CUNA Regulatory Comment Call
June 7, 2000
NCUA Proposes FOM Policy Changes
(Major Proposal for Federal Credit Unions)
When NCUA developed its current field of membership policies under the Credit Union Membership Access Act, CUNA urged the Board to undertake a one-year review and assess what improvements, if any, should be considered. The Board agreed and directed its Field of Membership Task Force, led by Region V Director Len Skiles, with NCUA Senior Attorney Mike McKenna, to evaluate its policies and make recommendation for any needed changes.
At yesterdays meeting, the Board issued a number of proposed provisions, which were recommended by the NCUA Task Force following its one-year review. Commentors will have 60 days to respond to most of the changes. A few technical amendments will take effect upon publication in the Federal Register or on an expedited basis, as discussed further below.
Included in the FOM proposal is a provision for CRA-type requirements for federal community credit unions. A separate CUNA Regulatory Comment Call addresses that topic. The other FOM changes NCUA is proposing are intended to streamline the application process and make other modifications to make it easier for credit unions to expand their fields of membership, consistent with the Federal Credit Union Act. Here is the list of changes to NCUA's field of membership policies that, in addition to the CRA-type requirements, the agency is proposing with a sixty-day comment period:
- NCUA would expand the expedited select group addition process to include groups of 500 or less. Currently groups of 200 or less may use the expedited application process and Form 4015 EZ.
- Currently, NCUA requires an overlap analysis for groups with 200 or more primary potential members. This level would be raised to 500.
- The current FOM policy requires a federal credit union to have 6% net worth to add select groups. Under the proposal, NCUA regional offices would have flexibility to permit any federal credit union with less than 6% net worth to add select groups if it is making reasonable progress toward meeting the 6% net worth requirement.
- The proposal would allow NCUA to consider the nonavailability of other credit unions as a factor in determining reasonable proximity for adding select groups, even if the credit union seeking to add the group is a considerable distance from the group.
- NCUA would permit a credit union to add groups around a shared service facility if the credit union owns, either directly or through a CUSO, at least a 5% interest in the facility or, the facility is local to the credit union and the credit union is an authorized participant in the facility.
- NCUA would clarify what documentation requirements must be satisfied to add select groups. It would also clarify that a credit union need not address every item listed in the manual but simply address those issues that are relevant to its request.
- The proposal would address a voluntary merger of two federal credit unions with fields of membership that substantially overlap. If each of the remaining select groups has primary potential members of less than 3,000, these remaining groups will be considered incidental and the credit unions would be allowed to merge. For larger groups, NCUA would analyze each to determine whether the formation of a separate credit union is practical.
- A multiple group credit union converting to a single group charter would be allowed to serve any group included in its common bond prior to the time of conversion to a single common bond credit union for three years from the conversion if the group is sold spun-off or divested as a result of corporate restructuring. If the CU wants to continue to serving such groups after three years, it must convert back to a multiple group CU.
- A state chartered credit union that converts to a federal charter may retain any group it was serving at the time of conversion.
- For single common bond credit unions, if the group comprising the single common bond merges with another group comprising a single common bond for another credit union, each credit union may serve the new group. They could also decide to divide the field of membership.
- For multiple group credit unions, when two groups merge and each group was served by a credit union, each credit union may continue serving the new group, subject to any existing geographic limits. The credit unions can also divide the field of membership.
- The proposal would clarify there is no negative presumption that geographical areas greater than 300,000 cannot qualify for a community charter.
- The proposal would modify the criteria that must be met to add underserved areas to a credit unions field of membership. The proposal would provide that an underserved area will meet the well-defined local community, neighborhood or rural district requirement if the area is a single political jurisdiction and the population does not exceed 300,000 or the area is in multiple contiguous jurisdictions and the population does not exceed 200,000.
- For purposes of meeting the requirement to establish and maintain a facility within an underserved area, the proposal would provide that this requirement will be met if at the time the area is added to the field of membership, the credit union has a plan in place to establish the facility within two years. Also, the requirement may be satisfied through periodic service to the area through a mobile office, an office open at select times during the week or a shared service facility. If the credit union has a preexisting office within close proximity to the underserved area, it will not be required to maintain a facility within the area. Proximity will be determined on a case-by-case basis.
