SECTION: IN THE NEWS

LENGTH: 6000 words

HEADLINE: PREPARED STATEMENT OF
HARLEY D. BERGMEYER
AMERICAN BANKERS ASSOCIATION
BEFORE THE HOUSE BANKING AND FINANCIAL SERVICES COMMITTEE
FINANCIAL INSTITUTIONS AND CONSUMER CREDIT SUBCOMMITTEE

BODY:

SUMMARY STATEMENT
Madam Chairwoman, I am Harley Bergmeyer, Chairman, President and CEO of Saline State Bank in Wilber, Nebraska. I am Treasurer of the American Bankers Association (ABA), and Chairman of the ABA's Credit Union Advisory Group. The ABA brings together all elements of the banking community to best represent the interests of this rapidly changing industry. Its membership - which includes community, regional, and money center banks and holding companies, as well as savings associations, trust companies, and savings banks- makes ABA the largest banking trade association in the country.
I would like to thank you, Madam Chairwoman, for holding this timely hearing. We totally agree with your and Rep. LaFalce's recent comments that the NCUA rule ignores both the letter of the law and the intent of Congress. These perspectives carry considerable weight, as you, Madam Chairwoman, and Rep. LaFalce were instrumental in drafting the House credit union language which formed the basis for the final law. ABA members felt so strongly that NCUA has blatantly disregarded the law that we had no choice but to challenge the legality of the rule in court.
- Rather than fostering the formation of small, independent credit unions - as Congress intended - NCUA's rule is biased towards large, multiple group credit unions;
- Rather than fostering cohesive, locally based credit unions - as Congress intended - NCUA's rule promotes geographically expansive credit unions; and
- Rather than providing a reasonable definition of "immediate family member" - as Congress intended - NCUA's rule could result in virtually inflate fields of membership.
It is not our intention to reopen last year's Congressional debate through the courts, as some have suggested. ABA strongly opposed the credit union bill became we felt it was too broad, particularly given the tax-subsidy and regulatory advantages enjoyed by credit unions. We understand that even if the courts rule in our favor, multiple bonds will be permitted. However, we could not just stand idly by while NCUA' promulgates regulations biased toward ever-larger credit unions. We believe the Court is likely to find NCUA violated the statute in this new suit, just as it did in our previous law suit.
At the heart of this issue is a critical question: Are credit unions meant to be locally-controlled institutions, or are they meant to be large, geographically broad institutions, often controlling billions of dollars in assets? It seems obvious that Congress sent a clear signal to protect and nurture smaller credit unions.NCUA's rule, however, stands the law on its head. The new regulation is permeated with a bias against smaller credit unions and in favor of the continued expansion of the larger ones. There is a critical difference of philosophy here between many small and large credit unions; we strongly believe Congress came down on one side - to foster smaller credit unions.
Today, I will only address the field of membership rule. But there are other important regulatory decisions that NCUA is in the process of making. In particular, we believe that NCUA's rule has also overstepped the intent of Congress on business lending. We urge this Subcommittee to continue its oversight of the role-making process as it unfolds.
NCUA's Rule Discourages the Formation of Separate Credit Unions
The statute requires NCUA to "encourage the formation of separately chartered credit unions." NCUA's rule fails to meet this requirement. For example, NCUA's role presumes that groups with fewer than 3,000 persons cannot form an economically viable credit union. The facts do not support NCUA's presumption - there are thousands of healthy small credit unions. However, NCUA makes small groups jump through more regulatory hoops than large groups to show that they will be viable.
NCUA's rule also creates incentives to join a large credit union rather than start one on their own by virtually guaranteeing approval of the combination. Simply put, this rule tells large credit unions to get bigger and it tells small groups wishing to form their own credit union not to bother.
NCUA's role also ignores the 3,000 person limit for joining a multiple-bond credit union. The law requires large groups to form their own credit union except under special circumstances related to safety and soundness. NCUA role, however, makes exceptions for large groups that simply choose to not to go it alone. Bottom line: NCUA's rule blows the 3,000 limit right out of the water.
