, overlap protection has been virtually impossible to enforce and in some instances, has limited the choices of consumers to join the credit unions they chose.
Historically, CUNA has worked diligently to advocate on behalf of smaller credit unions and ensure their interests, to the extent they differ from their larger counterparts, are championed alongside the unique priorities of larger credit unions. That is why CUNA established the Small Credit Union Committee, to acknowledge, "The success of smaller credit unions is vital to the future of the credit union movement." The Committee, which is comprised generally of officials from smaller credit unions, is an important focal point within the credit union system for issues affecting small credit unions.
For credit unions of any size, including smaller ones, having a regulatory environment that facilitates member service while curtailing regulatory burdens is a key factor in helping credit unions succeed and develop in a positive way to meet their members' financial needs. Rather than support the continuation of an artificial regulation, CUNA will continue to work with our Committee, NCUA and the state regulators to seek further opportunities to enhance the regulatory environment for small as well as large credit unions.
The Use of ATMs For Select Group Expansions
Under current NCUA policy, a select group may be included in the field of membership of a federal credit union that is within reasonable proximity to the location of the group. This means that the credit union's "service facility" must be reasonably proximate to the group.
For purposes of select group additions, NCUA is proposing that service facilities include ATMs that are wholly-owned by the credit union. As indicated by the legislative history of the Credit Union Membership Access Act, a federal credit union that wants to include underserved areas would still be required to maintain a physical presence more than an ATM or shared service facility.
The proposal represents an important change in the Board's approach on this issue. CUNA has long supported the position that an ATM could be considered a service facility for purposes of adding new members and appreciates the agency's efforts to facilitate this outcome.
Nonetheless, we believe the Federal Credit Union Act affords even more flexibility for NCUA and federal credit union in this area than is reflected in the proposal. Under the Act, a group may be added to the field of membership of an existing credit union if certain requirements are met. For the addition of a group, except for those in an "underserved" area, the group should be within "reasonable proximity to the location of the group whenever practicable and consistent with reasonable standards for the safe and sound operation of the credit union." (12 USC 1759(f)(1)(B). Because under the Act NCUA has the authority to define "reasonable proximity," as well as other terms it uses in its field of membership policy, and because the Act and legislative history are silent on the use of an ATM as a service facility for groups outside of an underserved area, we believe the agency is not required to limit expansions around an ATM to those that are wholly owned by a credit union.
Thus, while we agree with NCUA that under the language of the Act, an ATM may be considered a service facility of the credit union, we do not agree that the ATM must be wholly owned by the credit union seeking to add members that are in reasonable proximity of the ATM. A number of credit unions own an ATM or multiple machines with one or more other credit unions. We do not believe there is a legal or safety and soundness reason that would preclude such credit unions, that own ATMs with a limited number of other credit unions, from using such a jointly owned ATM to meet the "reasonable proximity" standards in the Act.
We do believe, however, that whether the ATM is wholly owned or owned jointly with other credit unions, the credit union seeking to add new members in the service area of the ATM must be able to demonstrate to the agency its commitment to the service area beyond merely establishing an ATM machine.
The Use of Shared Service Facilities to Add New Members
The proposal is designed to facilitate the use of shared service facilities as locations from which a credit union could add new members. Under the proposal, the 5% ownership interest provision in the current policy would be deleted (and replaced with a requirement for any ownership interest). In our view, reducing the 5% ownership requirement is a positive step, consistent with the Act, and we strongly support it.
However, the language allowing a credit union to add new members from a shared service center if the center is local to the credit union and the credit union is an authorized participant in the service center would be removed. Thus, in some measure the proposed language regarding shared service centers is both a bane and a blessing.
We strongly believe that NCUA should retain the language in the current policy that allows a shared service center to be considered a service facility if the credit union participates in the center, and it is local to the credit union. We support this position for several reasons. One, nothing has changed in the Act since the adoption of the current policy in 2000 and thus, the agency's authority to permit member additions based on a credit unions' participation in a shared center remains as operative now as it was in 2000. Second, the credit unions we consulted on this point are of the opinion that consumers who use a shared service center think of that center as their credit union, whether the credit union has an ownership interest in the center or not. Also, we believe the purpose of the statutory provisions regarding "reasonable proximity" and group additions is to ensure that a group being added will have adequate service from an institution/facility that is reasonably convenient for a consumer to use. We believe that purpose is fully met by allowing credit unions to add members through service facilitates that are local to them and in which they participate, as the current policy permits.
