SECTION: IN THE NEWS

LENGTH: 6706 words

HEADLINE: PREPARED TESTIMONY OF
DIANA ROBERTS
PRESIDENT OF HERSHEY FEDERAL CREDIT UNION
THE CREDIT UNION NATIONAL ASSOCIATION
BEFORE THE HOUSE BANKING AND FINANCIAL SERVICES COMMITTEE
FINANCIAL INSTITUTIONS AND CONSUMER CREDIT SUBCOMMITTEE

BODY:

 
SUMMARY OF KEY POINTS IN CUNA's TESTIMONY
Introductory Remarks
- The National Credit Union Administration (NCUA) has done a responsible job providing rules to implement the Credit Union Membership Access Act (CUMAA). The agency's rules are consistent with the statute.
- The banking industry has tried to make the case that the NCUA's field-of membership policy gives federal credit unions virtually unlimited authority to add new groups. This is simply not correct. In reality, CUMAA and NCUA's field of membership policy, IRPS 99-1, adds a host of new limits on where and how credit unions can provide service to additional groups of members.
- The American Bankers Association lawsuit seeking to block the NCUA policy from taking effect, while disappointing, should come as no surprise. Less than a week after the Act was signed into law last August, and before the NCUA draft policy was even released, the ABA publicly threatened to file more lawsuits against credit unions and their federal regulator. The bankers' lawsuit is just harassment -- their real complaint is that Congress passed CUMAA last summer.
The Rule's 3,000 Potential Member Criterion
- NCUA's selection of 3,000 potential members as a criterion for evaluating whether to charter a new credit union is grounded in a realistic understanding of economic viability. Even a mature credit union is unlikely to have much more than a third of its potential membership as actual members. A credit union with 3,000 people eligible to join will likely have only 300 to 600 members in its first few years of existence.
Formation of New Credit Unions
- The fact is it has become more difficult to charter new credit unions. Factors range from the challenge of finding people willing to volunteer the time and expertise to start a credit union from scratch to the cost of the technology needed to meet the more sophisticated financial demands of today's consumers. Little wonder that NCUA has chartered only a few dozen credit unions in recent years. And nowhere in the Credit Union Membership Access Act does it say a group, regardless of its size, should be refused the opportunity to join an existing credit union if it does not want to organize a new one.
Overlapping Service to a Group
- In today's economy, credit unions increasingly compete with one another, not only due to overlaps, but because members often have the choice of more than one credit union. If members are unhappy with their credit union's service, they will go elsewhere. CUNA prefers that consumer alternatives include another credit union, not just a bank.
Reasonable Proximity Requirements
- NCUA's interpretation of the law's "reasonable proximity" requirement is sensible. The purpose of the rule should be to ensure members of a select group have reasonable physical access to credit union service. It won't matter to the members whether they can get that service at the main office, a branch or some other credit union facility that provides loan and deposit services. Measuring only proximity to a credit union's main office, on the other hand, could seriously curtail offering membership to interested groups by certain credit unions.
Definitions of "Immediate Family" and "Household"
- While CUNA would have preferred that NCUA give federal credit unions greater flexibility, we support the new definitions of family member and household. The new rules place more limits on federal credit unions than they have had since 1983, when they were permitted to define "immediate family members" in their bylaws.
Definition of "Well-Defined Local Community, Neighborhood, or Rural District"
- CUNA supports NCUA's approach in presuming a single county, city or other municipal district with a population not exceeding 300,000 constitutes a local community. The agency based this threshold on a review of community charters it has granted in the past.
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My name is Diana Roberts, and I am president and CEO of the Hershey Federal Credit Union, located in Hershey, Pennsylvania. I appear on behalf of the Credit Union National Association ("CUNA"). CUNA and our network of state credit union leagues represent over 90% of the nation's 11,300 credit unions and 76 million credit union members. My credit union has $25 million in assets and serves 6,500 members. Although the Hershey's Chocolate Company was the original sponsoring group of my credit union, today we serve 18 other companies as well, including the employees of two nursing homes, a vegetable and fruit packaging company, and a local private school.
