NCUA officials still have several more months of work ahead of them before they unveil a comprehensive overhaul of their Field of Membership rules, but the agency completed a kind of trial run Thursday, approving a much narrower amendment to the rules governing associational common bonds.
The key provision in the new rule is a measure redlining associations formed solely for the purpose of expanding a credit union's membership. Additionally, the new rule requires that association's joining a credit union's field of membership keep their books and membership records separate from those of the credit union.
Without naming names, NCUA chair Debbie Matz said the toughened policy became necessary because "a small number" of credit unions had been using such dummy associations to boost membership.
"Forming an association for that purpose is simply not acceptable," she said.
The issue was serious enough for the agency to issue a letter to credit unions in September 2013 warning them warning them about advertising fields of membership "open to anyone."
According to NCUA, the new measure barring associations created specifically to increase credit union membership is a threshold test that applicants must meet in addition to all of the pre-existing regulations governing associational common bonds.
NCUA acted to sweeten the proposal by setting aside 12 types of associations whose field of membership applications will be automatically approved from now on, including historical societies, YMCA organizations, parent-teacher groups and local chambers of commerce.
According to Vice Chairman Rick Metsger, 87% of the field of membership applications NCUA received last year would have merited automatic approval under the revised rule approved Thursday.
Despite the seemingly noncontroversial nature of the proposal, the lone Republican on the board, J. Mark McWatters, voiced a strong objection. Contradicting Matz and Metsger, who held up the automatic approval provision as an example of regulatory relief, McWatters argued the new rule actually adds to credit unions regulatory burden.
He said NCUA would be better served by addressing field of membership violations using existing laws and regulations, adding that the new rule "accomplishes little except to increase the regulatory burden" on the credit unions that did not break the rules.
NAFCU supports this effort toward regulatory relief but has ongoing concerns about the rule's threshold-determination requirement.
The final rule adds 12 groups to the types automatically deemed suitable for inclusion in FCU membership fields. However, it also contains a threshold-determination requirement that serves as a test to determine whether the groups being added were created primarily for the purpose of expanding credit union membership.
The trade associations were quick to weigh in on the measure, though both noted it will take some time for them to fully assess its impact.
"While NAFCU appreciates NCUA's efforts to streamline certain requirements for amending a federal credit union's field of membership, we have continued concerns about the incorporation of a threshold-determination requirement," Alicia Nealon, director of regulatory affairs for NAFCU, said in a statement.
For its part, CUNA said it was pleased that some of the changes it proposed were adopted in the final rule.
"We're pleased NCUA allowed automatic approval for an additional five categories of association and removed the one year requirement from the threshold test and reduced the corporate separateness factor which will allow for an association to share an address with a credit union," CUNA CEO Jim Nussle said in a statement. "These changes will ensure that millions of hardworking Americans will continue to have access to credit unions."
In other action, the board approved a package of changes to regulations governing corporate credit unions. While officials characterized the majority of the changes as "non-substantive, technical corrections," the package included a provision limiting the amount of perpetual contributed capital that can count as Tier-1 capital, as well as one extending the maximum duration of secured borrowing by corporate credit unions from 30 days to six months.
The changes to the corporate credit union rules were approved unanimously, but McWatters said the restrictions on perpetual contributed capital were overly restrictive.
Again, the trades were quick to offer their thoughts on the proposal.
"CUNA is disappointed that the proposed rule on adding share insurance coverage to interest on lawyer trust accounts (IOLTA), which comes months after a bill allowing IOLTAs to be insured to by the National Credit Union Share Insurance Fund was signed into law, does not insure prepaid cards," Nussle said in a statement. "We will continue to thoroughly review the proposal, but are concerned that the NCUA is not acting consistently with the Federal Deposit Insurance Corporation (FDIC) regarding insurance coverage for prepaid card accounts. The FDIC already determined that such accounts receive the same insurance coverage as other deposits."
"NAFCU is pleased to see NCUA propose amendments that will bring its share insurance regulations into conformity with the NAFCU-supported Credit Union Share Insurance Fund Parity Act. While we will be carefully reviewing other accounts that may qualify for coverage, NAFCU and our members strongly support the proposed coverage of IOLTAs, realtor escrow accounts and prepaid funeral accounts, and we appreciate the agency's request for additional suggestions."