Associational Common Bond
The FOM policy details what is required for a credit union to obtain a federal charter based on an associational common bond. Currently, there are three mandatory requirements, which must all be met: the association must hold meetings open to all members; sponsor other activates which demonstrate that the members of the group meet; and have an authoritative definition of who may join the association. Other factors may also be considered.
Under the proposal, there would be no mandatory requirements. Those requirements would be merged into the list of factors that NCUA would consider in determining whether an associational common bond exists.
Thus, the agency would make its determination on a totality of circumstances analysis, whether than focusing on a review of whether three mandatory requirements were met. We agree with this approach, which will provide more flexibility to credit unions seeking to organize or expand under an associational charter.
The Supplementary Information to the proposed rule states that the proposal clarifies that national associations may qualify for credit union membership in their entirety, if the headquarters of the association are within "reasonable proximity" to the credit union and we support the Board's intent. We also think the Board should consider whether a national association could be included as a select group addition for a multiple group credit union. Further, we believe that NCUA should clarify that the concept of "reasonable proximity" as it relates to national associations would allow a credit union to include a national association that is within the service area of a credit union facility, including an ATM or a shared service facility. We believe there is a strong basis for these clarifications, which are consistent with the Federal Credit Union Act and the intent and purpose of the current proposal.
Occupational Common Bond Trade, Industry or Profession
The proposed rule would provide some additional flexibility for a single occupational common bond credit union by allowing it to have a field of membership based on a "TIP." This would be a single occupational common bond encompassing a well-defined trade, industry or profession (TIP). The TIP would have to be narrowly defined and include geographic limitations corresponding to the credit union's current or planned service area. A new or converting credit union would be required to submit a business plan addressing how it will serve the defined TIP and verify membership.
CUNA is supportive of the concept of the TIP common bond and believe it represents an innovative approach that is in keeping with the Federal Credit Union Act and previous FOM interpretations from the agency.
However, we believe the concept could be broadened, without jeopardizing any directives of, or violating any prohibitions under, the Federal Credit Union Act.
Under the proposal, a multiple group credit union would not be able to include a TIP as a select group addition because the agency is concerned about "potential complexity." In our view, the Federal Credit Union Act does not preclude such a result and multiple group credit unions should be allowed to include a TIP in their fields of membership, consistent with other limitations that would apply to group additions.
Further Improvements to Expedite Select Group Expansions of Less than 3000
Under the proposal, for groups of less than 3,000, NCUA would not perform an economic analysis to determine if the group could sustain a separate credit union. NCUA would continue to perform such an analysis for a group of 3000 or more, under a provision in the Federal Credit Union Act. NCUA stresses that the proposal rule would not preclude a group with less than 3,000 from applying to charter its own credit union, if it chose to do so.
CUNA supports that approach, which will streamline credit union membership for consumers and reduce the workload for the agency as it relates to FOM requests.
Community Charters Definition of a Local Community
Of all the changes that the agency is proposing, the ones regarding community charter may be the most significant amendments. Nonetheless, these changes rest firmly on NCUA's authority under the Federal Credit Union Act to determine, based on its expertise as the chartering agency of federal credit unions, what attributes should constitute a "local community" for purposes of federal credit union charters.
Under current NCUA policy, a single political jurisdiction that is under 300,000 in population or is in multiple contiguous jurisdictions that are less than 200,000 may be presumed to be a well-defined community that does not require additional documentation to show that a community exists.
The Board is proposing that any city, county, or smaller political jurisdiction, as defined by law, would be considered a "local community "and further documentation demonstrating that the area is a community would not be required. As the Supplementary Information points out, in approving community charters under the Act, the agency's experience has consistently shown that credit unions seeking to serve such areas have been able to demonstrate there is sufficient interaction and commonality of interests to meet NCUA's requirements for a community charter or conversion.
Documentation would still required to demonstrate that the credit union has a business and marketing plan to serve the entire community and that the credit union has the financial ability to serve the entire community. We support these provisions as well.