CUNA would again like to thank members of the House Banking Committee for taking a leadership role in the prompt passage last year of H.R. 1151, the Credit Union Membership Access Act ("CUMAA"), P. L. 105-219. Passage of this law has once again allowed federal credit unions to serve multiple groups of businesses and associations that cannot, or do not want to, charter their own credit union. Credit unions had hoped to be able to quickly start serving these groups after enactment of CUMAA, groups that we have been forced to turn away since mid-1996. But the National Credit Union Administration ("NCUA") wanted to make sure that it issued a comprehensive role that complied with all aspects of the new law, so the notice and comment period and consideration of a final regulation took five months to complete. Most of the new field of membership rules of NCUA, found in Interpretive Ruling and Policy Statement 99-1 ("IRPS 99-1"), became effective on January 1, 1999.
We are pleased to have been invited to participate in this oversight hearing today on the implementation of Title I of CUMAA, as reflected in IRPS 99-1. Since Congress specifically reserved to itself 60 days in which to review two definitions in the new law, we certainly expected to be meeting with members of this subcommittee to discuss our views on the adequacy of certain regulatory provisions adopted by NCUA. Based on the questions raised in our letter of invitation and concerns expressed by Chairwoman Roukema, Congressman LaFalce, and Congressman Kanjorski to NCUA before the field of membership policy was finalized on December 17, 1998, our testimony is organized to address the following issues:
I. Concerns about NCUA's selection of 3,000 potential members as a criteria to consider in the chartering of a new federal credit union (Question 2)
II.

II.
Formation of new credit unions (Questions 1 and 3)
III. NCUA's policy on groups being served by more than one credit union ("overlaps") (question 4)
IV. The "reasonable proximity" requirements, which evaluate whether the group's membership can be served by a credit union service facility (Questions 5 and 6)
V. The definitions of "immediate family member" and "household" (Question 7)
VI. The definition of "well-defined local community, neighborhood, or rural district" (Question 8)
Before providing our views on these issues, we would like to answer in general the charge of the American Bankers Association that IRPS 99-1 "blatantly disregards the Act and Congressional intent" and that "(i)t encourages and promotes large, geographically expansive, multiple group credit unions at the expense of small, locally-based credit unions," to quote from the letter the ABA circulated to all members of the House. The banking industry would have you believe that, with the implementation of NCUA's new field of membership policy, federal credit unions now have unlimited authority to add groups. This is simply not correct.
CUMAA and IRPS 99-1 add a number of new requirements that limit what, where and how additional groups can be provided credit union services. In other words, even after the passage of H.R. 1151 and NCUA's implementation of its new rules, federal credit unions will not be fully restored to the position they were in before the adverse U.S. Court of Appeals ruling in mid-1996. Examples of these new limitations are:
* Every group, regardless of size, has to be approved by NCUA, which eliminated the agency's streamlined expansion procedures.
* Groups over a minimal size applying to join an existing credit union have to explain why the formation of a separate credit union for that group is not practical or safe. * Proposed voluntary mergers where one credit union has a group with more than 3,000 members are made unnecessarily difficult to accomplish.
* Family members can become members only in a certain order, if at all, unlike what has been allowed since 1983.
* Applicants for community charters or expansions will be subject to greater scrutiny to prove there is a "local" community being served.
CUNA is extremely disappointed, but not surprised, that the American Bankers Association and the Independent Bankers Association of America are once again suing NCUA, in hopes of curtailing consumers' access to credit union membership to the greatest degree possible. The ABA practically announced months ago that it did not matter how NCUA implemented the law --it was determined to sue no matter what. The head of ABA said within days of the passage of the legislation last August: "And make no mistake, we will exercise our newly won right to bring suit against the credit unions and their federal regulator in the future. This you can count on."
