America's consumers increasingly recognize that joining a strong, well-managed credit union gives them access to some of the highest-quality, lowest-cost choices in the financial marketplace.
Strengthening the credit union system requires diligent federal oversight that ensures safety and soundness, but does not overburden credit unions with ambiguous regulations that impose needless costs. Streamlining unclear rules - and thus easing the cost of regulatory compliance - can help promote CUs' growth and their ideals of encouraging savings, building strong communities, and investing in a resilient American economy.
Ambiguous language sometimes clutters federal rulebooks, simply out of inertia. That has become the case with NCUA's "Field of Membership" rule, which requires a federal credit union, when applying for a community charter, to prove that it will serve a "well-defined local community."
Yet ironically, the term "well-defined" is not clearly defined! Clarifying that will eliminate the current uncertainty about what a "community" is, speed the application and review process, and remove a burden that diverts credit unions' resources from their primary mission - serving members.
The effort to clarify the FOM rule is part of NCUA's broader effort to modernize our approach to regulation at a moment when credit unions seem poised for a new era of growth.
This year, NCUA is creating two important new offices - a Consumer Protection and a Chief Economist capability - to help ensure that more consumers gain access to affordable financial services and that the industry gains access to leading-edge economic data. Implementing the streamlined Field of Membership rule will be one of the Consumer Protection office's key goals.
Our new proposal, which is open for comment until April 15, aims to eliminate the current rule's vagueness about what constitutes a "community."
Since Congress passed the Credit Union Membership Access Act in 1998, NCUA has struggled to define the criteria for community charters. The challenge has always been to balance Congress' intent to provide opportunities to attract new credit union members against the statutory language requiring a "well-defined local community."
The current rule contains no defined population limits, no distinctions between urban and rural communities, and no hard-and-fast measures of community interaction. This lack of clarity has led to confusion. Credit unions seeking community charters have had to provide hundreds of pages of information about their ability to serve a proposed community. They have had to prepare - and NCUA staffers have had to analyze - thick binders of statistics on their members' commuting patterns, shopping trips, hospital visits and newspaper readership.
Today's unclear rule forces credit unions to spend their time and money satisfying subjective regulatory criteria. So the new proposal seeks to create objective definitions for communities, based on nationally recognized measures - some of which are already used by agencies like the Office of Management and Budget and the U.S. Department of Agriculture.
Under our proposal, four objective criteria would be spelled out clearly:
Single Political Jurisdiction
1) Any single political jurisdiction would continue to be recognized as a well-defined local community. That includes any single county, city, or smaller political jurisdiction, regardless of population size.
2) Multiple jurisdictions in an urban area with a recognized core would be considered a community if they fall within a single Metropolitan Division serving a population of up to 2.5-million. A recognized core is a dominant city or county that includes a majority of the community's jobs and at least one-third of its population.
3) A rural district would be considered a community if it falls within a contiguous area serving a population of up to 100,000, where a majority of that population lives in rural Census blocks.
Existing Community Charters
4) Existing community charters would be "grandfathered." Any federal credit union that already has a community charter would be able to keep it, and other federal credit unions could adopt those communities, as well.
Adopting clear standards would not mean, however, that community-charter approvals would be automatic. Each credit union will still need to demonstrate its ability to serve the community by completing Business and Marketing Plans. Those plans must specify, in detail, how the credit union would serve the entire community; the unique needs of the community's demographic groups; marketing strategies to reach each group - particularly the underserved; partnership efforts with community-based organizations, and an increase in resources for reaching new members.
If a community charter were approved, an NCUA Regional Office would verify each year, for three years, that the Business and Marketing Plans were being followed.
The new Consumer Protection office will ultimately be equipped to complete all Field of Membership changes online - with turnaround times of just weeks, rather than months or years.
Streamlining the regulatory process will liberate credit unions' resources for investments in serving their members. Improving services, in turn, will spur even stronger growth in credit unions.
My goal is to see the industry surmount a significant milestone by 2015: increasing its numbers from today's 92 million members to 100 million or more. Achieving the 100-million-member mark by mid-decade would underscore Americans' growing appreciation of credit unions' value proposition.
Modernizing government regulation - thus allowing non-governmental institutions to focus added resources on their core businesses - has long been a goal of those who would "reinvent" or "transform" government.
In his Inaugural Address, President Obama declared that "the question we ask today is not whether our government is too big or too small, but whether it works. . . . Where the answer is yes, we intend to move forward. Where the answer is no, programs will end."
It's time for today's cumbersome Field of Membership paperwork to be replaced by a streamlined rule that helps the regulatory process work better, at lower cost. By doing so, NCUA can help the credit union industry take fuller advantage of new opportunities as it prepares for an energetic new era of growth.
Debbie Matz is the Chairman of the National Credit Union Administration. She can be reached at email@example.com.