What is “Reasonable Proximity” For Field Of Membership Purposes?

July 15, 2020 at 10:31 am Leave a comment

For credit unions making plans for medium to long-term growth, the discussion often comes down to what charter gives them the most flexibility to grow?  For instance, if they are a community charter, will they have more opportunities to expand under the state’s laws or do they have enough flexibility under NCUA’s more stringent regulations?  If the credit union doesn’t want to become a community charter, will it have the ability to take in enough groups to expand their membership footprint?

In June, NCUA issued an important legal opinion letter for those credit unions considering using the multiple SEG approach.  When this letter is read in conjunction with NCUAs updated field of membership regulations it means that federal credit unions have much more expansion flexibility than they had just months ago.

When a multiple SEG credit union is seeking to add a new group to its membership, one of the most basic things the credit union must demonstrate is that the group is within “reasonable proximity” to the credit union’s service area.  But what is reasonable proximity and is there a specific geographic limit restraining the acquisition of new groups?  In a legal opinion letter by NCUAs Office of General Counsel, the answer is:

  “…the NCUA has always viewed “reasonable proximity” as including a geographic component, but the NCUA will continue to assess this geographic component on a case-by-case basis free of a mileage limit.”

Why is this important?  Because I have talked to credit unions that assume that a potential SEG group it too far away to become part of the credit union even though they have they have the ability to serve the group and the potential SEG very much wants their services.

And let’s pull back the lens a little.  This opinion is also potentially helpful for those of us who feel that technology has fundamentally changed the groups that a credit union is able to serve.  During the pandemic, millions of people have seamlessly continued their work miles away from the office.  Similarly, the pandemic has underscored that proximity to banking services should be judged in context and not simply in terms of black and white geography.

On that note, have a nice day.

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

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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