Orlando World Marriott
Orlando, Florida
December 11, 2002
It is an honor to be with you at the Credit Union Executive Society’s 2002 Directors Conference here in Orlando. My respect for CUES as one of the premier sources for quality credit union executive and director training is quite high, and I commend you for being here over these several days to learn more about the changing financial marketplace in which your credit unions operate and to enhance your abilities as directors with fiduciary responsibilities for multi-million dollar institutions. In this post-Enron, post-WorldCom era requiring greater corporate responsibility from those at the highest policy making levels of businesses of all types and sizes, credit union directors are wise to continue to hone your skills as policy makers whenever it is possible to do so.
President Reagan said often about dealing with the Soviets in the Cold War era that, when evaluating their performance under bi-lateral agreements, his position was to “trust, but verify.”
I believe this must be your position in relation to the credit union executives and managers who you select to carry out your policies. You should trust their leadership and their management of your credit unions. You should make policy and not interfere in the day-to-day management. If you do not have the type of trust to where you can make the policies and then get out to the way as they implement those policies, then you should do whatever is necessary to establish that level of trust. However, though you must trust your management team to lead your organization on a day-to-day basis, you must also verify their performance in carrying out the policies of the Board and in responding to the needs of the membership within the bounds of applicable laws, rules, regulations and the overriding principle of safety and soundness.
Accountability requires both trust and verification.
Although there are some who see a great gulf between credit union volunteers and credit union management, I have never seen that gulf. In fact, with my experience as a former credit union CEO working with a committed and dedicated Board which not only demonstrated their confidence in my leadership abilities by hiring me as their CEO but who also taught me the principles of the credit union movement, I am convinced that the credit union movement has been blessed over the decades with impressive and outstanding leadership in both its volunteer leadership and its professional leadership.
Together you have built the safest, soundest and most responsive financial institutions in America, in my opinion. And today I commend you for your leadership at your credit union and in the credit union movement as a whole which has helped to produce record levels of net worth, stronger financial performance, more member services reaching more Americans from all walks of life, and over 80 million Americans who are turning to their credit unions daily for helping them deal with their family’s financial issues and to seize upon their family’s financial opportunities.
I want to also say what an honor it is as a former credit union CEO, having
come from the same trenches of credit union member service that you come from,
to address you today as the Chairman of the National Credit Union Administration
Board. Thank you again for what you do and what you mean to the credit union
movement.
As most of you know, I was appointed by President Bush last year to chair
the NCUA Board after serving over three years as an NCUA Board Member.
I believe that the designation of a new NCUA Chairman, having been signed by the President on September 13, 2001, only two days after the most horrific attack in our nation’s history on civilians in our homeland, is significant for several reasons which, although I consider it one of the highlights of my professional and political career, have less to do with me and more to do with America’s credit unions.
The appointment of a new NCUA Chairman two days after this national tragedy was, in my opinion, an indication of the coming of age of credit unions, both strategically and in recognition by America’s decision-makers at the highest levels of the value of credit union service and the role credit unions play in the nation’s economy (and can play in the future). This appointment was one of a handful President Bush made in the days immediately after September 11 to make a statement that the nation’s economy was strong and would emerge from the uncertainty of those days stronger than ever, that steady hands were in charge of the regulatory agencies overseeing America’s financial institutions and that credit unions would be a part of the re-building of public confidence in our future and greatness as a nation.
Today, I come before you as Chairman to talk about that future and to declare that the future of America’s credit unions is bright.
In a marketplace which is both dynamic and demanding, credit unions have a place that is both historically founded but with great promise for tomorrow. As the Chairman of the regulatory agency responsible for monitoring and ensuring the safety and soundness of each of you as federal credit unions, I want to talk with you today about both that dynamic marketplace and safety and soundness…for I do not know how we can talk about one without the other.
The future of visionary and innovative credit unions to meet the growing needs and demands of their members in a dynamic marketplace is built upon a foundation of safety and soundness. Yet, on the other side of the same coin, the future safety and soundness of America’s credit unions is built upon their ability to adjust to that dynamic marketplace by providing visionary and innovative service. The two cannot be separated.