This new court challenge is just one more to add to the almost two dozen lawsuits that bankers have filed against credit unions in recent years. This latest lawsuit is simply harassment. The banking industry is unwilling to accept the action Congress took last year to support consumer choice in financial services. And the banking industry is hardly being consistent in its interpretation of these provisions. Today, the bankers will testify that NCUA is ignoring the limitations that CUMAA imposed on field of membership expansion. However, last spring the ABA testified to the Senate "on the failings of H.R. 1151, as modified by the House Banking Committee, to adequately draw the line to protect taxpayers. ABA strongly opposes this bill. It would (v)irtually eliminate the common bond. H.R. 1151 places no meaningful limits on the ability of an occupation or association federal credit union to service multiple common bonds .... "
It is important to remember that Congress chose to adopt the House language that the ABA so criticized without any significant modifications throughout the rest of the legislative process. The legislation that the bankers now seek to construe narrowly, passed over their express protestations to the contrary and not withstanding their vehement opposition to its enactment.
We think that NCUA has done a responsible job in providing rules to implement CUMAA, although reasonable people may differ on how the agency is implementing certain provisions of the law. CUNA certainly did not agree with all provisions and in some cases felt that the new law gives NCUA broader flexibility than it exercised. This is a natural part of the rulemaking process.

HSE-BNKG-ROBERTS-TXT PAGE 7 02/03/99 While CUMAA contains some specific criteria, Congress for the most part directed NCUA to define terms, establish requirements, and determine procedures for implementing Title I of CUMAA. NCUA has conscientiously carried out its duty. In our formal comment to the agency last fall, CUNA urged NCUA to schedule a review of the field of membership policy in a year. At its December 17 meeting, the NCUA Board announced that it does plan to revisit the IRPS 99-1 policy at the end of this year. We feel such a review is probably the best way to accurately assess the strengths and weaknesses of the actual implementation of the new law. We seriously doubt that any particular harm will occur to competing financial institutions if one year elapses before the merits of IRPS 99-1 are evaluated.
Many of ABA's complaints center on the effects of IRPS 99-1 on small credit unions. While the judicial system has given ABA the ability to challenge NCUA's field of membership policy in court, one has to be suspect of ABA as the champion of small credit unions. I am from Pennsylvania, and I can assure you that small credit unions are doing well in spite of the efforts of the banking industry to make our life difficult. There are 571 federal credit unions and 59 state-chartered credit unions with less than $10 million in assets in Pennsylvania -- there is one bank that small. There are 173 federal credit unions and 31 state-chartered credit unions holding between $10 and $100 million in assets, including my credit union -- there are 93 community banks in that size range. And there are 30 banks in Pennsylvania that hold more than $1 billion in assets -- there is one credit union, Pennsylvania State Employees Credit Union. About 90% of the 858 credit unions in Pennsylvania are federally chartered, and over 40% of them -- including mine -- were directly impacted by the 1996 court injunction. Many companies have been waiting 2 1/2 years to be able to offer their employees the opportunity to have credit union services. We want to get on with the business of serving these people.
I. THE 3,000 POTENTIAL MEMBER CHARTERING CRITERION (Question 2)
The subcommittee has asked for our views on whether NCUA's use of 3,000 potential members as a criterion to assess the economic advisability of chartering a credit union is consistent with encouraging the formation of new credit unions. To straighten out possible confusion, we should note that there are two "3,000" figures connected with the law and the IRPS 99-1. The statute states that "only a group with fewer than 3,000 members shall be eligible to be included in the field of membership category of a credit union" unless a larger group could not "feasibly or reasonably establish a new single common-bond credit union" (12 USC Section 1759(d)(1) and (2)).
