With new rules now in place, will FOM expansions ramp up?

Just one month after portions of the National Credit Union Administration’s new field of membership rules took effect, the agency is beginning to see an uptick in applications for expanded FOMs, along with indications that a great many more CUs may be preparing to file their own expansion documents.

According to NCUA data, in January of this year – prior to the new rules taking effect – 111 credit unions were granted FOM expansions, approximately 25% of all FOM expansions approved in each of the last two years. In 2016, 415 CUs were granted FOM expansions, aggregating more than 5.8 million potential new members; In 2015, the agency approved 490 credit unions’ applications for FOM expansion 3.4 million potential new members.

The numbers so far for 2017 suggest that FOM expansion applications aren’t slowing down, though February data is not yet available, so the full impact of the new rules can’t yet be ascertained. With more changes still to come – including a four-fold increase in the population cap for community charters – the question arises: will the new rules lead to a spate of FOM expansions?

John Fairbanks, ‎public relations specialist at NCUA, said that since some of the FOM rules only took effect recently, there hasn’t been a “sudden spike” in new FOM applications and that it would be “very hard to ‘guesstimate’ about when or even whether we’ll see an increase in applications.”

Others, however, offered a more bullish forecast.

Ryan Donovan, chief advocacy officer at the Credit Union National Association, said CUNA expects that “a number of credit unions will explore whether the new rules present them with opportunities to bring credit union services to new consumers, small businesses and communities.”

Similarly, credit union consultant and former NCUA chairman Dennis Dollar said there has been a pent-up demand for FOM “growth options” ever since the rules were tightened in 2009.

“Now that the new 2016 rules are in place, we are seeing federal credit unions begin to seriously explore their options and look at what opportunities the new rules provide them,” Dollar said.

Dollar further noted that his firm (Dollar Associates LLC in Birmingham, Ala.) is already working on almost forty FOM expansion applications from credit union clients that “want to get in the queue for consideration.” Most of them, he explained, are looking at new community charters or expanding their current community charter.

“There are some credit unions seeking to expand their FOM in order to better accommodate merger opportunities,” Dollar added.

More to come
One institution that has already expanded its FOM this year is Healthcare Financial FCU of New Haven, Conn., which in January received NCUA approval to expand its Trade Industry Professional charter to serve health care professionals in all eight counties of Connecticut.

Josephine Savino, the CEO at Healthcare Financial FCU, told CU Journal that increasing membership and upgrading the ability to serve members are the goals of all credit unions.

“Credit unions are known for low lending rates and lower fees on products and services [and] many of ours have no fees [at all],” she said. “The more members we have, the more loans we can make which, in turn, gives us the opportunity to offer more to our membership. We feel that our current products and services -- and the ones we’ll be introducing later this year -- are a great match for health care workers since many do not work the standard 9-to-5 [shift] as the health care industry is [a] 24/7 [endeavor]. They need a financial institution that can accommodate them and their families and are committed to them as a specialized group.”

Healthcare Financial’s expansion could be a taste of what’s to come. Oregon’s NW Preferred FCU also recently expanded its TIP charter, and a number of analysts expect the trend to continue.

Michael Emancipator, senior regulatory affairs counsel at NAFCU, said he expects the flexibility of FOM expansion rules to lead to an acceleration of FOM applications from credit unions.

“We are seeing a lot of pent-up demand from credit unions across the country to expand their fields of membership,” he told CU Journal. “An increasing number of our members are seeking guidance on how to take advantage of the rule's new flexibility.”

Dennis Dollar said he expects this sort of FOM activity to continue “for the next several years” because of high demand from FCUs “for the kinds of FOM growth options some of their state-chartered brethren have been extended by many state regulators [which are] much more flexible FOM than NCUA [has offered] in recent years.”

However, Dollar cautioned that although the new FOM rules make the documentation of a community or underserved area “somewhat easier,” the NCUA’s scrutiny of business plans, marketing plans and the entire application process remains “quite extensive.”

“Applications are still several inches thick and are, frankly, even more demanding under the new rules as they relate to solid business plans, proven ability to serve and commitment to the community the credit union is applying to serve – largely because as credit unions apply to expand their service, NCUA has a responsibility to make sure the credit union can safely and soundly serve the expanded FOM," Dollar said.