Technology Outpaces FOM Requirements

January 19, 2016 at 9:18 am Leave a comment

The most intriguing change NCUA is proposing to its Chartering and Field of Membership Manual that it officially issued  on December 10th is one that would, for the first time, acknowledge that technology is transforming banking.  This  change alone makes NCUA’s  proposed changes intended  to give federal credit unions greater flexibility in expanding their membership worthy of the full- throated support of the entire industry.   At the same time, the proposal’s limitations underscore that the truly radical changes that need to be made to credit union membership requirements can only come by way of Congress.

Currently, when a multiple common bond credit union seeks to add a select group of members it must demonstrate that the group to be served is within “reasonable proximity” to the credit union’s “service area,” which includes reasonable proximity to a credit union branch, shared branch, a mobile branch that visits the same location on a weekly basis or a credit union owned electronic facility.  In other words. If a  potential member can’t walk or drive to a physical location that member doesn’t have access to a credit union’s services.

This is nonsense. NCUA wants to end this antiquated view of the world at least for multiple common bond credit unions.  It is proposing that groups be considered to have reasonable access to a service facility so long as they have online access to a transactional website.

Just how important is this change? It’s a step in the right direction, albeit a baby step towards giving federal credit unions the flexibility they need to compete in a world in which technology is making the traditional brick-and-mortar model of banking obsolete and fundamentally changing the concept of what should be considered a community.

For instance,  this morning’s New York Times reports that the growth of so-called financial technology companies has the biggest banks in the world scrambling to develop  online, smartphone-driven banking platforms.  It explains that “some banking habits are changing across the population. In 2010, 40 percent of Americans with bank accounts visited a physical branch once a week, while only 9 percent made a mobile transaction weekly, according to survey research by Javelin Strategy and Research. By 2014, the percentage reporting weekly visits to bank branches fell to 28 percent, while the weekly mobile banking share tripled, to 27 percent.”

Meanwhile credit unions are constrained by reasonable proximity tests.  Of course the regulation is a good first step but it doesn’t go far enough, fast enough.  The change that needs to be made is one that replaces the requirements that community credit unions operate in “well-defined local communities” with one requiring credit unions to operate in well- defined  communities.  After all, Merriam Webster defines a community not only as “ a group of people who live in the same area (such as a city, town, or neighborhood)” but also as  “ a group of people who have the same interests, religion, race, etc.“   The problem is that by mandating that communities be “local,” Congress constrained growth to communities in the same proximity

Still NCUA’s proposal is an important one and you should take the time to express your support.  You have until February 8th to do so.

Entry filed under: Compliance, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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