Separately, NCUA has decided that it should also consider whether there is a 3,000 potential membership in evaluating the economic advisability of any credit union charter application. All groups are subject to an evaluation of chartering potential under the new statute (12 USC Section 1759(f)(1)(A)).
First, we think it is important to quote exactly what NCUA's policy manual states regarding the 3,000 figure because many people raising concerns apparently have not read NCUA's actual language:
"NCUA has not set a minimum field of membership size for chartering a federal credit union. Consequently, groups of any size may apply for a credit union charter and be approved if they demonstrate economic advisability. However, it is important to note, that often the size of the group is indicative of the potential for success. For that reason, a charter application with fewer than 3,000 primary potential members (e.g., employees of a corporation or members of an association) may not be economically advisable. This is particularly true for groups of 200 or less primary potential members. Therefore, a charter applicant with a proposed field of membership of fewer than 3,000 primary potential members may have to provide more support than an applicant with a larger field of membership.

For example, a small occupational or associational group may be required to demonstrate a commitment for long-term support from the sponsor."
Reasonable people could differ on whether NCUA could have referenced a number lower than 3,000 potential members as a criterion to consider in chartering a credit union. Everyone seems to agree that the 500 potential member level in previous manuals was clearly outdated. We need to remember that NCUA has the most long-term experience is dealing with the successes and failures of newly chartered federal credit unions and the responsibility that these credit unions do not present an undue risk to the National Credit Union Share Insurance Fund.
We have no reason to doubt that the line NCUA has drawn is appropriate. Even a mature credit union is unlikely to have as members much more than one-third of its potential membership. In the early stages of development, a credit union is likely to attract only 10-20% of the potential members. With a potential size of 3,000 people, the credit union is likely to have only 300-600 members in its early days, or years, of operation. That is barely the size necessary to begin offering a few services beyond the most simple savings and loan products, much less to offer a full range of consumer financial services.
As we all know, there are about 2,500 federal credit unions that are flourishing with actual memberships of less than 1,000 people -- many of them are in the state of Pennsylvania. Most of these credit unions have been in operation for years; they have established their niche in the marketplace and are doing quite well. The vast majority of these credit unions have never added services as such share drafts (checking accounts), credit cards' and mortgages. Although these credit unions represent over one-third of all federal credit unions, they serve only 3% of the members of all federal credit unions. Being realistic, I question if many of these small credit unions could start over today and prosper, given consumer expectations of financial services availability.
II. FORMATION OF NEW CREDIT UNIONS (Questions 1 and 3)
The subcommittee has asked us to comment on CUMAA's directive that NCUA is to encourage the chartering of new credit unions. You have also asked whether NCUA's consideration of a group's "desire" to form a new credit union or join an existing credit union is appropriate.
CUMAA clearly instructs NCUA to "encourage the formation of separately chartered credit unions instead of approving an application to include an additional group within the field of membership of an existing credit union (BUT ONLY) whenever practicable and consistent with reasonable standards for the safe and sound operation of the credit union" (12 USC Section 1759(0(1)(A), bracketed language and italics added for emphasis). This directive applies regardless of the size of the group seeking to be added to an existing credit union, although for groups over 3,000 in size, NCUA is required by statute to determine that the group "could not feasibly or reasonably establish a new single common-bond credit union" (12 USC Section 1759(d)(2)(A)).
CUNA would be delighted to see the chartering of more credit unions, but marketplace realities are that, consistent with safety and soundness, only a limited number of new charters will be granted each year. CUNA can speak from experience on this. In the mid-1990's, we launched a three-year project to encourage the chartering of new credit unions. Despite our best efforts, we were disappointed in the results. The National Federation of Community Development Credit Unions has been more successful than most organizations within the credit union system in recent years in nurturing new credit unions by focusing on areas of the country where credit unions often fill a real financial services vacuum.
