UPDATE Regarding FOM Expansion: Banks Sue NCUA

December 7, 2016 - Source: Credit Union Times

Contending that the new NCUA Field of Membership rules allow federal credit unions to expand beyond the bounds that Congress prescribed, the American Bankers Association on Wednesday asked a federal court to nullify the regulations.

In the suit, filed in the U.S. District Court for the District of Columbia, the ABA said that the final rule expands “the universe of members eligible to join a single federally-chartered credit union well beyond the limits established by Congress.”

The ABA states that because credit unions are tax exempt, restrictions on their size are essential to prevent them from gaining an unfair competitive advantage over tax-paying financial institutions.

“By exceeding these statutory limitations, the Final Rule upsets the balance Congress struck between granting federal credit unions tax-favored status and limiting their operations to carefully circumscribed groups or localities that share a common bond,” the ABA contends.

For instance, the association said, community credit unions will be allowed to operate even though their field of membership is not limited to a single well-defined local community, neighborhood or rural district.

The ABA said that in the past, federal courts have invalidated the NCUA’s attempts to expand credit union fields of membership.

Many of the provisions of the final rule, as adopted by the NCUA in October, were part of the proposed rule issued last year. However, the NCUA did not include a proposal defining a congressional district as a well-defined local community in the final rule. The NCUA received 11,380 comments on the proposed rules, with commenters generally supporting them by a ratio of about three to one.

The goal, according to NCUA Board Chairman Rick Metsger, is to make it easier for people to gain access to affordable financial services.

The NCUA also has issued proposed rules to make additional changes to field of membership regulations. The comment period for those rules closes Friday.

The ABA asked the federal court to set aside the rules.

The NCUA also is fighting a suit filed by the Independent Community Bankers of America challenging the recently revised Member Business Lending rules.


Previous News on FOM Expansion

The NCUA board on Thursday approved revised Field of Membership rules to provide credit unions with more flexibility to define the areas they serve.

“What we are doing today is using the Credit Union Membership Act to bring the administration of the law into the 21st Century,” NCUA Board Chairman Rick Metsger said.

The rules, he added, are “a logical and natural evolution of existing laws.”

The final rules do not propose expanding the community charter core area population limit beyond 2.5 million. However, the board approved a proposed rule that, if adopted, would increase the population limit to 10 million on a well-defined local community other than a Single Political Jurisdiction.

The proposed rule would also allow applicants seeking approval to initially form, expand or convert to a community charter the option of submitting a narrative to establish the required common bonds instead of relying on a “presumptive community” standard.

The NCUA received 11,380 comments on the proposed rules, with commenters generally supporting them by a ratio of about three to one.

However, banking groups voiced their opposition to many of the provisions. The Independent Community Bankers of America has made it clear it will sue the NCUA if it does not like the rules.

Many of the provisions of the rule were included in the proposed rule issued last year. However, the NCUA did not include a provision defining a congressional district as a well-defined local community.

Under the final rule approved Thursday:

Federal credit unions will now be permitted to apply to convert to a community charter or expand an existing charter without serving the core area if they elect to serve a portion of a core-based statistical area. “This will allow a federal credit union to establish a presence consistent with its ability to serve before expanding service to the full area,” the agency said.

The NCUA’s population limit of 2.5 million people will apply to any well-defined portion of a core-based statistical area regardless of the whole area’s population.

Federal credit unions will be able to serve a Combined Statistical Area as defined by the Office of Management and Budget, subject to the 2.5 million population cap.

Federal credit unions may only serve a rural district in those states bordering the state containing the credit union’s main office.

The NCUA will use the CFPB-designated “underserved county” as an underserved area.

Multiple-bond credit unions will have parity with single common-bond credit unions in serving contactors.

The NCUA staff said that federal law does not impose for any of the three community categories a maximum limitation on population or geographic size.

“We need to make it easier for people to access affordable financial services," Metsger said.

He added, “To the best of my knowledge, no credit union has ever failed because its Field of Membership was too large. But some credit unions have failed because it was too small.”

See Original Article Here