Congress said that new groups added to an existing credit union must be within "reasonable proximity" to the location of the group. This was clearly intended to maintain a credit union's local orientation. NCUA's rule effectively nullifies this limitation. It would allow a large credit union to bootstrap itself into being within "reasonable proximity" to practically any group by establishing or sharing facilities in far-flung locations.
NCUA's Rule Ignores the Concept of "Local" for Community Credit Unions
My second point is that Congress added the word "local" in order to limit the geographic area of community credit unions. But, NCUA's rule fails to impose any real limitation. Instead, the rule simply presumes that a single county with fewer than 300,000 persons or multiple contiguous counties with fewer than 200,000 persons are "local".
These assumptions are patently absurd. In my state of Nebraska, you could put 46 counties together without reaching 200,000 people. This "community" would cover 44,452 square miles -more than five times the size of the state of New Jersey, and some 58 percent of the state of Nebraska. Is this a community? Of course not! And yet it would presumptively qualify as one.
To add insult to injury, the rule accommodates community charters in excess of the population thresholds since NCUA sets no objective standards to judge these communities.
NCUA's Rule Goes Beyond Reasonable Bounds in Defining Membership Eligibility Based on Family and Household Relationships
The Act requires NCUA to define the term "immediate family or household" to determine membership eligibility. Prior to this statutory requirement, NCUA left the definition to the discretion of each individual credit union, leading to inconsistent and often outrageous interpretations of"immediate family member". By requiring that NCUA establish a definition, Congress clearly contemplated a tight, objective standard that promotes uniformity and consistency for all credit unions.
NCUA's rule, however, falls far short of that goal. First, the person belonging to a common bond group is not required to actually be a member of the credit union - they just need to be eligible to be one - in order for an immediate family or household member to join.
Second, the rule creates the possibility of a never-ending chain of individuals eligible to join a credit union, so that a credit union's field of membership could be virtually infinite. For example, six individuals sharing a group house could be eligible for membership in a credit union based on the eligibility of one individual in the group. Then all of the immediate family members of any of those six persons who join could also join, and on and on and on. We do not believe Congress intended that there be virtually no restraints on a credit union's field of membership.
The definition of "immediate family or household member" was designated as a major rule in the law, and we urge Congress to review its reasonableness and its impact on other financial institutions before its effective date. We also recommend that NCUA establish a mechanism for ensuring that credit unions comply with the rule.
Conclusion
Madam Chairwoman, the Act and its extensive legislative history make it clear that Congress intended to encourage the chartering of separate credit unions whenever practicable, and that credit unions retain a local character. The NCUA has chosen to disregard the law. The fact is that a strong bias toward ever-larger credit unions and ever-expanding membership is woven throughout the fabric of NCUA's field of membership role.
We appreciate this Subcommittee looking into these important issues. We hope that you will take whatever action is necessary to correct the deficiencies in NCUA's field of membership rule, and that you will continue to closely monitor the implementation of the remaining provisions of these important issues. We hope that you will take whatever action is necessary to correct the deficiencies in NCUA's field of membership rule, and that you will continue to closely monitor the implementation of the remaining provisions of the Act.
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Madam Chairwoman, I am Harley Bergmeyer, Chairman, President and CEO of Saline State Bank in Wilber, Nebraska. I am Treasurer of the American Bankers Association (ABA), and Chairman of the ABA's Credit Union Advisory Group. The ABA brings together all elements of the banking community to best represent the interests of this rapidly changing industry. Its membership - which includes community, regional, and money center banks and holding companies, as well as savings associations, trust companies, and savings banks - makes ABA the largest banking trade association in the country.
I would like to thank you, Madam Chairwoman, for holding this timely hearing to review the rule recently issued by the National Credit Union Administration (NCUA) implementing the field of membership provisions of the Credit Union Membership Access Act ("Act"). We believe that Congressional oversight of the rule is vital to assure that Congressional intent is respected. In fact, Congress anticipated the need for this by providing a specific 60-day review period for two of the major provisions under the Act.