The creation of a new credit union has to arise from the grassroots - from people learning about how a credit union can improve their lives and deciding they want to organize one. We think that NCUA would be even less successful than the credit union movement itself has been if Congress interpreted CUMAA as requiring NCUA to take a more activist role than the agency has defined in IRPS 99-1. Why is chartering of a successful credit union so difficult at the end of the 20th Century? For several reasons:
(1) Finding people who are willing to volunteer their time and expertise to get the credit union up and running. Those seven volunteer organizers required by the Federal Credit Union Act to serve as the first board of directors, plus the many more volunteers needed to make the credit union a reality (including those volunteers needed to serve on the mandatory Supervisory Committee) must be willing to commit their time for years to make the credit union successful. Moreover, these credit union unpaid volunteers are subject to the same liability for failure to faithfully perform their fiduciary duties as the bank director being paid $25,000 annually.
(2) Assembling the critical mass of people eligible for membership who want to deposit their funds in a financial institution that undoubtedly will only be able to offer limited services for the first several years of operations.
(3) Finding the start-up resources that must be contributed to get the credit union operational, whether contributed by a corporate sponsor, an association, or a community group. Since a newly chartered credit union starts with absolutely nothing, you need to have a persuasive group to get donations of start-up capital, office space, equipment, etc.
(4) Having the necessary technology, a very expensive cost for any financial institution today.
(5) Building retained capital at a pace that provides the necessary safety and soundness cushion and, at the same time, paying competitive rates for deposits and charging competitive rates for loans.
When almost any group weighs these obstacles against the possibility of being able to join an existing credit union and getting all the support and services immediately, it is of little surprise that NCUA has chartered only a few dozen credit unions in recent years.
NCUA is appropriately using the application form for group expansions to assemble the information it needs to assess the possibility of separately chartering a credit union. CUNA urged NCUA to create a simpler form for smaller group expansions, and the final manual contains both the Form 4015-EZ, the application for a field of membership expansion involving smaller groups, and the Form 4015. NCUA requires that groups over 200 include in their letter requesting credit union service an explanation of"why the formation of a separate credit union for the group is not practical or consistent with safety and soundness standards." We know that NCUA has returned a few applications to federal credit unions, stating that the group has not provided an adequate explanation as to why chartering a separate credit union for the group is not economically advisable. NCUA does not require the smallest groups to provide such an explanation because the agency has concluded that some groups are so small that they would never be able to meet the statutory requirement to organize a credit union "whenever practicable and consistent with reasonable standards for the safe and sound operation of the credit union" (12 USC Section 1759(f)(1)(A)).
Your letter of invitation specifically asked for our opinion if NCUA's consideration of a group's "desire" to charter a credit union is consistent with Congressional intent. The statute compels NCUA to look at the group's interest in forming a credit union ("the Board determines (that) ... the group lacks sufficient volunteer and other resources to support the efficient and effective operation of a credit union .... "(12 USC Section 17591759(d)(2)(A)(i)). Even if the statute did not dictate this evaluation, we would nevertheless think it essential that NCUA consider if the group desires to organize a credit union or join an existing credit union. Federal credit unions are run by volunteers; you cannot force someone to volunteer for a long-term commitment with a great deal of responsibility. Unlike for a group seeking to charter a bank, there is no possibility of a "pot of gold" for credit union organizers. People organize banks to make money; people organize credit unions to serve their fellow man. Certainly, Congress did not envision NCUA being compelled to give an unwilling group a credit union charter, a credit union that undoubtedly would have operational problems. And contrary to what the ABA claims in its latest lawsuit, nowhere in CUMAA does it say a group, regardless of how large it is, should be refused the opportunity to join another credit union if it does not want to organize a credit union.
III. OVERLAPPING SERVICE TO A GROUP (Question 4)
Credit union officials continue to have widely differing views on field of membership overlaps and exclusionary clauses. An overlap means that one group is served by two or more credit unions.

Over the years, NCUA has often included an exclusionary clause in a federal credit union's charter, prohibiting that credit union from providing services to one or more enumerated groups that would otherwise be within its field of membership.
