SAFETY AND SOUNDNESS,
FIELD OF MEMBERSHIP
AND TODAY’S CREDIT UNION MARKETPLACE –

HOW “ACCESS ACROSS AMERICA” FITS IN
TO AN EFFECTIVE DUAL CHARTERING SYSTEM

Remarks by

Dennis Dollar
NCUA Chairman

At the

35^th NAFCU Annual Conference

Sheraton Seattle
Seattle, Washington

Thursday, July 18, 2002

It is an honor to be with you again this year at the 35th NAFCU Annual Conference here in Seattle.  Having been with you now five consecutive years, it is a particular honor to be with you for the first time as Chairman of the National Credit Union Administration Board.  Over the past three years I have come before you in three different capacities – two years ago as an NCUA Board Member, last year as Acting Chairman and, now, this year having been designated by the President as Chairman. 

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 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.

Speaking to NAFCU today, I want to talk about the importance of strengthening the position of federally chartered credit unions to meet this vision for the future – a vision clearly stated in NCUA’s strategic plan which I am proud to say has set the blueprint for our agency to be more responsive to this changing marketplace even as we continue to maintain our first and foremost commitment to safety and soundness in that marketplace.

I want to make an important point as I speak briefly about this goal.  I am a former state legislator who has long believed in a proper concept of federalism, realizing the proper role of the federal government and balancing that with the proper role of the states.  I resented as a state legislator the arrogance of the federal government at times when through federal intervention, unfunded mandates and excessive regulation they chose what they felt was best for my state without recognizing the individual characteristics which might make their Washington-based solution not to be the right one for the folks back home.  I still carry with me a strong belief in keeping state matters at the state level and federal matters at the federal level.  That is why today I am a strong believer in an effective dual chartering system of credit union regulation and supervision.  Notice the use of the word “effective” when I speak of dual chartering.

I use that word for a reason.  Inherent in an effective dual chartering system is a strong and viable federal credit union charter.  It is essential that visionary credit unions who need growth in membership and services to meet their business projections and to build their financial stability for the future be able to do so as federal charters. 

Although I would never seek to restrict the rights of states to extend such a regulatory environment to their state-chartered credit unions as long as they continue to do so in a safe and sound manner, I will likewise never apologize for seeking ways to make the federal charter a more viable option as well.  The winners in an effective dual chartering system with viable options for innovative and growth-oriented credit unions, whether they be state or federal, will be the members.

We have attempted in the past eighteen months to put in place initiatives at the federal level designed to make the federal charter more viable and 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 authority, risk-based examination scheduling and a risk-focused exam program, proposals recently out for comment which are designed to address credit union investment authority, corporate credit union regulation 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.

Why does Access Across America matter?  The three A’s in the program’s name tell the story.

Access 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.   

In fact, as long as the service is provided in accordance with applicable law and regulation and is extended in a safe and sound manner, NCUA should facilitate credit unions as they seek to reach out and provide lower-cost financial services to as many Americans as possible.

Today over 90 million Americans reside in census tracts designated by the US Treasury Department’s Community Development Financial Institutions (CDFI) program as underserved.  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.

Make no mistake about it.  Even though I am a strong proponent of government remaining in its proper role and limiting its arm from over reaching into many areas where excessive regulation creates more problems than it solves, I do believe that government has some clear responsibilities which it should do and do them well.  Ensuring safety and soundness with a regulatory process which has integrity and is effective without being excessive is one of those responsibilities.  Being an agent of access and opportunity for those who desire a better life is another from which we must not waiver.  Access Across America is an initiative founded in both of these responsibilities.

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 9.1 million additional Americans living in CDFI underserved areas have been made eligible to join a credit union during the first six months of this year.  Over 200 federal credit unions have stepped forward to adopt these neighborhoods in the last 18 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 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.

Across speaks to the nationwide dimensions of this initiative.  Just as those 90 million Americans are scattered across this great land of ours, so are the credit unions that can provide them with an alternative to a payday lender’s 400% loan or a rent-to-own company’s 200% furniture financing plan.

In 2001, 165 credit unions adopted a record 282 underserved areas.  Applications on a pace to far exceed that record number continue to be received so far in 2002.  These underserved areas are located all across the country with applications having been approved in 41 states since the program began.  All six of NCUA’s regional offices have made Access Across America a high priority and it will remain so.

When combined with last year’s approval of 135 community charter conversions or expansions (each of which also contained a number of CDFI underserved areas in the approved communities), America’s credit unions have demonstrated that they are willing to put their money where their mouth is by taking advantage of the legal and regulatory opportunities available to them to serve “unbanked” neighborhoods.

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. 

America needs access to the lower-cost services credit unions can provide.  It is then their choice as a consumer as to whether to take advantage of those services.  History tells us that they will do so when the opportunity is there.  Credit unions have over 80 million members nationwide today.

Financial literacy is a key element in helping meet the needs of the “unbanked” in America.  Credit unions are increasing their financial counseling programs in these communities, helping folks recognize that a 400% payday loan is not a good deal no matter how badly they need the money today.

Working in partnership with other governmental agencies as a part of the Bush administration’s focus on creating empowerment opportunities for individuals who may lack financial self-sufficiency today, NCUA is encouraging credit unions to participate in programs offered by the Treasury Department, HUD, Department of Agriculture, Small Business Administration, and others to help them further financial literacy efforts and extend credit and savings opportunities for first-time members – many of whom are opening their first-ever account. 