Madam Chairwoman, we totally agree with your recent comment that the rule ignores both the letter of the law and the clear intent of Congress. Mr. LaFalce has voiced similar objections regarding the rule, characterizing NCUA's actions as a deliberate repudiation of Congressional intent. These perspectives carry considerable weight, as you, Madam Chairwoman, and Rep. LaFalce were instrumental in drafting the House credit union language which formed the basis for the final law. And you are not alone in your criticisms. Even NCUA Chairman D'Amours voted against the field of membership rule, stating: "...I cannot support a bill that...makes it harder rather than easier for credit unions with fewer than 3,000 members to form their own credit unions as I think we're required to do by the legislation".
We felt so strongly that NCUA has blatantly disregarded the law that we had no choice but to challenge the legality of the rule in court. Rather than fostering the formation of small, independent credit unions - as Congress intended- NCUA's rule is biased towards large, multiple-group credit unions. Rather than fostering cohesive, locally based community credit unions - as Congress intended - NCUA's rule promotes geographically expansive credit unions. And rather than providing a reasonable definition of "immediate family member" - as Congress intended- NCUA's rule could result in virtually infinite fields of membership.
Of course, this is not the first time we have sued NCUA. While our last suit took eight years to resolve (much of the time focused on the question of "standing to sue"), we won the case on the merits: the courts found that NCUA had violated the law in permitting multiple common bond credit unions. In fact, NCUA's violation was so clear that all five Supreme Court Justices who voted on the merits ruled against NCUA's interpretation, agreeing with the ruling of one District Court and both Courts of Appeals.
Now, we are back in court because NCUA has once again disregarded the language of a statute and clear Congressional intent in drafting its field of membership rule. Apparently, even the liberal provisions in last year's legislation are not enough for their regulator and some in the credit union industry.
It is not our intention to reopen last year's Congressional debate through the courts, as some have suggested. ABA strongly opposed the credit union bill because we felt it was too broad, particularly given the tax-subsidy and regulatory advantages enjoyed by credit unions. We understand that even if the courts rule in our favor, multiple bonds will be permitted. However, we could not just stand idly by while NCUA promulgates regulations biased toward ever-larger credit unions. We believe the Court is likely to find NCUA violated the statute in this new suit, just as it did in our previous law suit.
At the heart of this issue is a critical question: Are credit unions meant to be locally-controlled institutions, or are they meant to be large, geographically broad institutions, often controlling billions of dollars in assets? While last year's legislation was certainly broader than we would have liked, it seems obvious that Congress sent a clear signal that it wanted to protect and nurture smaller credit unions. It did not intend to encourage the rapid growth of larger credit unions at the expense of smaller ones.
This question is very important for smaller credit unions. Having seen their membership increasingly swallowed-up by the larger credit unions, many small credit unions recognize the potential impact of NCUA's biased rule. For example, Sabine School Employees Credit Union in Louisiana said in its comment letter: "If NCUA drafts policies that allow small credit unions to become the prey of larger ones, it has violated the spirit of the credit union movement." Or take the Irondequoit Federal Credit Union in Rochester, NY, which wrote in its comment letter to NCUA: "Apparently NCUA has forgotten their beginnings and what credit unions were meant to be. They are allowing credit unions to get so large..."
Simply put, NCUA's rule stands the law and Congressional intent on its head. The new regulation is permeated with a bias against smaller credit unions and in favor of the continued expansion of the larger ones. There is a critical difference of philosophy here between many small and large credit unions, but we strongly believe Congress came down on one side - to foster smaller credit unions. At least two members of the NCUA Board and both major credit union trade associations apparently came down on the other side.
Last year, this Subcommittee set up a straight-forward approach to multiple-bond and community credit unions, which was incorporated in the final law. This approach was predicated on three inter-related concepts, each designed to give preference to smaller, locally controlled credit unions. First, NCUA should encourage single common bond credit unions whenever possible. To strengthen this directive, Congress permitted only groups with fewer than 3,000 to join another credit union except under prescribed extenuating circumstances. Second, if a new common bond were, in fact, added to an existing credit union, the combination should be with a credit union located within reasonable proximity. Third, the word "local" was added to the standard for community credit unions.