CUMAA requires the agency to determine that "any potential harm that the expansion of the field of membership of the credit union may have on any other insured credit union and its members is clearly outweighed in the public interest by the probable beneficial effect of the expansion in meeting the convenience and needs of the members of the group proposed to be included in.the field of membership" (12 USC Section 1759(f)(2)(D)). NCUA has incorporated this standard into its evaluation of whether it will permit overlaps not only for multiple group credit unions but also for single occupational credit unions. Occupational or associational credit unions, whether single or multiple-based, will rarely be protected from an overlap by a community credit union, and only for a short time period. No overlap protection will be provided to any community chartered federal credit union.
The subcommittee has asked for our opinion on "what impact the NCUA's policy on overlapping fields of membership may have on smaller credit unions." In 1997 NCUA surveyed state credit union supervisors whose states have flexible overlap policies to try to assess the impact overlaps have on credit unions. The responses were summarized by NCUA to be:
"None of the regulators could identify any credit unions that had been harmed as a result of an overlap. On the other hand, 11 regulators indicated that in their opinion credit unions had benefited from overlaps. Two additional regulators, although they could not point to a credit union example, offered anecdotal evidence where small community banks had improved their customer services after another bank was chartered to serve the same community. In their opinion, they believed the same would be true for credit unions. A very common opinion was that credit unions are moving toward more open fields of membership, and that, ultimately, the citizens of their states benefit, or will benefit, when they have a choice of credit union services."
Small credit unions cannot be insulated from competition, whether from other credit unions or other types of financial institutions. If part or all of any credit union's membership is unhappy with any credit union's services or location, those people will merely go elsewhere for financial services. We prefer that consumer alternatives include another credit union, not just a bank.
Your letter of invitation also asked whether CUNA feels that NCUA's policy favors the addition of groups to large, local credit unions over small, local credit unions. We do not think that NCUA's policy statement affects this at all. We think a multiple group credit union, regardless of its size, that already serves a number of groups is the credit union more likely to be making application to add more groups.
The reasons for this vary. Some of these credit unions lost their original sponsor years ago, and have relied on group additions since 1982 to continue to exist. Other credit unions, more likely larger credit unions, have a staff person focusing on reaching out to groups, helping them to prepare the request letter, lining up payroll deduction, marketing, etc. NCUA is only responding to credit union applications to add groups. NCUA is not out in communities trying to line up select groups and matching them with credit unions -- nor should it be. The 1998 law certainly did not envision such a role for NCUA, and we believe that most Americans would object to any federal agency playing that kind of role in this day and age.
IV. "REASONABLE PROXIMITY" REQUIREMENTS (Questions 5 and 6)
The law states that if chartering a new credit union for a group is not practical or safe, NCUA is to "require the inclusion of the group in the field of membership of a credit union that is within reasonable proximity to the location of the group whenever practicable and consistent with reasonable standards for the safe and sound operation of the credit union" (12 USC Section 1759(f)(1)(B)). NCUA adopted a requirement that a group be within a reasonable geographic proximity of the credit union, "that is, the group must be within the service area of one of the credit union's service facilities."
NCUA defines "service facilities" as "a place where shares are accepted for members' accounts, loan applications are accepted, and loans are disbursed." These facilities will include a credit union- owned branch, a branch shared by several credit unions, a mobile branch that visits the same location at least weekly, an office operated on a regular scheduled weekly basis, or a credit union-owned electronic facility that meets the service requirements. Automated teller machines (ATMs) cannot be considered in determining a group's proximity to a credit union service facility.
