If there is one thing credit unions and banks can agree on with regard to the National Credit Union Administration's (NCUA) latest efforts to revamp its field of membership (FOM) rules it is this: a lawsuit is brewing.
"It would shock me to no end if the bankers did not file a lawsuit," Geoff Bacino, a former NCUA board member and now a partner at Bacino & Associates in Washington, said in an interview.
Though no legal challenge has yet been filed, the Independent Community Bankers Association telegraphed its intent to do so even before the rule was finalized (and new changes were introduced) at last month's NCUA Board meeting.
So, what are they waiting for? It could be they're waiting to see the language of the two additional FOM proposals that were discussed at that meeting, which was published in the Federal Register earlier this week. The clock is now ticking on the 30-day comment period that ends Dec. 9.
But the ball started rolling last year, after NCUA published the first set of FOM revisions, leading bankers to flood the agency with thousands of comment letters complaining the new framework was far too liberal. And though a resumption of that campaign aimed at the new proposals would come as no surprise, observers on both sides expect bankers' response to extend well beyond letter-writing this time around.
After all, ICBA is already suing NCUA over the recent overhaul of member business lending (MBL) regulations. And even before the regulator had issued its final rule on FOM, ICBA CEO Camden Fine said the group is also giving serious consideration to a second suit challenging new field of membership rules.
ICBA's MBL suit has already spawned a rare partnership between the often-competing CU trades – Credit Union National Association (CUNA) and National Association of Federal Credit Unions (NAFCU). Mary Dunn, former general counsel at CUNA and now an attorney with CU Counsel, said ICBA's telegraphing of its intent to sue "before they even saw the final rule…does call into question the rationale for a lawsuit."
One question hanging over a potential FOM suit is what will happen with the MBL suit. NCUA recently filed a motion requesting a dismissal of that suit, and Dunn asserted the regulator's motion clearly demonstrates the bankers have misread the rule.
What is still unclear is not just whether or not the court will dismiss the suit, but how quickly it will move. While there is no standard timeline for how quickly the court might respond this particular district court has earned the nickname of the "Rocket Docket," because it tends to move reasonably quickly. Even if the court does dismiss the MBL suit, however, there is still the possibility that the bankers may sue over NCUA's recently approved field of membership rule.
It's not just ICBA that is dismayed by NCUA's liberalization of MBL and FOM rules. Fine's counterpart at the American Bankers Association, Rob Nichols, said last month that his group "will take any action necessary to protect the interests of taxpayers, small banks and the communities they serve."
NCUA kicked off the latest bank-credit union imbroglio Oct. 27 when Chairman Rick Metsger and Board Member J. Mark McWatters gave final approval to the sweeping field of membership revision initially proposed back in November 2015. Ironically, as part of its editing process, the agency actually removed a provision banks had tabbed a particularly objectionable from the final version. It would have permitted entire congressional districts to be counted as well-defined local communities.
Whatever goodwill that move might have engendered was quickly cancelled out when the board made public the details of the two additional proposals it plans to add to the freshly modified regulation.
One would quadruple the population cap for a well-defined local community to 10 million. The second permits credit unions to use a narrative format, instead of existing political and Census jurisdictions, to define their fields of membership.
NCUA said it decided to introduce the proposals in response to what it termed "stakeholder suggestions" contained in the more than 10,000 comment letters it received.
The FOM rule finalized late last month will take effect 60 days after it is published in the Congressional Record. The board can vote on the additional proposals after the 30-day comment period.
Banker: 'We Need to Keep Trying'
From the banker perspective, dual lawsuits would be costly, but Heidi R. Gesell, president and chief executive officer at $258 million-asset BankCherokee in St. Paul, Minn., said the investment would be money well-spent. "Somehow, we need to get our message out there," Gesell said in an interview. "We need to keep trying."
Gesell submitted a comment letter opposing the original FOM proposal unveiled in November 2015. She said she may try a second time, but she doesn't hold out much hope that she or any other bank advocate can sway NCUA, which she sees as more of a partner to CU industry than a regulator.
As it stands now, the re-written FOM rule NCUA just approved includes several provisions that could make it markedly easier for credit unions to increase membership.
One eliminated a rule that had required credit unions seeking to serve any part of a core-based statistical area to serve the region's "core," downtown district, as well.
Another did away with a guideline that had made it difficult for credit unions to serve portions of core-based statistical areas whose populations exceeded 2.5 million. Under the revised rule, credit unions can seek to serve portions of any combined statistical area, provided the population of the portion in question does not exceed 2.5 million.
The old rule limited the population of rural districts to 250,000 or 3 percent of the population of the state. The revised rule ups the rural district population limit to 1 million. Other provisions made it easier for single common bond and multiple common bond credit unions to add members.
In bankers' eyes, the rewritten field of membership rule "goes way beyond" anything envisaged for credit unions when the industry was founded and given its federal income tax exemption.
"If you look back, there were very specific reasons and limitations," Gesell said. "Now, that's all being blown away…These latest proposals fly in the face of what credit unions were meant to be."
According to Keith Leggett, a retired ABA economist who authors a blog about CU issues, the decision to revive narrative charter applications surprised him, since they proved susceptible to legal challenges in the past. Indeed, Leggett suggested that was the whole reason NCUA did away with the practice about a decade ago. "The agency was accused of accepting evidence that supported the applications and tossing out any evidence that did not," Leggett said.
While it is predictable, perhaps, that bankers would see red over a proposal describing aggregations of 10 million people as well-defined local communities, Marc Schaefer, president and CEO at Truliant Federal Credit Union in Winston-Salem, N.C., labeled bankers' concerns "a tempest in a teapot."
"Field of membership is something Congress intended for NCUA to interpret," said Schaefer, whose credit union, then known as AT&T Family Federal, stood at the center of the landmark U.S. Supreme Court case that ultimately resulted in passage of the Credit Union Membership Access Act of 1998.
"This battle was fought a long time ago," Schaefer continued. "It's not a productive use of resources…The courts are not going to protect a whole segment of the market because that's what the bankers want."