The Board is also proposing that any area that is a metropolitan statistical area (MSA) or its equivalent, or a portion thereof, with up to one million residents, may be local community. The credit union must submit a letter describing how the area meets the standards for community interaction and/or common interests. NCUA may request more detailed documentation to support that the proposed area is a well-defined local community based on interaction and/or common interests. Because the interaction standard of an MSA becomes more difficult to assume the larger the population of the MSA, the proposed rule has required MSA's in excess of one million to further document their local community interaction standards. In addition, under the proposal an area of multiple political jurisdictions, that are not part of a single MSA, with up to 500,000 residents may be a local community. A credit union applying to include such jurisdictions would be required to submit a letter describing how the area meets the standards for community interaction and/or common interests. NCUA may request more detailed documentation to support that the proposed area is a well-defined local community based on interaction and/or common interests. We also support this approach, which we believe is fully sustained by the Federal Credit Union Act.
Even if a FCU does not meet these criteria, it may still be able to show sufficient evidence of community interaction and common interests. In that situation, the credit union would be required to provide sufficient documentation demonstrating that the area to be served complies with NCUA's community charter requirements, such as clearly defined geographic boundaries, well-defined community, interaction and common interests within the community.
Another very important change is that under the proposal, a community charter would be able to continue serving a business group outside of the community if the group regularly does business within the community. This approach preserves the requirement for a reasonable community connection, which is essential under the Federal Credit Union Act. At the same time, it would allow a credit union to continue adding new members from the business group because the group has a demonstrable relationship with the community.
NCUA's approach to community charters, which allows the agency to make reasonable, experience-based assumptions as to what constitutes a community, is one that not only affords flexibility to federal credit unions but also fits squarely within the confines of the language of the Federal Credit Union Act. CUNA wholeheartedly endorses the community charter amendments.
Common Bond Conversions
NCUA regulations now provide for a general three-year prohibition on converting from occupational, associational, or multiple group charter to another type of charter (this prohibition never applied to a credit union wishing to convert to a community charter). The proposed rule would remove these time constraints, and we support this change.
A state charter converting to federal charter would be able to retain groups obtained through a state's emergency field of membership provision. CUNA agrees with this approach.
The NCUA Board is also seeking comment on ways it can streamline conversions from state to federal charter. Several states have taken the lead in approving expansive field of membership provisions for their credit unions, and we believe those actions can be very positive for state credit unions in those states, as well as for the credit unions system as a whole.
In our view, it is critical that field of membership options for state chartered credit unions are generally the equivalent of those for federal credit unions and vice versa. We firmly believe one way to help achieve this equilibrium is for the Board to include on its agenda every year a review of its FOM policy. We are aware that the Board has maintained its FOM Task Force, which we believe has provided an excellent mechanism to incubate important changes. We recommend that the Board formalize this process somewhat more by agreeing to review its policy each year and provide a report to the credit union system on how the agency' s policies compare to those of the various states. This would ensure that all new developments from the states are considered by NCUA on a regular, timely basis.
Appeal Process Revisions
Under the proposal, a second reconsideration of an FOM application denial, if not approved by the region, would be treated as an appeal to the NCUA Board under the proposed rule and would expedite the review process. Similar provisions would be added regarding applications for underserved areas. We support this revision.
Miscellaneous Clarifications To Other Regulations Proposed Rules
The Board is clarifying that existing or proposed branches on United States military installations or United States embassies are unaffected by the Board's proposal on foreign branching. Other types of foreign branching must follow proposed rule Part 741.11 We also agree with this clarification.
The Board would also streamline authorization for corporate accounts by adopting a standard clause for single and multiple group credit unions' corporate and other business sponsors instead of listing them individually. As the Supplementary Information explains, such a procedure is already permitted for community charters. However, some credit unions have raised questions about the operation of the proposed amendment, and we request that the Board clarify its intent. More specifically, we ask the Board to clarify the FOM policy by including the provision, "Corporate or other legal entities of such persons eligible to join the credit union" under the headings "Other Persons Eligible for Credit Union Membership," for single and multiple group credit unions.
Regarding spin-offs, the proposed would clarify that all members of the group to be spun off, regardless of how they voted, will be transferred to the new credit union if the spin-off is approved by the voting membership. While this approach might make the spin-off transaction easier for the credit unions involved, we question whether some process ought to be allowed under which a member could notify the new credit union, within a reasonable time of the spin-off, that it chooses not to belong to the new credit union.
We believe that the changes the NCUA Board is recommending will be very favorable for credit unions, their members and other consumers that seek credit union service. In our view, the proposal represents a responsible interpretation of the Federal Credit Union Act that will facilitate credit union outreach, as Congress envisioned. We have made some recommendations that we believe will improve the final rule and respectfully request the agency consider these amendments, which will help make a fine proposal even better.
Mary Mitchell Dunn
Associate General Counsel
And Senior Vice President