Despite these clear directives from Congress, NCUA's rule disregards this preference for smaller, locally-controlled credit unions, and is biased toward large credit unions, whether local or not.
Madam Chairwoman, attached to this testimony is ABA's comment letter to NCUA which presents a detailed analysis of the conflicts between what the law requires and what NCUA's rule does. Also attached are the Memorandum of Law and Reply Memorandum from ABA's recently filed law suit.
My statement today will focus on three key points:
- NCUA's rule discourages the chartering of separate credit unions;
- NCUA's rule ignores the concept of "local" for community credit unions; and
- NCUA's rule goes far beyond reasonable bounds in defining eligibility to join credit unions based on family and household relationships.
In addition to the field of membership rule, Madam Chairwoman, there are other issues that deserve consideration and thorough review by Congress. Last week, we filed a comment letter on NCUA's interim final rule on business lending by credit unions, and I have attached that letter to this statement. We believe this rule also attempts to circumvent the intent of Congress that credit unions should not be involved extensively in business lending. We urge this Subcommittee to continue its oversight of the rule-making process as it unfolds to ensure that Congressional intent is not ignored.
NCUA's Rule Discourages the Formation of Separate Credit Unions
The statute requires NCUA to "encourage the formation of separately chartered credit unions." This mandate is also very clear from the legislative history. In fact, both the explicit wording of the statute and the legislative history make clear that:
- in all cases, including those involving groups of fewer than 3,000 persons, NCUA must encourage the formation of separately chartered credit unions whenever practicable;
- with limited exceptions, only groups of fewer than 3,000 persons shall be eligible for inclusion in the field of membership of a multiple common bond credit union;
- the exception that permits groups of greater than 3,000 persons to be added to a multiple common bond credit union is to have limited applicability, and be subject to very specific criteria established by NCUA; and
- any group to be included in the field of membership of another credit union must be added to a credit union within "reasonable proximity" to the group.
NCUA's rule fails to meet any of these statutory requirements. The rule effectively discourages the formation of separate credit unions, especially for groups of fewer than 3,000 persons; provides virtually no specific objective criteria by which to evaluate the need for groups of greater than 3,000 to join a multiple common bond credit union; and makes a mockery of the "reasonable proximity" requirement.
Groups With Fewer Than 3,000 Persons
NCUA's rule virtually forecloses any groups of fewer than 3,000 persons from being chartered as separate credit unions. The rule simply presumes that groups with fewer than 3,000 persons cannot form an economically viable credit union. If such a group wants to establish a separate credit union, it is required to provide significant documentation that it will be successful - a burden of proof much higher than what is required of a larger group. This obviously biases the decision of smaller groups in favor of simply joining an already established large credit union.
Even NCUA Chairman Norman D'Amours objected to this provision of the rule stating that it would be "devastating" to small credit unions. He said: "Congress intended the 3,000 to be a ceiling. We are establishing it as a floor. (This is) in direct violation of what Congress told us to do ....We are asking credit unions with 3,000 or less to do extra work."
By discouraging small groups from forming separate credit unions, the rule directly contradicts Congressional intent. To illustrate, the House Report (page 20) specifically states:
"(T)he 3,000 member figure is not intended to indicate that groups below 3,000 are incapable of forming new, viable credit unions. To the contrary, over 3,300 credit unions have less than $2 million in assets and average just 700 members."
These credit unions are profitable and adequately capitalized, and have been in existence for years. Clearly, the facts do not support NCUA's presumption that groups with fewer than 3,000 people are not viable. NCUA's rule is also biased against the formation of small credit unions in another way - it states flat out that groups of fewer than 3,000 persons will be approved in almost all instances for inclusion in a multiple common bond credit union's field of membership.
This combination - making it difficult to form a separate credit union and easy to join a large multiple-bond credit union - biases the system against new small charters. Simply put, this rule tells large credit unions to get bigger and it tells small groups wishing to form their own credit union not to bother.
