Less Service: Bankers Force NCUA To Limit Expansions

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Backed into a corner by the bankers, the NCUA Board took the highly contentious move last week of barring all but multiple group federal credit unions from its popular underserved expansions program.

The board voted two-to-one for a final rule that will ban all community chartered credit unions and single group charters from adding underserved communities because of a pending lawsuit by the American Bankers Association challenging the practice of allowing any credit union to use the underserved expansions.

Citing the threat to reputation and the financial investments already made, the final rule will allow the 200 or so community charters granted underserved expansions to continuing serving those communities and the estimated 1.6-million members in those communities who have joined those credit unions.

The new rule will also require any federally chartered credit union that converts to a community charter from now on to give up any existing underserved communities that are part of its field of membership. But the NCUA board agreed to ask Congress now to amend the Federal CU Act to allow all credit union types to expand into underserved communities.

NCUA Chairman JoAnn Johnson said she only agreed to vote the new restrictions because of the bankers' lawsuit, but decried the bankers' tactics of criticizing credit unions in their service to the underserved, while suing the limit their ability to expand into underserved communities. "The ABA," said Johnson, "strikes me as particularly hypocritical" in its actions.

Board member Rodney Hood voted against the proposal, saying he believed it was important that all credit unions, and all financial institutions, for that matter, be empowered to reach into underserved communities. "The proposal as presented benefits the trade groups and the lawyers at the expense of the underserved community," said Hood. Hood then proposed an amendment to the new rule that would allow CUs converting to community charters to retain their underserved communities if they have had them for more than two years, but the amendment was voted down by the other two board members.

The bankers forced the issue when the ABA sued NCUA in Utah in 2004 over underserved communities granted to America First FCU, a $3-billion community chartered credit union, claiming the 1998 amendments to the FCU Act in HR 1151 restricted underserved expansions only to multiple group charters. When it appeared the bankers would win their suit, NCUA rescinded the underserved grant for America First and called an immediate moratorium on all new underserved awards for non-multiple group credit unions. The ABA said last week after the new rule was adopted it was not satisfied because NCUA will continue to allow the 200 community chartered credit unions to continue serving those disputed communities. Those credit unions, according to NCUA, have made more than $400-million in brick and mortar investments in those underserved communities.

"We are pleased to see the agency bring its membership rules closer to the law," said Edward Yingling, president of the ABA. "Unfortunately, NCUA has missed an opportunity to completely right its wrongs. While the agency has stopped future illegal underserved? expansions, its rules allow credit unions to continue to add members from communities that were illegally annexed. They've locked the door but left the window open."

NCUA Board member Gigi Hyland said she believed it was Congress' intent when it passed the 1998 law to allow all credit unions to expand into underserved communities, even though the language in the bill was unclear. She indicated she didn't want to vote for the new bar on underserved expansions, but felt she had little choice because of the lack of clarity in the bill and the bankers? suit.

"A change needs to be made to the Federal Credit Union Act to align congressional intent for credit unions to serve people of modest means and enable them to do so," said Hyland.

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