Another heaping helping of credit union-banker conflict, anyone?
The industries were already at dagger points over plans to expand credit unions' member business lending authority. Now, less than a week after the National Credit Union Administration
Independent Community Bankers of America president and chief executive Camden R. Fine issued the legal warning in an interview Friday.
"There's a good chance we may litigate if NCUA doesn't back off," Fine said, adding the trade association was in talks with outside attorneys.
According to Fine, who has led ICBA since 2003, NCUA's proposed rule waters down the field of membership regulation to the point where the limitations Congress intended are next to meaningless.
"Why not just say all credit unions can serve all people anywhere," Fine said. "Why have this fiction of a field of membership? People just ought to stop the pretense."
American Bankers Association president and CEO Rob Nichols has also sharply criticized the FOM regulation.
NCUA officials may have limited room to defuse a threat of litigation because comprehensive field-of-membership reform is an important and long-sought-after goal for many CUs.
"It's an issue we've been working on for several years and something our members feel is very important," Ryan Donovan, chief advocacy officer at the Credit Union National Association, said in an interview Monday. "It's a significant issue. Certainly it's in the top 10."
NCUA's rules govern the nation's 3,856 federally chartered credit unions. A number of supporters say an overhaul is needed to keep the federal charter competitive with state charters. Since the end of 2012, 27 federal credit unions have converted to state charters while only eight have made the opposite move, according to NCUA.
Those numbers seemed to weigh on officials minds as they crafted the field of membership draft.
"With this proposed rule, we would expand consumer choice, increase access to affordable financial services and provide regulatory relief to a wide range of federal credit unions," NCUA chairman Debbie Matz said in a statement Thursday. "At the same time, we will keep the federal charter competitive with state charters that allow more permissive field-of-membership rules."
McWatters: Tread Carefully on FOM
But Board Members J. Mark McWatters said the regulator must tread carefully around the field of membership issue and ensure its proposal rests on a rock-solid legal foundation. While McWatters, an attorney, did not cite any specific provisions of the draft document as needing amendment, he made it clear he would not vote for the rule unless it complied with the Federal Credit Union Act. He also called on NCUA to publish its legal analysis of the FOM regulation in the Federal Register.
"In a nutshell, the NCUA should only advocate for rules that comply with the FCUA and the agency should disclose its legal analysis in a fully transparent manner," McWatters wrote Monday in an email.
Banker resistance to expanded fields of membership has long been a sensitive issue for CUs.
A previous legal challenge made it to the U.S. Supreme Court and resulted in a near catastrophe for the industry. Five justices agreed in February 1998 that banks had standing to challenge NCUA's field of membership decisions and invalidated the agency's policy permitting charters comprised of multiple common bonds.
Six month later, Congress reversed part of the decision arrived at in NCUA vs. First National Bank and Trust Company when it enacted the Credit Union Membership Access Act of 1998, which permitted multiple common bond arrangements.
Credit union insiders and experts say NCUA's latest FOM overhaul lies well within its authority as a financial regulator.
Brad Thaler, the National Association of Federal Credit Unions' vice president of legislative affairs, wrote in an email to lawmakers Friday the proposal is "squarely within NCUA's authority in the Federal Credit Union Act…NCUA's proposal retains population caps on community charters and rural areas, thereby fulfilling the agency's mandate to ensure that credit unions' fields of membership are `well-defined' and `local,'" Thaler said.
The field of membership proposal, which took an in-house task force 11 months to formulate, offers CUs a number of new options to frame their fields of membership. For the first time, it allows credit unions to use combined statistical areas with populations of up to 2.5 million people or entire congressional districts as fields of membership.
The proposal also allows credit unions to designate a portion core-based statistical area with a population of up to 2.5 million as a field of membership. Under the current rules, CUs can only serve portions of a core-based statistical area if the area as a whole is home to less than 2.5 million people.
Combined statistical areas are defined by the Census Bureau as adjacent metropolitan or micropolitan areas that can demonstrate economic or social linkage. The Office of Management and Budget defines core-based statistical areas as one or more counties or county equivalents including an urban core of at least 10,000 people.
Bankers Go 'Apoplectic'
Fine characterized the changes as a "last straw," adding they have left bankers "apoplectic." Such sentiment seems to explain the scathing criticism leveled by banking trade groups.
In a statement Friday, Fine claimed "the NCUA proposal would discard any common bond and would allow credit unions to serve just about all air-breathing mammals."
"When credit unions are allowed to have so-called common bonds like 'lives in Montana,' or advertise that 'anyone can join,' the common bond ceases to be a meaningful requirement," Nichols added in a statement Thursday.
Fine added he fully expects NCUA to jettison population caps limiting fields of membership based on core-based and combined statistical areas to 2.5 million people when the rule is finalized early next year.
"They're going to raise it," he said.
That remains to be seen, but NCUA officials did made a point of asking for comment on the 2.5 million-person population threshold in the draft rule.
Officials at CUNA, moreover, said they might back an increase.
"We intend to make constructive solutions for improving the draft," Donovan said. "We're still reviewing it, so it's too early to say what they will be, but in general I think we have supported and would support increasing the cap."
With the battle lines over member business lending and field of membership already drawn and further conflict over the issue of secondary capital looming, Fine said he cannot remember a time in his four-decades in banking when relations between banks and credit unions have been more strained.
"I've never seen it like this," he said. "This is beyond anything in history. NCUA is trying to make credit unions the functional equivalents of banks, except banks pay taxes."
For their part, credit union advocates say Fine is being melodramatic.
"Any person can walk into a bank and receive services. That is not the case, nor does this rule make it the case with credit unions," Donovan said. "We certainly disagree about field of membership, but on 90% of the public policy issues we deal with, banks and credit unions tend to agree."