That is why I have long said that NCUA as a regulator cannot separate our safety and soundness responsibilities from the need to create a regulatory environment which empowers strongly-capitalized credit unions with solid management performance to grow in both the way you deliver your services to your members but also in the number of members who have access to your services. If we do not enable credit unions to remain viable through planned and well-managed growth, we will doom those credit unions to falling so far behind in a rapidly changing market that they may never catch up. The most significant potential safety and soundness threat to any financial institution in today’s marketplace would be the inability to adjust to the changing needs of that marketplace. It has been my goal as an NCUA Board Member since 1997 and will remain my goal for the remainder of my tenure as Chairman to make sure credit unions are as safe and sound as their members deserve and as effective in meeting their needs for low-cost financial services as their members demand.
As always, there are statutory considerations and even restraints that we must abide by in pursuing this goal. But, within the confines of the law, we must empower credit unions to meet the ever growing and emerging needs of your members in not only today’s marketplace, but in tomorrow’s as well.
We have attempted over the past two years to put in place initiatives at the federal level designed to create a regulatory environment conducive to the long term needs of federal credit unions and their members…some for growth, others to remain small with a more specialized market…some for additional services where the law allows and others to remain with a smaller array of services with an emphasis on quality and not quantity…some for the ability to offer their longstanding services in more technologically advanced ways and others to have the regulatory flexibility to enhance their technology not now, but down the line when it is financially right for them.
Included in our ways to accomplish these goals have been our passage of the RegFlex initiative, the revised Incidental Powers rule, expanded CUSO and corporate credit union authority, a Prompt Corrective Action rule which is realistic but also which maintains the integrity of the safety and soundness basis upon which it is built, our risk-based examination scheduling and a risk-focused exam program, proposals recently out for comment which are designed to address credit union investment authority and international branching in a way which enables credit unions to serve better even as they serve more safely.
These initiatives must and, I hope, will continue. Where the statute allows, as Chairman I intend to continue to encourage the NCUA Board to enable credit unions to extend their services in more innovative ways to more members in my belief that this will result in more folks from all walks of life having access to lower-cost financial services and more long term viability of credit unions as safe and sound not-for-profit financial cooperatives filling your niche in a marketplace that needs, yes, needs the not-for-profit sector to be viable and growing. I believe that this NCUA Board is not only up to that challenge, but is looking forward to it.
It is virtually impossible for anyone to achieve the American dream of financial independence if his or her primary financial institution is a pawn shop, title loan company or check cashing outlet.
Financial self-sufficiency is often demonstrated by such recognized indicators as a savings account available to help meet future needs such as college for the kids, medical costs or retirement; ability to access entrepreneurial capital for a small start-up business if needed; ready access to personal credit for a vehicle, appliances or other high-dollar necessities; and home ownership. By these measures, financial independence for America’s over 90 million ‘unbanked’ or ‘underserved’ individuals is indeed an elusive goal which they might never meet without a partner. Credit unions can be that partner for many of these Americans in their goal for personal empowerment through financial self-sufficiency.
Believing that credit unions can be a part of the solution to this growing need in our country, NCUA has developed an initiative we call ‘Access Across America’ which is designed to facilitate the extension of low-cost credit union services to millions of these citizens. The initiative is already showing tremendous results with a growing interest being expressed daily by credit unions, the neighborhoods which need their services and others who are watching what credit unions are accomplishing through this initiative.
Access Across America speaks to the purpose of the program and the proper role of NCUA as a governmental agency. Government has never signed up the first credit union member, nor has it made the first credit union loan. Vital though our role is as a safety and soundness regulator, NCUA must recognize the limits of what we can and cannot do.
Credit unions serve their members. NCUA cannot do that. However, as a governmental agency, we can be and should be an agent of access and opportunity to that service.
Today over 90 million Americans reside in census tracts designated by the US Treasury Department’s Community Development Financial Institutions (CDFI) program as unbanked. These are folks who have largely been abandoned by traditional financial institutions during the merger-mania years and have been left to the mercy of the check cashers and pawn shops which proliferate in their neighborhoods.
Although NCUA as a government agency cannot guarantee that they will choose to join a credit union or take advantage of a credit union’s services if offered, we can make it easier for visionary, well-managed credit unions to adopt those underserved neighborhoods into their fields of membership and to extend many of the needed services to those who live there.
Through a streamlined process and the prioritization of applications by those credit unions who submit a workable business plan to serve one or more of these underserved areas, NCUA was able to be an agent of opportunity for over 16.1 million Americans who became eligible to join a credit union under our Access Across America initiative in 2001.