Groups With Greater Than 3,000 Persons
NCUA's role also fails to meet the requirements of the Act and the intent of Congress with respect to the ability of groups with greater than 3,000 persons to join a multiple-bond credit union. The 3,000 limit was devised so that groups above the limit would always form their own credit union except under extraordinary circumstances related directly to safety and soundness concerns. The legislative history suggests that the exception is to be interpreted very narrowly and only in accordance with guidelines and regulations issued by NCUA.
However, no clear and objective guidelines that would provide for certainty and consistency of application were included in NCUA's rule. Without objective criteria, the 3,000 person limitation contained in the statute is rendered meaningless. In fact, the rule allows NCUA to consider - as the most important factor - whether a new group wants to form a separately chartered group. This means that simply presenting a letter to NCUA stating that the group does not wish to form a new credit union justifies an exception to the statute's 3,000 member limit. Allowing groups with over 3,000 members to qualify themselves for membership in a multiple common bond credit union with the simple assertion that they would rather not have a separate charter would, in effect, reinstate NCUA's policy before the Supreme Court's decision. This is the very policy Congress rejected when it adopted the 3,000 member limit.
To add insult to injury, NCUA's rule contains no provision for public notification of such applications, leaving the door wide open for "self-certification" by applicants and "abuse of discretion" by the agency. To be blunt, NCUA has, as a practical matter, read the 3,000 person limit, with its purpose of promoting locally-controlled credit unions, right out of the law.
Reasonable Proximity
Lastly, Congress said that when any group is added to a multiple-bond credit union, the new group must be added to the field of membership of a credit union that is within "reasonable proximity" to the location of the group. This was clearly intended to be a limitation on additions to multiple-bond credit unions, and to maintain a credit union's local orientation. NCUA's rule effectively nullifies this limitation - the rule defines "reasonable proximity" by reference to a credit union's "service facility" and at the same time it vastly expands the definition of a service facility from what had been in effect. This is in direct contradiction to both the House and Senate Reports which make it very clear Congress did not intend NCUA to alter its definition of service facility.
Under the new definition, rather than meaning a place where a member can meet directly with a credit union representative, a service facility also includes shared branches and electronic service facilities. This is a major departure from NCUA's earlier definition.

It would allow a large credit union to bootstrap itself into being within "reasonable proximity" to practically any group by establishing facilities, or merely sharing facilities, in far-flung locations. An out-of-state credit union can make itself eligible to swallow up local common bonds virtually anywhere through this bootstrapping process. Simply put, NCUA's rule would permit almost unlimited credit union service areas and thus create almost unlimited potential to expand fields of membership.
The Impact of NCUA's Rule
There is no doubt that the NCUA's rule on field of membership will have a huge impact on the structure of the credit union industry. With a clear bias toward big institutions, the rule will reinforce and expedite the existing movement toward the creation of large credit unions.
As the charts below show, since the NCUA began approving multiple bond credit unions in 1982, there has been a trend toward fewer but much larger institutions. In 1982, there were 16,400 insured credit unions; today there are fewer than 11,250. The percentage of industry assets controlled by credit unions with $100 million or more in assets has jumped from 19 percent in 1982 to 64 percent today.
Under the new field of membership rule, large credit union conglomerates will likely become the norm. The President of Notre Dame Waterville FCU in Maine, in a comment letter to NCUA, put it this way: "Using 3,000 as a minimum threshold for the formation of a new credit union will hamper the formation of the smaller credit union as well as encourage larger credit unions to expand unnecessarily."
Asset Share by Size of Institution
(NOTE: CHART NOT TRANSMITTABLE)
Number of Credit Unions (Thousands)
(NOTE: CHART NOT TRANSMITTABLE)
NCUA's Rule Ignores the Concept of "Local" for Community Credit Unions Congress added the word "local" to the already existing term "well- defined" in describing the permissible membership for a community credit union. The law now states that community credit unions be comprised of a "well-defined local community, neighborhood, or rural district." The intent of this language was to impose finite and narrow limits on the geographic area that can be served by a community credit union.