One of the most-overlooked aspects of NCUA’s Access Across America initiative is the partnership opportunities it encourages with these other governmental programs.  Links to these programs – most of which credit unions are fully eligible to participate in – are available on the website www.accessacrossamerica.gov or through NCUA’s own www.ncua.gov.

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 make our field of membership rules and 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.

As you know, the NCUA Board has enacted two updates to our field of membership rules for federal credit unions since the passage of HR 1151, the Credit Union Membership Access Act, in 1998.  The first was approved in 1999 and the second in 2000. 

As was appropriate because those rules were challenged in court by critics and competitors who self-interpreted the Credit Union Membership Access Act to leave out its mandate for enhanced access, we gave those rules a couple of years to both demonstrate the difference they could make for credit unions and their members, as well as to allow time for the court challenges to work their way to conclusion.

Now, in 2002, not only do we have an unequivocal court ruling that decisively found NCUA to have followed both the letter and the spirit of CUMAA in passing our field of membership rules, we also have three full years of experience with our new field of membership rules, learning how they have helped many federal credit unions extend their service, strengthen their financial stability and improve access to lower-cost financial services to their field of membership.  We have set benchmarks over those three years and credit unions have responded to those benchmarks.  Processing time has improved to record levels.  An internet approval process has enabled credit unions to extend immediate access to SEGs below 500 employees.  Community charter conversions and the adoption of underserved areas, as I mentioned a moment ago, are being processed much more efficiently and rapidly without any lowering of standards or sacrificing of safety and soundness.

But we still have work to do.

I would like to announce to you today that NCUA’s Field of Membership Task Force is back at work and has been for the past several months.  They are taking the experience of the past three years, both yours and ours, and are studying both the statute and the court decision to find ways to make our field of membership rules even more user-friendly and with an even greater eye towards extending access to more Americans who need the low-cost financial services a credit union can provide.

As we move forward with this 2002 update of our field of membership rules based upon our experience of recent years since CUMAA passed, it is my belief as Chairman that we should keep the following priorities at the top of our list as we move forward in this important endeavor.  I know that these will certainly be my priorities as I work with the Field of Membership Task Force and evaluate their recommendations to the NCUA Board for updating our Field of Membership Manual:

          ---First and foremost, we will continue – as we have from the beginning and the courts have so upheld - to stay within the letter and the spirit of the Credit Union Membership Access Act.  Nothing would hurt our efforts towards access more than to find ourselves facing a future court ruling or legislative action which finds that the regulator went beyond the bounds of the statutes passed by Congress.

          ---Next, but of equal importance, we will continue to hold our safety and soundness standards high.  It is a Faustian bargain to extend membership or service beyond a credit union’s financial ability to serve.  We want to see credit unions around to serve the next generation of members as well as this present generation.  And we want to always be able to proudly say, without fear of contradiction, that not one penny of taxpayer dollars has ever been used to bail out a federally insured credit union.

But, again remember, it is impossible to separate safety and soundness from the ability to of credit unions to compete in a fast-changing marketplace.  One of the most damaging safety and soundness decisions we could make would be to force credit unions to operate in a dynamic marketplace without the ability to adjust to and grow with that marketplace.  The two cannot be separated and we must keep that in our sights.

          ---Thirdly, we will look for ways to streamline process to make it easier for credit unions to add employer groups, associations, faith-based organizations, communities, low-income and underserved areas.  Efficient regulatory process can be a stimulant to credit union vision and innovation, even as unnecessary regulatory hurdles can be a deterrent.

          ---Fourthly, we will make any recommended changes based upon a realization that if credit unions who need to grow cannot do so under the federal charter, we will lose the great value of the dual chartering system.  We want to see federal credit unions have growth opportunities commensurate with their ability to serve soundly, their desire to serve effectively and the service needs of their fields of membership and their prospective fields of membership.  We want to facilitate greater credit union access in every way that the law allows when it is built upon the solid foundation of safety and soundness. 

          ---Lastly, we will seek your comments.  I hope to see the NCUA Board put out for a public comment period a revised field of membership proposal before the end of the fourth quarter of 2002.  With appropriate time for the commenters to be heard and your views evaluated, my goal is to see a new field of membership manual approved by the end of the first quarter of 2003.

Now, I realize that everything you would like to see in the field of membership rules will not and, frankly, cannot be included under existing law.  Perhaps you will someday find the opportunity to encourage Congress to enhance what the law allows federal credit unions to provide in services and to whom.  That is a political decision for you to make as an industry.  But, until such changes are made by Congress, we must abide by the existing law.  That is our job as an agency created by Congress.  

But we can make sure the existing law works to its fullest extent, and works better than even it does today, for those millions of Americans who still need access to a credit union.  It is my commitment that we do so.

And, in doing so, I believe that we enhance the dual chartering system, not by restricting the states in their efforts to do the same, but by making the federal charter more viable for credit unions of all sizes, all types of fields of membership and serving all types of folks.

Access Across America requires a commitment to all three words…access – across  - America.  It requires a commitment of both the regulator and the regulated for broad-based access to lower-cost financial services for all in America who need it and seek it.  NCUA is working to put that commitment into practice.   

I encourage you to share that commitment, demonstrate that commitment, document where possible your successes as you daily meet that commitment and extend that commitment to more who need it with vision, innovation, a safe and sound business plan and diligent management.

As you do, you will make an even more indelible mark on America than the significant one you have already made. 

Thank you very much.

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.