Federal regulators issued a sweeping proposal Monday in the first steps toward enforcing the controversial new credit union law.
The National Credit Union Administration's plan would set parameters on community-based institutions and define who in a family is eligible for membership, among other issues.
Under the NCUA proposal, a credit union seeking to serve a county of less than 300,000 people would need to cite evidence of "interaction" or "common interests" in the target community, such as the existence of local festivals or area newspapers.
A large city such as New York or Los Angeles, or even an entire state, could be considered a "local, well-defined" community. According to the rule, such applications would be subject to a higher burden of proof.
Banking industry representatives quickly blasted the proposal as too lenient. "There is no real limiting factor on the ability of credit unions to expand," said Keith Leggett, senior economist at the American Bankers Association. "I think their definition of 'local' is kind of pushing it, when you get to a group of 300,000 people."
But NCUA board member Dennis Dollar insisted that the proposed rule complied with both "the spirit and the letter" of the Credit Union Membership Act. "This is a happy day for all of us, I hope," NCUA Chairman Norman E. D'Amours said at the agency's public meeting.
Representatives from credit union trade groups appeared to agree with his assessment. "Initially, we do think it's very positive," said Mary Mitchell Dunn, associate general counsel for regulatory advocacy at the Credit Union National Association.
"Over all, we're pretty pleased with it," agreed Timothy Pryor, director of regulatory affairs at the National Association of Federal Credit Unions.
The draft rule also sets guidelines for occupational credit unions that want to fold new groups into their field of membership-a right initially granted by the NCUA in 1982. In February, after a nine-year legal battle, the Supreme Court said credit union members must share a single, common bond.
But, by overwhelming margins, the House and Senate passed legislation overturning the Supreme Court decision. President Clinton signed the law Aug. 7.
The proposed rule implements Congress' decision to let occupation-based credit unions expand their fields of membership to include any company with fewer than 3,000 employees. The NCUA's proposal also states the credit union must demonstrate that the company is unable to form a separate credit union of its own.
Under the NCUA's proposal, a business seeking to start a credit union would generally need to have at least 3,000 employees, though the NCUA would reserve the option to approve credit unions with smaller groups. But the 3,000 threshold is considerably higher than the current, informal threshold of about 1,000, according to agency sources.
As required by Congress, the NCUA also tightened eligibility requirements for immediate family members. Under the proposal, people related by blood, marriage, or other "recognized" family relationships and living in the same home as the credit union member could join. If not living in the same household as the member, only grandparents, parents, spouses, siblings, children, and step-relations would be eligible to join.
Currently, every credit union determines for itself who constitutes an eligible family relation of a member. Many credit unions include cousins and in-laws who do not live with the member, but these relations would not be eligible under the proposal.
On Sept. 23, the NCUA is scheduled to vote on an interim rule limiting credit unions' business lending. Next May the agency plans to propose a prompt corrective action system.