- The Board would provide incentives for credit unions that add underserved areas which would include: the asset base used to compute the credit unions operating fee will be frozen for two years; the operating fee will be reduced by 10% or more each year until the total reduction equals $20,000 over a five year period; the assets of the underserved area will not be included in the calculation of the credit unions operating fee for five years; and fixed assets in the underserved area would not be counted in the fixed assets limits. The credit union would also be exempt from the charitable donation rule and would not be required to have appraisals for loans under $250,000.
- The proposal would clarify that even if a credit union converts to a different charter type, it may continue to serve low-income areas added prior to the current field of membership policy. However, it must maintain a facility in the area before it can expand that portion of its field of membership.
- If an association does not have a copy of its bylaws or charter, other equivalent documentation would be permitted to demonstrate the association is a valid organization.
- When an association permits members to vote for delegates who in turn vote for the associations officials, NCUA would consider this arrangement to be in compliance with the voting requirement criteria for associational groups.
- Student groups would be considered as either associational or occupational, depending on the circumstances of the group. For example, a student group by itself or combined with school employees may be an occupational credit union while a student group that is part of a church group may be an associational common bond. This change would allow single occupational or associational charter credit unions to include students in the field of membership.
- An FCU would no longer have to list in its charter all members of a select group that consists of numerous sole proprietors or independent contractors and may use a general description of the group in its charter.
- The proposal would change the title of the section of the policy manual regarding family members to Other Persons (sic) Eligible for Credit Union Membership to more accurately reflect the agencys policy to allow membership based on relationships other than family members.
Two items approved by the Board are effective upon publication. These are:
- A credit union in existence as a single common bond credit union on the date of enactment of the Credit Union Membership Access Act (August 7, 1998) may continue as a single common bond credit union provided it does not add any new groups after the date of enactment
- If a proposed underserved area meets poverty, median family income, unemployment, distressed housing or population loss criteria under the Community Development Banking and Financial Institutions Act of 1994, the Board will presume the area has significant unmet financial needs.
Another two items will be implemented without comment as soon as procedures have been developed. These are an express chartering program and an Intent select group expansion process for occupational groups of 500 or less.
CUNAs Federal Credit Union Subcommittee, chaired by Ed Collins, President and CEO of Lockheed Georgia Employees FCU, will be developing our comment letter on the amendments. Leagues and credit unions are encouraged to share their views with us.
QUESTIONS TO CONSIDER
(Most of these are issues raised by NCUA)
- Do you support allowing federal credit unions use the expedited process when applying for select group additions of 500 or less?
- Do you support allowing federal credit unions to forego the overlap analysis for groups of 500 or less?
- Do you support allowing federal credit unions to add select groups when their net worth is below 6% if they are making reasonable process to reach 6% net worth?
- Do you support allowing NCUA to consider the availability of other credit unions as a factor in determining reasonable proximity for adding select groups?
- Do you support allowing federal credit unions to branch around a shared service facility, as NCUA has proposed?
- Do you support NCUAs approach on voluntary mergers when two federal credit unions have field of memberships that substantially overlap?
- Which "best practices" would most effectively monitor compliance by service providers? Do service providers accommodate requests for specific contract provisions regarding information security? If not, how does a credit union implement an effective security program? Should the Guidelines contain specific contract provisions for service providers?
- Do you support allowing a multiple group credit union converting to a single group charter to serve any group included prior to the time of conversion for up to three years if the group is spun-off or sold as NCUA is proposing?
- Do you support allowing a state chartered credit union that converts to federal charter to maintain any group it was serving at the time of conversion?
- Do you support allowing two single common bond credit unions to serve the entire group that results from a merger of two groups, when each credit union was previously serving one of the groups that merged?
- Do you support this same approach for multiple group credit unions?
- Do you agree that there should be no negative presumption that areas with populations larger than 300,000 cant constitute a community for purposes of a community charter?
- Do you agree with NCUAs proposed changes to the definition of an underserved area?
- Do you agree with NCUAs changes regarding maintaining a facility in an underserved area in order to show a presence there? The changes would allow a credit union to serve an underserved area if at the time the area is added, the credit union has a plan to establish a facility within two years in the area. A preexisting office close to the area will allow the credit union to satisfy its area-facility requirements?
- Do you agree with NCUAs incentives for encouraging credit unions to serve low-income and underserved areas?
- Are there other incentives you would recommend?
- Do you have other recommendations for FOM policy changes?