NCUA Board Member Todd M. Harper Statement on the Proposed Community Field of Membership Rule

As Prepared for Delivery on October 24, 2019

Thank you, Chairman Hood. And thank you, Ian, Marvin and Jeff, for all of your hard work on this field of membership rulemaking flowing from the recent ruling by the U.S. Court of Appeals for the District of Columbia Circuit. I appreciate your efforts to ensure that the NCUA Board acts “expeditiously” on this rulemaking, as the court made clear is its expectation.

Your thoughtful presentation today noted that the proposed rule would:

• Reinstate our previously approved combined statistical areas field-of-membership standard,
• Provide further explanation of our prior rulemaking permitting a credit union located in a core-based statistical area to opt out of serving the core, and
• Bolster the NCUA’s authority to reject applications to serve community-based fields of membership, if the agency determines that the proposal is based on discriminatory intent or a desire to exclude low- or moderate-income individuals.

When considering how to vote on this proposed rule, I carefully considered two questions related to competition. 

The first is whether the proposed rule would expand consumer access to affordable financial services, consistent with the requirements of the Federal Credit Union Act.

The second, which focused on the condition of our dual-chartering system, is whether the proposed rule would create greater parity in charter options between the states and the federal government.

Because this proposed rule would expand access to affordable financial services to people of modest means and diverse backgrounds and because it would strengthen the federal charter’s competitiveness with the chartering regimes found in many states, I will vote in favor of the matter before us today.

By law, the credit union system has a mission to promote thrift, especially for people of modest means. As such, the NCUA, with appropriate guardrails, should foster an environment that increases access to financial services for the unserved and the underserved. In my view, providing access to affordable financial services to members of modest means and diverse backgrounds is the backbone of the credit union system.

However, as noted in its recent opinion, the Court of Appeals did not believe that the NCUA had adequately responded to commenters’ objections that the elimination of the core requirement might allow federal credit unions to engage in discriminatory redlining.

I would like to address how this issue relates to the NCUA’s consumer compliance program. In response to the court’s decision, the proposal we are considering today would amend the NCUA’s regulations for community field-of-membership applications, amendments and expansions for combined statistical areas and core-based statistical areas.

For these fields of membership, the proposal would require the applicant to explain why it has selected its field of membership, and demonstrate that its selection will serve low- and moderate-income segments of a community.

Although this rulemaking is about the chartering process, we note in the background section of the document before us that, “the potential for discrimination by a federal credit union is further lessened because, like other financial institutions, federal credit unions are subject to consumer protection statutes such at the Equal Credit Opportunity Act of 1974 and the Fair Housing Act of 1968.”

While that may be true, the NCUA has focused its examination program primarily on safety and soundness reviews for more than three decades. In fact, in 2019, the NCUA is on track to complete only 25 fair lending exams of more than 5,300 federally insured credit unions.

Additionally, the NCUA’s current method of examining for compliance with consumer financial protection laws in a credit union with total assets of $10 billion or less differs from other financial institutions’ regulators, which complete regularly scheduled, risk-focused consumer compliance reviews and assign a separate consumer compliance rating outside of the CAMEL process for the depository institutions under their jurisdiction.

To evolve and address the imbalance in the NCUA’s consumer compliance program, I have called for the establishment of a dedicated and robust consumer compliance examination program, especially for the largest credit unions. When the Board considers the 2020 budget later this year, I want to see the NCUA take the first step towards committing the staffing and financial resources needed to achieve this goal.

Such a compliance program would make the statement, “the potential for discrimination by a federal credit union is further lessened because, like other financial institutions, federal credit unions are subject to consumer protection statutes, such as the Equal Credit Opportunity Act of 1974 and the Fair Housing Act of 1968” more meaningful.  

And, it would put our money where our mouth is.

As I noted earlier, this proposed rule would also increase the viability of the federal credit union charter as compared to charters in other states, especially those states in which the laws and rules governing field of membership have expanded significantly in recent years.

Today, of the 100 federally insured credit unions with the largest potential fields of membership, only eight are federal credit unions. The remaining 92 are state-chartered credit unions.

For me, this statistical imbalance demonstrates that the federal charter has fallen behind the desirability of the state charter. The proposed rule before us today would take steps to correct that imbalance.  

Even so, by keeping in place the 2.5 million-population limit for both a core-based statistical area or a contiguous portion thereof and combined statistical areas or a contiguous portion thereof, federal credit unions will still have smaller potential fields of membership than many state-chartered institutions.

I would further note that a credit union using the narrative approach could serve a field of membership of up to 10 million people. But, it’s my understanding that this approach has rarely been used by credit unions since its reestablishment in 2017.

Before I close, I do have one question that is addressed in the proposal, but which merits further clarification at the Board table today. The comment period for this proposed rule is 30 days.  Why are we providing a 30-day comment period in this instance? 

Thank you for that helpful clarification, and Ian, Marvin and Jeff, thank you again for your hard work.  I will support the proposed rule.