It should be noted that even before the addition of the word "local," membership in a community credit union was limited to a "well-defined community, neighborhood or rural district." Clearly, by aliening the term "community" with "neighborhood or rural district," even the prior law intended that "community" be interpreted as narrow and local - neighbors who know and interact with each other.
Instead, NCUA leapt over the concept of small and cohesive credit unions and went straight to large, geographically-broad community charters. In fact, in spite of the changing laws, NCUA continued its march to ever-larger credit unions. Just last Thursday, NCUA approved one expansion of and three conversions to community charters, the smallest of which has a potential memberships of 422,000 and one which has a potential membership of one million.
With this expansion-driven mindset, it's no wonder that the new rule places no effective limitations on community credit unions. But this directly conflicts with Congressional intent. Simply put, it is clear that Congress added the word "local" in order to be more limiting than the prior law.
A colloquy between Senator Bennett (a member of the Senate Banking Committee) and Senator D'Amato (then Chairman of the Committee) drives that point home.1 Senator Bennett, in expressing his concern over the way that the NCUA would "design their regulations dealing with the size and scope of community credit unions," queried Chairman D'Amato about the necessity for an amendment Senator Bennett intended to offer.
Senator Bennett stated: "Although I had initially intended to offer an amendment limiting the size of a federally-chartered community credit union to three or four contiguous census tracts, after discussing the matter with the Chairman I decided that my amendment would be unnecessary. (Emphasis added)
Chairman D'Amato responded: "The Senator is quite correct when he states that his amendment would be unnecessary. The Banking Committee was very careful and direct in its instructions to the NCUA .... The Committee intends for the NCUA to limit federally-chartered community credit unions to be subject to well-defined, local, geographic expansion limits." (Emphasis added)
 
Senator Bennett then concludes: "I thank the Chairman for his clarification on this issue .... I am satisfied by the Committee's report and by the remarks of the Chairman that such an amendment would be redundant and unnecessary."
This colloquy demonstrates that in adopting the change to the community charter definition and including the term "local", Congress intended the permissible membership of a community credit union to be confined to a narrow geographic area - no greater than three or four contiguous census tracts. So, clearly the addition of the term "local" was meant to force NCUA, in adopting its regulations, to truly limit the geographic area of such credit unions. As discussed below, NCUA's proposed rule for all practical purposes has made the addition of the term "local" mere surplusage.
To meet the requirements of the statute - that there be a "well- defined local community, neighborhood, or rural district" - there must be very objective and quantitative standards set by NCUA. Then, groups wishing to charter a community credit union or convert to a community charter should be required to provide detailed support that those objective standards will be met. Also, there should be public notice of such applications and a mechanism for public comment on any credit union seeking a community charter. Objective, measurable standards and the opportunity for public comment on whether the proposed credit union meets those standards are essential to ensuring that a community credit union is truly "local" in nature.
However, NCUA's rule does just the opposite- it does not specify any meaningful criteria for determining whether a credit union will serve a well-defined local community. In fact, it creates more expansive membership criteria than the prior regulation. For example, the prior rule required "interaction" among individuals to qualify as a "community" for a community credit union. The rule now adds another option, requiring that individuals demonstrate either interaction or "common interest." So instead of tightening the definition of community, as Congress clearly intended, NCUA gives the word community a new, additional meaning.
NCUA's rule fails to impose any real limitation on community credit unions, either by geographic boundaries or population size. Instead, NCUA's rule simply presumes that a single county with fewer than 300,000 persons or multiple contiguous counties with fewer than 200,000 persons are "local". This allows for huge geographic areas to be considered "local," particularly in rural areas.
