NCUA Strikes Balance with FOM Changes

October 28, 2016 at 10:31 am Leave a comment

The National Trades were justifiably effusive in their praise of the NCUA Board’s decision finalizing several key amendments to the Chartering and Field of Membership Manual, in addition to proposing several additional changes for public comment. Many federal credit unions are likely to have greater Field of Membership flexibility when these changes take effect than they do today.

I am assuming that many of you have already seen the amendment highlights. In any event, what impresses me so much about NCUA’s action is how well it balances its desire to make the Federal Charter as attractive as possible against the need to be ready, willing and able to defend its changes against inevitable banker challenges. The banking industry has a Pavlovian response to any proposal that increases credit union flexibility, even one that is perfectly consistent with the plain reading of the Federal Credit Union Act. After all, the independent bankers all but announced in their MBL lawsuit against NCUA that it will also sue to block FOM expansion. Messrs. Metzger and McWatters as well as their legal staff deserve a lot of credit for such a well-reasoned preamble that clearly lays out why they took the steps they did.

For example, the amendments remove the requirement that credit unions seeking to expand within a Core Based statistical Area, “CBSA,” serve the ”core” or most populous area of the CBSA. If these acronyms mean nothing to you, the important things to keep in mind is that no such requirements are imposed under the Federal Credit Union Act. As for the arguments that NCUA may abuse its regulatory discretion when authorizing credit unions to expand within cores, it points out that it has a supervisory process to assess a credit union’s efforts to offer service its new community. This is a preemptive push- back against the inevitable argument that NCUA will abuse its discretion.

A similar adherence to the statute can be seen in the Board’s decision to modify the criteria for credit unions seeking to serve financially underserved areas. The Act authorizes multiple Common Bond Credit Unions to serve members residing in financially underserved areas, provided they open a service facility. Since the law is silent on the methodology to be used by NCUA, the Board decided to exclude trust companies which do not accept deposits and credit unions not serving members of an underserved area from the formula used to determine if an area is financially underserved. In addition, the Board decided that it will use CFPB data to publish a list that identifies Underserved Areas. This will be a huge cost and time saving move by NCUA and one which is perfectly consistent with its legal authority.

While there is much to be pleased about with these Amendments, the Board’s adherence to strict interpretation means that credit unions didn’t get everything they asked for. In its proposal, NCUA suggested that credit unions might be able to satisfy the reasonable proximity test by demonstrating member access to online services. To me, this is consistent with the law since there is no requirement that such services only be provided by means of a physical branch and the Act must ultimately be interpreted consistent with technological changes. Nevertheless, the Board took a pass on this suggestion. They explained that “notwithstanding certain merits of the proposal” it has decided not to go forward with it at this time deciding that it is more comfortable with an incremental approach to FOM expansion. Translation: the Board is keeping a more expansive interpretation of its powers in the closet for another day. Stay tuned.





Entry filed under: General, 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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