ALEXANDRIA, Va. – Though NCUA characterized its proposed overhaul of the field of membership regulations unveiled Thursday as the most sweeping in the agency's 45-year history, credit unions may well be most interested in what was missing from it: an increase in the 2.5 million population cap.
"Since viable fields of membership are critical to the future of federal credit unions, it's clear that the federal charters need a rule that is more permissive than any rule we've approved in the past," Chairman Debbie Matz said Thursday during the monthly meeting of NCUA's board.
The 167-page draft includes a dozen proposed changes each designed to make it easier for credit unions to assemble larger, more competitive fields of membership.
Perhaps the most provocative passage of the document dealt with one change that was not proposed.
NCUA permits credit unions to use core based statistical areas as defined by the Office of Management and Budget for fields of membership as long as their populations do not exceed 2.5 million. Despite calls from a number of industry advocates for a big increase to the population threshold, officials left it in place – for now.
The proposed rule's summary included an unmistakable hint NCUA was open to reconsidering the issue. "The board has decided to retain the 2.5 million population limit, but nonetheless invites public comment on whether to adjust the limit, by what amount, and for what specific purposes."
Bankers, not surprisingly, look askance at any possible upward revision.
"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," American Bankers Association President and CEO Rob Nichols wrote in a statement Thursday.
Wednesday, Nichols released a letter he had written to Matz arguing "regulatory relief does not mean charter enhancement, nor does it mean promoting the explosive growth of a trillion dollar industry at the expense of taxpayers, community banks, and the communities those banks serve."
But Rick Metsger, a member of NCUA's three-member board, said field of membership revisions are necessary to ensure the industry's safety and soundness.
"To the best of my knowledge, no credit union has ever failed because its field of membership was too large, but some have failed because theirs were too small," Metsger said Thursday.
Dennis Dollar, a consultant who sat on the NCUA board for seven years, including a stint as chairman from 2001 to 2004, called the decision to leave the 2.5 million-person population limit in place disappointing.
NCUA "could have been more aggressive and still stayed well within the law's provisions. For example, there is no statutory requirement for population caps on community charters [and] there were none…until they were added in 2010," Dollar wrote Thursday in an email.
One population limit that would increase under the proposed rule is the one defining a rural district. As things stand, such districts can have no more than 250,000 people. The overhaul would lift that limit to 1 million.
The proposed rule would also make it easier for credit unions with multiple-common-bond charters to add new groups to its field of membership by dropping a requirement that it add a service facility within reasonable proximity to the group's area of operation. Under the new rule, a transactional website can count as a service facility.
Board member J. Mark McWatters suggested the field of membership rules would remain overly restrictive even if all the proposed changes were implemented. McWatters said credit unions should be allowed to serve any regions they chose, as long as they could prove their field of membership constituted a well-defined local community.
"In my view," McWatters said Thursday, "NCUA should permit credit unions to articulate a reasoned argument for the existence of a well-defined local community, rather than having to incorporate their business model into an array of core based statistical areas, combined statistical areas, metropolitan statistical areas, metropolitan divisions, and adjacent areas, subject to population caps."
NCUA's board voted unanimously to approve the field-of-membership draft, opening a 60-day comment period. The agency is expected to vote on a final version early next year.
In other actions, the board voted approved a two-year budget, along with an overhead transfer rate for 2016, in a split vote.
Under the spending plan, NCUA will receive $290.9 million in 2016 and $302.9 million in 2017. The 2016 total is a 4.1% increase over the final 2015 budget. The board also approved an overhead transfer rate of 73.1%, up slightly from the 71.8% rate approved in 2015.
The overhead transfer determines how much of the agency's budget will be taken from the share insurance fund. The remaining portion comes from fees paid by federal credit unions.
McWatters cast the negative budget vote. He called on NCUA to hold formal budget hearings and said the agency could cut a significant amount from the budget by implementing an 18-month exam cycle for smaller, less complex institutions.
"In my view, it is worthwhile for the agency to consider strengthening our examination process by focusing on outliers and possibly lengthening the examination cycle from 12-months to 18-months for certain low-risk credit unions," McWatters said. "However, this concept has been all but dismissed by NCUA."
McWatters' comments, which were part of a long prepared statement he read at Thursday's meeting, sparked a heated exchange with Matz, who claimed the statement was rife with "misinformation."
"There's so much wrong in that statement I won't begin to refute it all," Matz said.
McWatters countered that NCUA had dismissed proposals for a longer examination cycle for selected credit unions without proper review, prompting Matz to argue he had "set himself up as a spokesman" for the industry—oddly echoing banker accusations from years past suggesting different members of the agency were more like "cheerleaders" for the credit union industry than regulators.