The subcommittee has asked for our opinion on whether we agree with NCUA's implementation of the "reasonable proximity" provision of CUMAA. We realize that some members of Congress would have liked to have seen more specificity in defining "reasonable proximity" and would have preferred that NCUA measure proximity only to the main branch of the credit union. However, NCUA's interpretation is reasonable, and CUNA supports the requirements of IRA0S 99-1. In the past, NCUA attempted to impose a "mileage radius" definition of proximity from a credit union branch, which was overly broad for many urban credit unions and unreasonably restrictive for many rural credit unions.
The purpose of the proximity rule should be to make sure that members of the select group will have reasonable physical access to credit union services. It certainly will not matter to a member whether those services are provided at the credit union's main office, at a branch, or at some other facility that provides deposit and loan services. The mobile branches and offices open only weekly are there to provide convenience to the membership and often serve segments of the credit union's membership in lower-income areas. Measuring proximity only to main offices could serious curtail offering membership to interested groups by certain credit unions. For example, a credit union's main office might still be located inside of a restricted base, plant or office building (which supports the original core group of the credit union), even though there is a convenient branch located elsewhere in the area that could satisfactorily serve the group. Or a group's membership which is dispersed around a suburban area could be well served by a credit union with a good branch network even though the credit union's main office located downtown is inconvenient or remote to most of the group's members.
Your invitation letter raises the question of whether "NCUA has an obligation under CUMAA to place a group with the local credit union which would most benefit in terms of safety and soundness even if such credit union did not file the application." There is absolutely no statutory obligation for NCUA to take such an action, and certainly no one would want the federal government to interject itself to such a degree into what should be a market-driven, private sector business decision. Moreover, we question if any group should have to find itself unwillingly "assigned" to a credit union that may be experiencing financial problems or does not offer the services its members seek.
V. DEFINITIONS OF "FAMILY MEMBER" AND "HOUSEHOLD" (Question 7)
The subcommittee has asked for our views on NCUA's new definitions of "immediate family member" and "household." While CUMAA gave the agency the discretion to define these terms, these definitions are one of two areas of the new law that Congress asked for an opportunity to review for 60 days prior to the effective date. Unless legislation is passed, these definitions become effective March 5, 1999.
Since 1983, federal credit unions have had the flexibility to define "immediate family members" in their bylaws. CUNA would have preferred that federal credit unions retain the greater flexibility allowed prior to the passage of CUMAA, since some federal credit unions will find NCUA's new definition more limiting than their current definition of "family." Nevertheless, we support the definitions found in IRPS 99-1. "Immediate family" is defined as spouse, child, sibling, parent, grandparent, or grandchild, as well as step-relations and adopted relatives. "Household" is defined as persons living in the same residence who maintain a single economic unit.
We realize that the definition of "immediate family member" sounds very broad, but there are practical reasons for NCUA's definition. One obvious one has to do with possible co-borrower and guarantee arrangements among family members on credit union loans. Although all family members who are primarily or secondarily liable on a loan do not necessarily have to be members of the credit union, it is preferable if they are. Flexible family membership also allows saving for a common goal, such as sending a relative to college.


Federal credit unions have had the flexibility for years of having broad definitions of family members, and while there may be some extreme examples, in most cases the chain of family membership has been short. NCUA's new definition of "immediate family member" requires that the immediate family member must join before the family member of that member joins. For example, under the new rules a member's sister-in-law could nor join a federal credit union, nor could the member's niece, until the member's sibling/brother joins the credit union. Although there can be a chain of family membership in the federal credit union, once broken, extended family members cannot join. And the reality is that one single credit union will not be convenient to most extended family members.
CUNA supports NCUA's longstanding membership policy that the primary member - the person who works for the company or belongs to the association - need not join in order for the immediate family member to join. IRPS 99-1 continues this policy and is supported by CUMAA which states:
"No individual shall be eligible for membership in a credit union on the basis of the relationship of the individual to another person who is eligible for membership in the credit union, unless the individual is a member of the immediate family or household (as those terms are defined by the Board, by regulation) of the other person." (12 USC Section 1759(e)(1), emphasis added).
