The National Credit Union Administration’s abrupt decision to delay the release of a highly anticipated final rule underscores the agency’s awkward position in the debate over credit union expansion into underserved areas.
Just days before it was scheduled to convene, the NCUA’s three-member board voted unanimously to cancel the open portion its May 25 board meeting, which was expected to produce a final rule clarifying when a credit union can expand into an underserved area. The agency said it canceled the meeting to give its board members more time to deliberate on a proposal that both bank and credit union trade groups have criticized.
Under a rule proposed by the NCUA in late January, only multiple common-bond credit unions would be able to expand into underserved areas, and credit unions doing business in underserved areas would have to establish a facility in those communities within two years.
The rule proposal came in response to a November 2005 lawsuit brought by the American Bankers Association that said the NCUA illegally approved the expansion of a Utah credit union into an underserved area. The ABA and the agency have agreed to stay the lawsuit pending the adoption of a final rule.
It is a vexing issue for the NCUA board, which has to establish a rule firm enough on credit union expansion for bankers but not so restrictive that it alienates the credit union industry.
“They’ve got a lot of internal pressure on them,” said Keith Leggett, an ABA senior economist.
In its lawsuit, Mr. Leggett’s group, along with the Utah Bankers Association, claimed that the NCUA violated the Credit Union Membership Access Act of 1998 in allowing America First Federal Credit Union of Ogden to expand its field of membership into several metropolitan areas of the state. The landmark law says that only multiple-common-bond credit unions can expand into underserved areas; the $3.2 billion-asset America First has a community charter.
Though the NCUA’s latest proposal would appear to satisfy bankers, some have said it does not go far enough. Specifically, they say that any community-chartered credit union that has already expanded into an underserved area should be barred from adding new customers.
Credit unions, meanwhile, claim that, to assuage the banking industry, the NCUA would be limiting their ability to serve low-income individuals and families.
“Credit unions are going to lose a power that they already had — adding members from underserved areas,” said Eric Richard, the general counsel of the Credit Union National Association.
Banks and credit unions blamed one another for the NCUA board’s decision to delay the release of the rule.
“It is regrettable that — because of lawsuits brought by the banking industry — the affected credit unions must continue to live with the uncertainty about serving working families in underserved areas,” said Dan Mica, the president and chief executive officer of the Credit Union National Association, in a statement issued last week.
Mr. Leggett said credit unions’ comment letters against the proposed rule are partly to blame for the postponement.
Duke Strosser, the CEO of the $162 million-asset Delaware Federal in Dover, was among the more than 25 credit union executives to write comment letters criticizing the proposal.
In a letter dated March 29 he wrote, “If the NCUA continues to allow the ‘banking’ establishment to bully credit unions into not serving people of modest means, then they will have succeeded in undermining the very philosophy that credit unions were founded upon.”
In a March 22 comment letter, Alisa K. Raines, the president and CEO of the $19 million-asset Trivantage Community Federal Credit Union in Huntington, W.Va., objected to the idea of having to establish facilities in underserved communities.
Ms. Raines said that all four counties Trivantage serves qualify as underserved areas, but a small credit union “cannot afford to have a service facility in each county.”
She called the proposed rule a “knee-jerk type reaction to current legal action” and said that it appears “designed to appease bank trade and lobby groups.”
But ABA president and chief executive Edward L. Yingling said the credit unions are pressuring the NCUA into allowing them “to do some things that are clearly not authorized by law.
“It doesn’t matter what the credit unions are writing,” Mr. Yingling said. “It matters what the law says.”
The NCUA has not said when it plans to issue the final rule. Its next board meeting is scheduled for June 22.
