It's time to eliminate field-of-membership requirements
Yesterday’s Supreme Court decision upholding the National Credit Union Administration’s field-of-membership rule puts to rest a nearly four-year saga in which bankers fought tooth and nail to prevent consumers from having expanded options to meet their financial services needs. This decision is a win for consumers and a great moment for the credit union movement.
Affirmation of the rule allows credit unions to expand access to not-for-profit, cooperative financial services that seek to enrich consumers’ financial well-being. The decision also reaffirms that credit union field of membership stands distinct from the industry’s mission and structure.
The Federal Credit Union Act makes that mission very clear: “promote thrift and provide access to credit for provident purposes.” As for credit unions’ structure, they have been — and always will be — not-for-profit financial cooperatives, which means credit union members are also owners; it’s the very root of our people-helping-people philosophy.
As a concept, field of membership is nearly as old as the credit union mission and structure, but it’s never been a part of either. Instead, it was established as a credit-worthiness tool at a time when modern and sophisticated tools like credit reports and credit scores did not exist. When all the members of a credit union worked together or lived in the same neighborhood, members had more confidence lending to each other because they knew each other.
But today, more than 85 years after enactment of the Federal Credit Union Act, lenders have a host of modern creditworthiness tools at their disposal. Field of membership has gone the way of the horse and buggy when it comes to assessing whether a borrower has the wherewithal to pay his or her debt.
The bankers had asked the court to make it more difficult for consumers and small businesses to access financial services from not-for-profit credit unions; but now is the time to make it easier for credit unions to reach all consumers, expanding their footprints further into underserved communities and banking deserts.
The court’s decision doesn’t get us to a place where any consumer or small business can walk into any credit union and receive service. But why shouldn’t that be the goal? Twenty years into the 21st century, it simply is not necessary for the law to require someone seeking credit union services to prove that they meet arbitrary qualification standards to join.
Credit union field of membership restrictions are exclusionary, and eliminating them would be a major step toward promoting financial inclusion and financial well-being while also enhancing credit union safety and soundness.
Safe and affordable financial services remain elusive for so many. Even those who have a relationship with a bank — small or large — find themselves at the mercy of an institution that exists to make money for its shareholders.
Consumers and small businesses have seen time and time again how banks pull back from the most vulnerable communities in difficult times, while credit unions work even harder to serve those communities. Credit unions have been there for members in good times and bad, from the Great Depression to the COVID-19 pandemic, which is why some of our largest periods of credit union membership growth have come in the wake of crises.
The Supreme Court’s decision to reject bankers’ most recent field of membership-related lawsuit serves as a stark reminder that, for the last century, bankers have relentlessly crusaded to keep consumers and small businesses from access to the safe and affordable financial services credit unions provide, forcing credit unions to battle every day for the right to deliver it.
As our economy weathers a pandemic-induced setback, consumers and small businesses need credit unions now more than ever. The court’s decision is a step in the right direction, and now Congress should open the doors of credit unions to all who seek their services.