In the vast majority of cases, this is a theoretical issue because the primary member is the first to join the credit union, usually followed by a spouse or child.
We think that NCUA did an excellent job in defining "household" by looking at the economic relationship between people living under the same roof. This should provide the needed flexibility for these people to decide whether belonging to the same credit union allows them to better handle their finances.
VI. DEFINITION OF "WELL-DEFINED LOCAL COMMUNITY, NEIGHBORHOOD, OR RURAL DISTRICT" (Question 8)
The last area CUNA has been asked to testify on involves NCUA's new policies on evaluating geographic and population limits in chartering and expanding community credit unions. Seven percent of federally chartered credit unions are community based. If Congress had not taken such swift action to reverse the U.S. Supreme Court ruling last year, there undoubtedly would have been a major influx of community charter applications. Although we do not expect to see a tremendous number of conversion requests, the court's two-year injunction certainly had many multiple group credit unions consider the merits of converting to a community charter.
CUMAA added a new requirement that NCUA determine that the area being served is not only a "well-defined community" but also a "local community." This is the other definition that Congress classified as a major rule, subject to the 60-day Congressional review before its March 5, 1999 effective date. We think that it would be difficult for any federal agency to create a nationwide definition of "local," since the actual application of the term would vary so much depending on the facts and circumstances of the area. What is a local community in California may differ from what is a local community in Oklahoma.
The NCUA Board made clear when adopting the new community credit union provisions in December that they view CUMAA as having added restrictions on NCUA's approval of community charters. Since the agency cannot act on any community applications not already on file when CUMAA was signed into law on August 7, 1998, it is very important thadefinition become effective so that new community charter applications can be processed.
IRPS 99-1 establishes the following requirements for community charters:
* The geographic area's boundaries must be clearly defined.
* The charter applicant must establish that the area is a well-defined and local community, neighborhood, or rural area.
* The residents must have common interests or interact.
Much of the field of membership manual's section on community charters describes what documentation the applicant needs to provide to NCUA to prove that these requirements are met. CUNA supports NCUA's approach in making a presumption that a single county, city or other municipal district with a population not exceeding 300,000 constitutes a local community. We also agree with NCUA's additional presumption that multiple contiguous political jurisdictions with populations not exceeding 200,000 axe presumed to be a local community. In these cases, the applicant only needs to submit a letter describing how the area meets the standards for community interaction or common interests. NCUA makes clear that the agency can always ask for further evidence in these cases.
NCUA has based these numbers on a thorough review of community charters it has granted in the past where applicants have consistently shown those two factors result in a well-defined, local area where residents have common interests or interact. For community applications that do not fall within these criteria, the applicant has to document in detail how the people within the proposed area interact or have common interests. We are pleased that NCUA has made clear that when reviewing low-income community charter applications, the agency plans to keep the documentation burden to a minimum.
It is very important that there be an identifiable community before a community credit union is chartered or the credit union will have difficulty in attracting members, deposits, and loan applications. Neither CUNA nor NCUA wants to see any community credit union closed because of the lack of a cohesive community to serve.
CUNA would like to make one additional observation, based on a statement in the subcommittee's letter of invitation. The subcommittee noted that the Credit Union Membership Access Act "is the first major amendment to the Federal Credit Union Act since 1934." Although there have been numerous amendments to the Federal Credit Union Act over the years, in 1984 the credit union movement and NCUA urged Congress to adopt legislation to permit credit unions to capitalize the National Credit Union Share Insurance Fund by depositing 1% of their insured shares in the U.S. Treasury. This was vitally important legislation, initiated by the credit union movement, to assure that the NCUSIF was adequately funded. Unlike the pressures and problems experienced by the banking and savings and loan industries and their insurance funds in the late 1980's and early 1990's, credit unions and the NCUSIF emerged from this period stronger and better capitalized due to those major amendments adopted in 1984.


LOAD-DATE: February 4, 1999