Over 21 million additional Americans living in CDFI underserved areas have been made eligible to join a credit union through November of this year. Over 300 federal credit unions have stepped forward to adopt these neighborhoods in the last 24 months and, although such an expansion of services is not the right fit for every credit union and must be carefully evaluated as a part of a safe and sound business plan, it is an opportunity for many credit unions to consider. This is a partnership – and the success depends, not just on NCUA, but also on America’s credit unions.
We encourage credit unions under Access Across America to think outside their present comfort zones and to see the opportunities available in many of these underserved areas. As they examine the possibilities of extending service to these neighborhoods as a part of their outreach-oriented business plans, NCUA is turning an approval process which once took over a year into one which can be completed in less than two months.
Without sacrificing standards but by prioritizing streamlined process, NCUA has removed the biggest single deterrent to credit unions reaching out to adopt these underserved areas - regulatory hurdles.
As mentioned above, the results in 2001 and so far in 2002 are staggering when compared with just two years ago in 1999 when only 7 credit unions adopted underserved areas with only 350,000 residents.
The difference is an emphasis on access – which is what the Credit Union Membership Access Act was all about and which Access Across America is built upon.
Because they are required by NCUA regulation to have a physical presence in any underserved area they choose to serve, credit unions demonstrate through their investment in the community that they are willing to be a lower-cost alternative to the high-cost lenders which have been often accused (and rightly so) of being predatory in their lending practices, rates and terms in many of those same communities.
Even though they are often criticized for reaching out to serve the very communities their critics have abandoned, NCUA believes credit unions who desire to allow their heartbeat for serving the unbanked to manifest itself through service to these neighborhoods should be facilitated so long as they have a safe and sound plan for doing so.
Although credit unions are indeed stepping forward through this initiative to help achieve Access Across America without a regulatory or statutory mandate requiring them to do so, we should all recognize that this must be an ongoing effort. Not only should credit unions consider whether their business planning would benefit by outreach into an underserved neighborhood as an addition to their present field of membership, but all credit unions should keep good records to demonstrate their successes in this arena.
Serving people from all walks of life is an important part of the credit union heartbeat and the success stories are legion. Those stories must be documented and shared by the credit unions who have seen the life-changing victories they have empowered through their outreach efforts.
And we at NCUA must continue to be the agent of opportunity and access which makes those success stories possible.
That is why Access Across America matters.
But access carries within it a need for us as an agency to continue to look at our field of membership rules and regulations and to make sure they remain up-to-date with the needs of that changing and dynamic marketplace we have been discussing today. In fact, it was the 1999 re-write of our field of membership rules which put into place the ability of federal credit unions to more easily adopt underserved areas and laid the foundation for the record-setting performance in this area we are now seeing through our Access Across America initiative.
We will never be fully successful in furthering access across America if we do not continue to evolve our field of membership rules and make our process more open where it is allowable under the law and more user-friendly when both credit unions, employer groups, associations, communities, faith-based organizations and, most importantly, members try to take advantage of its purpose to extend lower-cost financial services to more Americans.
In that regard, we still have work to do.
The NCUA Board just last month put out for a 60-day comment period the third major update of NCUA’s field of membership rules since the passage of the Credit Union Membership Access Act in 1998. The first two, approved in 1999 and 2000, have stood the test of time well, having been subject to congressional oversight hearings and as I said a moment ago withstood a court challenge which sustained them at both the U. S. District Court and Circuit Court of Appeals levels. They have resulted in the extension of credit union services to literally millions of Americans from all walks of life while still maintaining the integrity of the original statute, both in its letter and its spirit...its restrictions and its opportunities.
Since passage of the Credit Union Membership Access Act in 1998 through the end of October 2002, there have been 143 federal credit unions which have converted from the federal charter to state charters. Greater field of membership growth opportunities at the state level in many states and restrictions on field of membership growth at the federal level was the reason cited in almost all of these conversions. Perhaps even more significantly, there have been over 20 conversions from credit union charters to thrift and bank charters over the past years in which restrictive field of membership rules have been viewed by some credit unions as too confining to their ability to serve their members and communities in a way that fits into their long term business projections and needs. We should not allow field of membership restrictions which go beyond what the law requires to contribute to the de-mutualization of the credit union movement, nor should we force credit unions to make their state or federal charter decisions based solely upon federal restrictions that are, in some cases, more stringent than what the law mandates. The charter decision is the most basic of business decisions. It should be driven by business considerations, not by the lack of sufficient growth opportunities for a visionary credit union.
