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NCUA Eases Membership Rules, Proposes to Go Further

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As expected, the National Credit Union Administration approved a final rule liberalizing field of membership (FOM) regulations that credit unions were already applauding—and bankers were already threatening to sue over. But the agency was far from done with FOM.

Though it tabled a CU-supported provision that would have recognized entire congressional districts as well-defined local communities, the regulator immediately launched another FOM initiative that would quadruple the FOM population limit from 2.5 million to 10 million. Moreover, the new proposed rule also permits CUs to draw up customized fields of membership, rather than having to rely on specific political and/or geographic boundaries, which they can submit to NCUA for approval.

Board member J. Mark McWatters said the ability to draw their own membership fields provides "flexibility" for credit unions unhappy with the options contained in the Chartering and Field of Membership Manual The board could have included the increased population cap and the self-generated field of membership option in the final version of the manual, but chose to propose another rule because it wanted to solicit additional comments – including comments from community bankers – McWatters said.

"You could make an argument we could have done this in the final rule," McWatters said. "We chose not to because, why rush things? If people want to comment, they should have the chance. I like comments."

Addressing what is likely to be a firestorm of criticism from banks over the likelihood of a 10 million-person population limit, both McWatters and NCUA Chairman Rick Metsger noted there is no statutory cap on the population residing within a credit union's field of membership.

"None of the changes in the final rule or the proposed rule we are about to consider pose a threat to safety and soundness of credit union system," Metsger said. "No credit union has every failed because its FOM was too large."

And banks were quick to criticize.

"NCUA's action today is the latest example of the captive regulator inappropriately and illegally extending the industry's taxpayer-subsidized competitive advantage—further demonstrating its credit union industry cheerleading status," ICBA President and CEO Camden R. Fine said in a statement. "If credit unions want to eliminate the common bond requirement and operate like banks, they should be taxed like them and required to meet the same set of regulatory standards. They can't have it both ways."

The bank trade group has already filed a suit against NCUA over its recent overhaul of the member business lending rules and telegraphed it intent to sue the agency over FOM, as well, if the regulator went too far with FOM. Though Fine stopped short of confirming that ICBA will, indeed sue over FOM, observers said it was unlikely the group wouldn't pursue legal action. Indeed, some suggested, the question isn't if the ICBA will file a suit, it's whether it will simply amend the existing MBL suit to include FOM, or file a separate suit.

As predictable as the banker ire was, so, too, was the credit union applause.

"NAFCU applauds NCUA Board Chairman Rick Metsger and Board Member J. Mark McWatters for making final the most comprehensive field-of-membership reform initiative that the credit union industry has seen in more than 10 years," said NAFCU President and CEO Dan Berger. CUNA CEO Jim Nussle had similar praise for both the final FOM rule and the new proposal under consideration. "We commend NCUA for the inclusive and transparent process it undertook and for listening to stakeholder comments aimed at improving the final rule," he said in a statement.

In addition to its field of membership deliberations, the board received a briefing on supplemental capital, which has been a subject of growing interest to credit unions since tougher risk-based capital requirements were adopted last year.

According to Larry Fazio, director of NCUA's Office of Examination and Insurance, before credit unions could be allowed to obtain supplemental capital the agency would have to adopt a number of regulations, including a comprehensive rule governing borrowing as well as anti-fraud rules.

Metsger said the board plans to issue a notice of proposed rulemaking, the first step in the process of drafting and approving a supplemental capital regulation, in January.

Currently, retained earnings are the only source of capital available to most credit unions. Low-income credit unions are permitted to access secondary sources of capital in order to further their mission of serving poor and underserved areas, but only a handful have taken advantage of the opportunity, Fazio said.

In other action, the board also:

  • A final rule re-naming NCUA's consumer office as the Office of Consumer Financial Protection and Access to clarify its function and role in promoting consumer access to affordable financial services.
  • A final rule adjusting civil monetary penalties for inflation, as required by Congress.
  • An interagency proposed rule to implement the private flood insurance requirements for loans in special flood hazard areas contained in a 2012 statute.
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