Modern Field-Of-Membership Rule Improves Access to Affordable Credit

More Americans will become eligible for credit union products and services under a final rule (Part 701) approved by the NCUA Board in October to modernize NCUA’s field-of-membership regulations.

“This comprehensive rule expands consumer access to credit and provides them a safe place to invest their life savings,” NCUA Board Chairman Rick Metsger said. “Congress passed the Federal Credit Union Act and the Credit Union Membership Access Act to improve access for consumers to a national system of not-for-profit cooperative credit. But, the world has changed since we last put in place rules to implement these laws. We cannot anchor our regulations to the past; we have to keep pace with how consumers access financial services now.”

In recent years, several states have updated their field-of-membership rules for state-chartered credit unions. Within the requirements of federal law, NCUA Board Member J. Mark McWatters said that the final rule would similarly enhance consumer access to credit by sensibly and reasonably updating NCUA’s rules.

“Our field-of-membership final rule is consistent with both the letter and spirit of the law,” McWatters said. “During our deliberations, I carefully examined the Federal Credit Union Act and the requirements of the Administrative Procedure Act. Based on more than 30 years of legal experience working with issues of complex statutory interpretation, I am confident that the final rule we approved follows the law. More importantly, these changes will expand access to affordable financial services for consumers, including those in underserved communities.”

Consistent with the limitations of the Federal Credit Union Act, the final rule updates key definitions and makes more than a dozen changes to NCUA’s chartering and field-of-membership rule for federal credit unions by:

  • Allowing greater flexibility to community charter credit unions in how they define the local communities they serve;
  • Providing credit unions with better opportunities to serve underserved areas by updating the process for defining those areas;
  • Enhancing access to credit union services for residents of rural areas by allowing rural district credit unions to serve up to 1 million people;
  • Streamlining paperwork for multiple common-bond credit unions that seek to serve additional groups, such as including independent contractors with a strong dependency relationship with an employee group; and
  • Expanding credit union access for honorably discharged members of the armed services by allowing them to join credit unions serving their active-duty counterparts.

The final rule also modifies the type and extent of information that a federal credit union must submit to support an application to expand its field of membership.

The final will become effective 60 days after publication in the Federal Register. For more information, go to http://go.usa.gov/xkuKd.

Proposed Field-of-Membership Rule Responds to Stakeholder Suggestions

The NCUA Board also approved a proposed rule (Part 701) that would make additional changes to the agency’s field-of-membership rule for federal credit unions.

The proposed rule responds to stakeholder suggestions received during the initial field-of-membership rulemaking, but which could not be incorporated into the final rule because of the Administrative Procedure Act.

Specifically, the proposed rule would:

  • Raise the current population cap for a “well-defined local community” from 2.5 million people to 10 million;
  • Allow the use of a narrative approach to create a new welldefined local community; and
  • Correct an error in the final rule that inadvertently restricts fields of membership inside core-based statistical areas to not more than 2.5 million people in a metropolitan division, rather than the core-based statistical area.

The proposed rule also asks questions about possible alternative approaches to field-of-membership issues and gives stakeholders an opportunity to comment.

Comments on this proposal are due Dec. 9. For more information or to submit a comment, go to http://go.usa.gov/xkJ5B.

Key Comparisons of Existing Field-Of-Membership Rule to the 2016 Approved Final Rule

 

Community Common Bond

Rule Component Existing Requirements 2016 Final Rule
“Core Area” Service Requirement When a credit union applies to serve a community consisting of a portion of a core-based statistical area as defined by the Office of Management and Budget, NCUA requires that portion must include the core-based statistical area’s “core area,” which NCUA defines as the most populated county or named municipality in the core-based statistical area’s title. Federal credit unions will now be able to apply to convert to a community charter or expand an existing community charter without being required to serve the core area if electing to serve a portion of a core-based statistical area. This will allow a federal credit union to establish a presence consistent with its ability to serve before expanding service to the full area.

NCUA will continue to review annually the credit union’s implementation of its business and marketing plan to serve the entire requested area.
Population Limit as Applied to a Well-Defined Portion of a Core-Based Statistical Area NCUA currently permits a portion of a core-based statistical area to qualify as a well-defined local community, provided the population of the core-based statistical area, as a whole, does not exceed the 2.5 million-population limitation. NCUA’s population limit of 2.5 million people will now apply to any well-defined portion of a core-based statistical area regardless of whole area’s population.