While there have been some who have promoted the solving of this growing imbalance by federal law being changed to restrict those state legislatures and state regulators who have liberalized their field of membership rules, I do not believe that approach is the right one if we are to have an effective and meaningful dual chartering system for credit unions. Rather than attempt to pre-empt those states who have chosen to allow their state chartered credit unions to grow with their markets’ demands, I believe the appropriate federal response is to do everything possible within the statutes passed by Congress to enable federal credit unions to do the same. To make the dual chartering system an effective one, both charters must be able to offer visionary credit unions the opportunity to have planned and managed growth.
This proposed update, although it does not and cannot mirror the most liberal of the state field of membership laws because of federal statutory restrictions that we must and are totally committed to follow, does provide an evolutionary approach to federal field of membership rules that will recognize the changes inherent in today’s post Gramm-Leach-Bliley financial marketplace even as it streamlines the field of membership approval process for federal credit unions and appropriately allows them all of the managed growth opportunities the Congress authorized when it passed the Credit Union Membership Access Act in 1998. The courts have ruled in upholding our earlier field of membership rules that visionary credit unions must have the opportunity to adapt to a changing financial marketplace. If not, long term safety and soundness ramifications could develop. We see this proposed update as consistent with both the statute and safety and soundness, but it is also an opportunity for credit unions to be positioned to have managed growth and enhanced service opportunities without having to abandon the federal credit union charter to do so.
I want to just briefly touch on several of the key updates which will, I believe, respect both the restrictions and the opportunities within the Credit Union Membership Access Act and enhance the field of membership options available to federal credit unions.
We have for the first time put in place a mechanism that we have previously authorized but never implemented for single sponsor credit unions to diversify their fields of membership and better manage their risk by adopting a single trade, industry or profession as their occupational group rather than a single employer. In this age of business restructuring, unanticipated industry shutdowns and military base closures, there is indeed much benefit in avoiding the risk of losing a good, solid credit union because its only sponsor closed down. Some have chosen to diversify by becoming multiple group occupational credit unions and this update assists these credit unions with faster approvals and streamlined process when they seek to add select employer groups of 3000 and less employees. This is an important update for multiple group occupational credit unions and is certainly consistent with the statute because it uses the same number Congress does for economic viability. However, a large percentage of our federal credit unions have chosen to remain single sponsor credit unions for business reasons of their own. Those who have made that very legitimate business decision should have some reasonable diversification options of their own within that decision. For a local hospital credit union to be able to diversify into all of the medical personnel in their geographic service area or a labor union credit union to be able to diversify into all of the plumbers or electricians in their area could make the difference in saving or losing a credit union if the hospital closed down or unemployment spiked three-fold or a year-long strike dramatically changed the economic landscape. TIP, as it is called, is an important diversification option which, although restricted to the geographic service area of single sponsor credit unions, is totally consistent with both the Credit Union Membership Access Act and good risk management. It can also be a real beneficial option which could perhaps save some of the smaller, single sponsor credit unions that we have unfortunately lost in recent years.
Another timely update is the definition of an ATM or a shared branch with credit union ownership interest as a service facility for making select employer groups eligible to affiliate with a credit union. Although we continue to require a physical branch location when a credit union adopts an underserved area into its field of membership and the Board unanimously believes that commitment must be made by a credit union taking advantage of our Access Across America initiative as it relates to underserved areas, we see no reason to require a credit union to invest in a bricks and mortar presence in order to recruit a SEG. In this “clicks and windows” technological era in which we live, if a business and a credit union are mutually satisfied with their service options through an ATM in the business’ cafeteria or a shared service center a block away, why should we as a regulator require the credit union to take on the fixed asset costs of a building and furnishings, not to mention the personnel costs to staff a branch. Long term, I personally cannot see why any effective safety and soundness regulator would require bricks and mortar in a clicks and windows age, except where it makes business sense or meets otherwise unmet member service needs to do so.
Lastly, although less than 10% of federal credit unions are community chartered, the vast majority of those 143 federal credit unions who converted to state charter were or became community charters after their conversion to state charter. NCUA must streamline the process for federal credit unions who find it appropriate for their long term business vision to convert to a charter which will enable them to serve their entire community. Not only is this another diversification opportunity to spread risk beyond a single employer or group of employers, a community charter has been a recognized legal federal charter option since the Federal Credit Union Act was passed in 1934. Community credit unions are providing valuable lower cost financial services for decades to many neighborhoods that have been abandoned over the course of those same decades by banks and other traditional for-profit financial institutions. In fact, just last month I attended the ribbon-cutting of the America’s Credit Union Museum, located in Manchester, New Hampshire at the original location of this nation’s first credit union - a community credit union. Although the museum is in the original credit union location, just down the road the credit union itself - St. Mary’s, a faith-based community credit union, is still doing a robust business and making a positive difference in the same community it has served since 1908.
