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National Credit Union Administration
Field of Membership Rule
Last reviewed:
January 18, 2000
Last updated: January 29, 1999
In passing the Credit Union Membership Access
Act (the Act), Congress intended to foster the development of independent
credit unions. While permitting credit unions to flexibly add to their
membership bases, the Act explicitly directs the National Credit Union
Administration (NCUA) the credit unions' federal regulator to "encourage"
the creation of separately chartered credit unions whenever practicable.
It also largely prohibits multiple common bond federal credit unions from
adding new groups with more than 3,000 members. In addition, Congress
required that when a group is added to existing credit unions, the credit
union be within "reasonable proximity" to the new group, and that
community credit unions be "local" in nature.
The effect of all of
these Congressional mandates was to encourage the development of small,
locally-based institutions that preserve the very nature of credit unions.
NCUA has completely ignored this statutory directive and the Congress in
the agency's recent "field of membership" rule. The Chairman of the NCUA,
Norman D'Amours, also believes the rule is biased against small credit
unions and voted against it.
The NCUA's rule actively discourages
the formation of small credit unions, promoting the creation of large,
bank-like organizations. This will hurt the ability of small credit unions
to compete with their large brethren, and also will damage community
banks' ability to compete. The creation of more large credit unions which
benefit from huge federal and state tax subsidies only makes it more
difficult for small credit unions and community banks to
survive.
In numerous ways, the NCUA rule has ignored the
requirements of the Act and Congressional intent.
Formation of
New Credit Unions
The Act: Encourages the creation of
separately chartered credit unions whenever practicable, for any size
group.
NCUA Rule: Discourages creation of separately
chartered credit unions by presuming that groups of fewer than 3,000
persons cannot form an economically viable credit union. Even today there
are nearly 5,000 viable credit unions with 3,000 or fewer potential
members.
Limiting Size of Groups added to Multiple Common Bond
Credit Unions
The Act: With limited exceptions,
requires that only groups of fewer than 3,000 persons may be
eligible for inclusion in a multiple common bond credit
union.
NCUA Rule: Creates a presumption that, at a
minimum, a group must have at least 3,000 members to form its
own economically viable credit union. Thus, NCUA makes the
Congressionally-mandated ceiling into a floor.
Limiting
Geographic Boundaries of Multiple Common Bond Credit
Unions
The Act: When a group is to be added to a
multiple common bond federal credit union, the credit union must be within
"reasonable proximity" to the group.
NCUA Rule: Requires
that any groups added to a credit union be within the service area of the
credit union's service facilities, and vastly expands the definition of
"service facility" to include credit union-owned branches, shared branches
and electronic facilities (other than an ATM). Thus a large credit union
can bootstrap itself into being in "reasonable proximity" to virtually any
group by establishing facilities in very remote and far-flung locations.
This is a major departure from the historic understanding of "service
facility" and from NCUA's previous definition, and it makes a mockery of
the "reasonable proximity" requirement.
Limiting Community
Credit Unions to a "Local" Market
The Act: Limits the
scope of a community credit union's membership to those "within a
well-defined local community, neighborhood, or rural district." The
previous definition did not include the word "local." Congress added a
geographic limit to the meaning of community, intending to limit the broad
reach of community credit unions.
NCUA Rule: Has no
objective, measurable criteria establishing what is a "local" community.
The rule sets forth a presumption 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 vast geographic areas to be
considered "local," particularly in rural areas. Aside from that
presumption, which in itself is an absurd stretch of the term "local,"
there are no absolute size or geographic limits for community
credit unions.
Limiting Membership Eligibility to Immediate
Family and Household Members
The Act: Requires NCUA to
define the term "immediate family or household," so as to provide
certainty as to the individuals eligible to join credit unions based on
their familial relationships.
NCUA Rule: Permits such
individuals to join credit unions based on the mere eligibility of a
primary member, and permits "immediate family members" of "immediate
family" and "household" members to join, thus creating a possibly
never-ending chain of individuals eligible to join a credit union. For
example, six individuals sharing a group house could be eligible for
membership in a credit union based on the eligibility of one of the
individuals. Then, all of the immediate family members of any of those six
persons who join also could join, and on and on and
on.
Conclusion
NCUA has once again demonstrated its
willingness to ignore statutory constraints and act as a cheerleader for
an industry it is charged with regulating. The NCUA's promotion of the
formation of large credit unions to the detriment of smaller credit unions
and community banks can only lead to problems for the credit union
industry and the communities intended by Congress to be served by credit
unions.
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