Amid battle with bankers, NCUA doubles down on FOM reform

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The National Credit Union Administration — already embroiled in litigation with the American Bankers Association over changes to its field-of-membership rule approved in October 2016 — is set to vote on revisions that will likely further enrage bankers.

The proposed rule contained several provisions, but the one that is likely to generate the most controversy involves increasing the population limit for community charter credit unions. The draft rule, which the board approved for comment nearly two years ago, would boost the maximum from the current 2.5 million people to 10 million.

While the draft has almost certainly undergone significant revisions, chances are bankers will like the final version even less than the original. A number of prominent credit union trade groups, including the Credit Union National Association and the National Association of Federally-Insured Credit Unions, submitted comment letters urging the NCUA to eliminate population limits on community charters altogether.

Such a move would be anathema to bankers. In its comment letter, the ABA opposed any change to the present 2.5 million-person population limit. Moreover, Brittany Kleinpaste, the group’s vice president of economic policy and research, expressed shock that the NCUA would pursue fresh amendments to its field-of-membership rules given the controversy that continues to swirl around its most recent effort.

“We were shocked when we saw it on NCUA’s agenda,” Kleinpaste said. “Allowing credit unions to serve massive populations as large as entire states raises questions about NCUA’s continued effort to expand the credit union tax exemption. While this related proposal is different than what was addressed in our recent litigation, we hope the courts take notice and are watching what NCUA is doing.”

Credit unions’ fields of membership have long been a sore point for bankers, who argue that the NCUA has progressively watered down requirements for well-defined local communities and meaningful common bonds among members.

In December 2016, the ABA filed a lawsuit in the U.S. District Court for the District of Columbia, challenging four parts of the revised FOM rule. In March, Judge Dabney Friedrich issued a split decision, upholding two parts of the rule but invalidating provisions that would double the population limit for rural districts, to 1 million people, and would automatically qualify portions of a core-based statistical area as a well-defined local community, so long as its population did not exceed 2.5 million.

Pressing on amid appeals and cross-appeals
The NCUA announced plans in May to appeal Friedrich’s decision and a few weeks later the ABA said it would cross-appeal, challenging again the validity of the measures that were upheld. Friedrich left untouched provisions that let credit unions conduct business in core-based statistical areas without serving the urban core that defines the area, and the ability to add “adjacent areas” to existing well-defined local communities on a case-by-case basis.

“You’d think NCUA would hold back on the rule until the suit was settled,” said Chris Cole, senior regulatory counsel at the Independent Community Bankers of America. “Other agencies probably would have done that, but this follows a pattern of NCUA pushing the envelope.”

Not surprisingly, credit union advocates view the issue differently.

Ryan Donovan, the Credit Union National Association's chief advocacy officer, said the NCUA "has consistently acted within its express delegated authority to undertake administrative rulemaking concerning credit union FOM rules."

NAFCU President and CEO Dan Berger applauded the board for pushing forward with modifications despite legal headwinds.

“As we stand by the agency in its lawsuit with the American Bankers Association over its first FOM reform in more than a decade, we will continue to work with the agency to pursue even more relief for the industry,” Berger said in a press release last week. “Credit unions must have the opportunity to grow and serve more Americans."

Likewise, Lucy Ito, president and CEO of the National Association of State Credit Union Supervisors, said she saw nothing wrong with the proposed new rule.

“I think the board is working on two different tracks,” Ito said. “They really are trying to get things done.”

Ito, however, said the possibility of an additional legal challenge from bankers couldn’t be ruled out.

“We’ll know after Thursday.”

In addition to the population-limit provision, the NCUA’s draft field-of-membership rule included another provision that allows credit unions to use narrative statements, instead of set rules, to support claims that a particular area qualifies as a field of membership. The ABA and ICBA oppose that measure, as well.

Donovan said the narrative approach is more sensible given the wide differences in geography and population that separate most jurisdictions.

“U.S. geography, population distribution, and size of political jurisdictions are inconsistent across the land; some regions are densely populated and others are sparse," Donovan said. "Some counties are expansive. Some are tiny. NCUA recognizes this disparity and the FOM rule reflects the need to provide credit union access without imposing a one-size-fits-all approach."

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Field of membership Law and regulation Compliance Litigation Community banking NCUA American Bankers Association CUNA NAFCU ICBA NASCUS