This proposed update is a natural and necessary evolution of NCUA’s field of membership rules. It is responsive to a changing marketplace as I have indicated.
But I believe, as I said earlier, that this field of membership proposal is as much a safety and soundness issue as it is a member service issue, an Access Across America issue, a marketplace issue or a viability of the federal charter issue (and it is all of those).
As the chief regulator of America’s federal credit unions, I would be remiss if I did not address the significant risk management issues involved in greater credit union field of membership diversification.
Field of membership diversification options are more than a growth strategy for federal credit unions. The ability to diversify their membership base can make the difference of survival or non-survival for a credit union whose community suffers a serious economic hit or perhaps a credit union whose sponsor goes out of business. It is, at its heart, a safety and soundness issue . . . even a long-term survivability issue.
The passage of the Gramm-Leach-Bliley financial modernization law by Congress in 1999 significantly altered the financial marketplace in which credit unions operate. Field of membership rules must continue to evolve to allow credit unions to adjust to that changing marketplace if they are to remain safe and sound.
With banks, insurance companies and brokerage firms benefiting from the financial modernization options available to them under Gramm-Leach-Bliley, we must move our rules forward in a measured way to enable credit unions to have all of the tools available under CUMAA to diversify their fields of membership and provide opportunities for planned and managed growth.
Although these updates are certainly significant for credit unions facing the challenges of an evolving marketplace, I want to emphasize that they are fully allowable under existing law and perhaps could have been included in the 1999 and 2000 rules. I would even argue that some of them should have been adopted earlier. For example, Judge Kollar-Kotelly wrote in her opinion upholding the earlier rules that technological advances might require a more flexible definition of service facility to include ATMs and shared branches.
The NCUA Board, however, chose to take it a step at a time and build our experiential base lines before we did another update. This process has now evolved due to the fact that we have four years of experience and it is reasonably time to update the rules again. We should look at the rules on a regular basis, preferably annually, to make sure we are not being more restrictive than either the law or the marketplace requires.
It is the nature of the beast that criticism comes any time public officials make tough and important decisions. We expected such criticism, but we did not allow it to deter us from taking action we feel strongly to be both necessary and right. This Board, operating in a bi-partisan manner across party lines, has evaluated our experience with field of membership since 1998, studied the results of the court decisions upholding our earlier rules and maintained our steadfast commitment to honoring the letter and spirit of CUMAA.
The unanimous vote of this Board resulted in a reasonable and appropriate field of membership update which will result in the evolution of more credit union services being offered to more Americans from all walks of life. It will also result in greater diversification options for the credit unions themselves to have planned and managed growth under the federal charter. The Board is to be commended for both its analysis and leadership in an area that is always controversial but absolutely crucial for the long term viability and safety and soundness of America’s credit unions.
Even as we respect the restrictions contained within the federal law, we must also empower the opportunities contained within that same law. In doing so, we can be pleased with the result that we will have stronger credit unions. We will have safer and sounder credit unions. We will have more diversified fields of membership. And, most importantly, our commitment to Access Across America - the word “access” derived from the Credit Union Membership “Access” Act - will be backed up by more than our short-term performance, but also by our long-term commitment.
NCUA’s proposed update to our field of membership rules makes the Credit Union Membership Access Act work more effectively for the over 80 million Americans who are depending on NCUA to create a regulatory environment which protects their hard-earned dollars and also enables them to still have the consumer choice of dynamic, growing and viable credit unions that are both diversified in their membership and safe and sound in their practices available to them when they decide to pass those same hard-earned dollars, plus dividends, down to the next generation of credit union members in their families, businesses and communities.
Thank you very much. It has been a pleasure being with you today.
Dennis Dollar was appointed Chairman of the National Credit Union Administration
(NCUA) by President Bush in 2001. A former two-term member of the Mississippi
House of Representatives, Chairman Dollar served as President and CEO of the
Gulfport VA Federal Credit Union in Gulfport, Mississippi, prior to his confirmation
to the NCUA Board in 1997.