The presumption that counties with fewer than 300,000 persons or contiguous counties with fewer than 200,000 persons meet the definition of "well-defined" and "local" is patently absurd. According to census data, there are only 65 (.3%) incorporated places out of 19,314 in the United States with populations in excess of 250,000. (There are over 18,000 incorporated places with populations below 25,000 people.) The point is that according to NCUA's definition, more than 99.7 percent of the incorporated places in the country would automatically qualify for a community credit union charter. In my state of Nebraska, you could put 46 counties together without reaching 200,000 people. This "community" would cover 44,452 square miles - more than five times the size of the state of New Jersey, and some 58 percent of the state of Nebraska. Is this a community? Of course not! And yet it would presumptively qualify as one under NCUA's rule.
Those areas outside of the presumptive communities created by the rule have to provide greater evidence to demonstrate that they are "well- defined" and "local." But here again, the rule provides no objective criteria against which to make such a judgment.

The rule states: "It is more difficult for a major metropolitan city, a densely populated county, or an area covering multiple counties with significant population to have sufficient interaction and/or common interests, and to therefore demonstrate that these areas meet the requirement of being 'local.'" (Emphasis added) It then goes on to say that, in such cases there is a greater burden to prove "interaction" and/or "common interest" - terms which are themselves not defined in the rule. Simply put, no geographic size area and no population size is ruled out - all are fair game, subject only to NCUA's discretion.
By imposing no real limits, we believe that the community charter rule obliterates any "meaningful affinity and bond among members." This directly contradicts the intent and purpose of the law. Moreover, the rule creates an environment in which smaller credit unions are likely to be seriously disadvantaged in the future. In many cases, small credit unions will face enormous difficulty competing with the larger community based credit unions in offering services to their members.
Because the community credit union rule was designated as a major rule in the statute, we encourage Congress to carefully review its reasonableness and its impact on other financial institutions before its effective date.
NCUA's Rule Goes Beyond Reasonable Bounds in Defining Membership Eligibility Based on Family and Household Relationships
The Act requires NCUA to define the term "immediate family or household" to determine membership eligibility based on a family member's membership in a credit union. Prior to this statutory requirement, NCUA left the definition to the discretion of each individual credit union, leading to inconsistent and often outrageous interpretations of "immediate family member". By requiting that NCUA establish a definition, Congress clearly contemplated a tight, objective standard that promotes uniformity and consistency of application across all credit unions.
NCUA's rule, however, falls far short of that goal. First, it allows family and household members to join a credit union based on the mere eligibility of the primary member. In other words, the person belonging to a common bond group is not required to actually be a member of the credit union - he or she only has to be eligible to join in order for an immediate family or household member to join. Second, the rule allows "immediate family members" of "immediate family" and "household members" to join. For example, six individuals sharing a group house could be eligible for membership in a credit union based on the eligibility of one individual in the group. Then all of the immediate family members of any of those six persons who join could also join, and on and on and on. Simply put, this rule creates the possibility of a never-ending chain of individuals eligible to join a credit union, so that a credit union's field of membership could be virtually infinite. We do not believe Congress intended that there be virtually no restraints on a credit union's field of membership, particularly in light of the huge tax-subsidy that credit unions enjoy.
The definition of "immediate family or household member" was designated as a major rule in the statute, and we encourage Congress to carefully review its reasonableness and its impact on other financial institutions before its effective date. We also recommend that NCUA establish a mechanism for ensuring that credit unions comply with the rule. The fact that NCUA has no mechanism to ensure compliance with the rule indicates its has no intention to provide reasonable limits on credit union growth as the law requires.
Conclusion
Madam Chairwoman, the Act and its extensive legislative history make it clear that Congress intended to encourage the chartering of separate credit unions whenever practicable, and that credit unions retain a local character. The NCUA has chosen to disregard the law. The fact is that a strong bias toward ever-larger credit unions and ever-expanding membership is woven throughout the fabric of NCUA's field of membership rule.
We appreciate this Subcommittee looking into these important issues. We hope that you will take whatever action is necessary to correct the deficiencies in NCUA's field of membership rule, and that you will continue to closely monitor the implementation of the remaining provisions of the Act.
*****FOOTNOTES*****
1 See Congressional Record of November 12, 1998, page S1003.
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LOAD-DATE: February 4, 1999