For example, a smaller, well-defined portion of a statistical area with a population of 1.5 million will not be denied for consideration solely because the population of the whole statistical area exceeds 2.5 million.
Combined Statistical Areas Federal credit unions are not permitted to serve a combined statistical area. They are limited to serving a statistical area no larger than a metropolitan statistical area, or in the case of a metropolitan statistical area with metropolitan division, a metropolitan division—and subject to a population cap of 2.5 million. Federal credit unions will now be able to apply to serve a combined statistical area, as designated by the Office of Management and Budget, subject to a population cap of 2.5 million.
Addition of an Area Adjacent to a Core- Based Statistical Area NCUA uses an objective core-based requirement to demonstrate an area is a well-defined local community. NCUA presumes that areas recognized as either a single political jurisdiction (such as a city or county) or an area consisting of multiple political jurisdictions with a core-based statistical area, as defined by the Office of Management and Budget, such as metropolitan statistical areas, metropolitan divisions or a portion thereof—all subject to a population limit of 2.5 million persons— are local communities. Federal credit unions may now apply to serve an area adjacent to its existing core-based statistical area or single political jurisdiction, or may apply to convert to a community charter that includes an area adjacent to a core-based statistical area. A federal credit union must provide a written narrative to demonstrate interaction or common interests among residents of the proposed expanded community as a whole, when seeking to add an adjacent area to a core-based statistical area.
 

Rural District Definition

Rule Component Existing Requirements 2016 Final Rule
Population Limits The current chartering and field-of-membership policies limit the total population of a rural district to the greater of either:

1) 250,000 people, or

2) 3 percent of the population of the state in which the majority of the district’s population is located.
Federal credit unions may now serve a rural district of up to 1 million persons— regardless of the state in which the majority of the district’s population is located.
Multi-State Expansion Limit NCUA currently permits a rural district to extend beyond a state’s boundaries, subject to the population limit and density or census-tract thresholds. NCUA continues to permit a federal credit union serving a rural district to cross the boundaries of other states. However, under the final rule, federal credit unions may only serve a rural district in those states immediately bordering the state containing the federal credit union’s headquarters or main office.
 

Underserved Areas

Rule Component Existing Requirements 2016 Final Rule
Exclusion of Non- Depository Institutions and Non-Community Credit Unions When Calculating the Concentration of Facilities Ratio Under the current Chartering and Field of Membership Manual, when a credit union seeks to serve an underserved area, NCUA calculates a proposed area’s concentration of facilities ratio to meet a statutory requirement that a proposed area be “underserved by other depository institutions.” Data obtained by NCUA to perform this calculation may include non-depository institutions or non-community credit unions that, by definition or in fact, cannot actually serve the proposed area, despite having a branch there. NCUA will re-calculate the concentration of facilities ratio analysis, excluding any non-depository institutions or noncommunity credit unions from the concentration of facilities ratio. However, a second analysis under this scenario would still include other multiple common-bond credit unions already serving the underserved area as a community.
 

Multiple Common Bond

Rule Component Existing Requirements 2016 Final Rule
Inclusion of Select Employee Group Contractors in a Multiple Common Bond NCUA presently includes within the definition of a single occupational common bond the people who work regularly for an entity that is under contract to the sponsor of the select employee group listed in its charter, provided the contractor has a strong dependency relationship with that sponsor. This definition relies on the presence of a strong dependency relationship between the select employee group sponsor and its contractor to establish the common bond of occupation the Federal Credit Union Act requires a group to be included in either a single or a multiple common-bond credit union. Multiple common-bond federal credit unions will now have parity with single common-bond charters in being be able to add persons who work regularly for an entity that is under contract to any of the multi-select employee group sponsors listed in its charter, provided the contractor and sponsor have a strong dependency relationship in each case.
 

Trade, Industry or Profession as a Single Common Bond

Rule Component Existing Requirements 2016 Final Rule
Inclusion of “Strong Dependency” Vendors and Suppliers in TIP Definition Under existing chartering and field-of-membership policies, NCUA recognizes a single occupational common bond between a select employee group sponsor’s own employees and those of its contractors, provided there is a strong dependency relationship between the sponsor and the contractor. Federal credit unions serving a TIP charter may now include employees of entities that have a strong dependency relationship with other entities within the same TIP.