The ink is hardly dry on the new field of membership rules, and Dennis Dollar’s telephone is ringing off the hook.
Dollar, owner of eponymous consultancy Dollar Associates in Birmingham, Ala., told Credit Union Journal there already are 18 CUs working with his firm on applications that would allow them to serve more members.
“There have not been a lot of new applications yet because the rule is less than two months old, but I can assure you there is a tremendous amount of interest in the new rules,” Dollar said in late March. “We are getting a large number of phone calls and expect to eventually hear from a significant number of credit unions.”
At its October 2016 open meeting, the National Credit Union Administration board passed what it refers to as the 2016 final rule on field of membership, which took effect Feb. 6. Among the significant changes are modifications to population limits for statistical areas that determine chartering, changes to common-bond rules and how counties are considered “underserved” and more.
According to Dollar, the rule change that is generating the most activity so far is a provision that gives community chartered CUs the ability to serve a combined statistical area, also known as a CSA, beyond a metropolitan statistical area, or MSA. He offered the example of the Roanoke, Va., MSA compared to a CSA that would include Roanoke and Lynchburg.
“Those two areas interact together,” Dollar explained. “The old rule only allowed MSAs, but the new rule allows adding counties to areas. Previously, no matter how interactive another area might be, the credit union could not go past an MSA.”
SEG-based boost
The second rule change of interest applies to SEG-based CUs. Dollar said the new rule allowing those credit unions to be able to take an entire office complex, industrial center or shopping center as a SEG is significant because they can get all the businesses without having to go to each business individually to add it as a SEG.
“The credit union can simply contact the management company and offer credit union services to every company. No longer have to do separate analyses of each business. This is a real plus for SEG-based CUs. This is an easier way for credit unions to find new members without having to go to business after business individually. The credit unions still have to go to the businesses to make marketing presentations – it is not ‘Field of Dreams’ if-you-build-it-they-will-come, but many credit unions see value in it.”
One credit union looking forward to that particular provision is Xceed Financial CU, a SEG-based institution headquartered in El Segundo, Calif.
“In some of the markets where we have a particularly strong community presence – such as Rochester, N.Y., for example – this change could help us to leverage that deep reservoir of goodwill to serve more smaller firms, more efficiently,” said Teresa Freeborn, president and CEO of Xceed
The rules allowing SEG contractors to join the credit union are “very sensible,” Freeborn continued. She said this will benefit Xceed and other workplace credit unions, “But this is really a pro-consumer and pro-business rule change. Let’s face it, as a matter of global competitiveness, more and more businesses are outsourcing everything they possibly can, at the same time more and more employees are choosing the flexibility of contract work. In that environment, it just makes sense to allow those firms to provide the benefits of a credit union to all of their people, whether they are full-time employees or contractors.”
Along the same lines, Freeborn said streamlining the determination of stand-alone feasibility is a “sensible, pro-business change that will benefit many of us.”
“Again, outsourcing non-core functions is something every business is trying to do, so it is inefficient and reeks of bureaucracy-for-its-own-sake to make them jump through a million hoops to prove that it is not feasible for them to form a stand-alone.”
Dollar added that allowing CUs to serve underserved areas according to the CDFI definition of “underserved” is also attracting interest, but he said that the new rules still include a test for an underserved application to determine if there are already enough financial institutions in the area – a requirement he called “absurd.”
“If the existing financial institutions were doing the job, then the area would not be underserved,” he argued. “The old rule counted payday lenders and SEG-based credit unions, but the new rule allows credit unions to take those out.”
Rules seen as improved but still evolving
Overall, Dollar characterized the new FOM rules as “very complicated, but much better than” the 2010 rules they are replacing.
“The 2010 rule was a step back from the 2003 rule put in place by the Dollar administration,” the former NCUA chairman said, referring to himself. “The new rule does not go as far as the 2003 rule did. The 2010 rule put a 2.5-million population cap on any community. The number should not the determining factor, it should be if the credit union can serve the community. Not every credit union can serve a 5-million person community. I give the board tremendous credit for addressing some of the flaws in the 2010 rule.”
Xceed Financial CU’s Freeborn said because her institution is SEG-based, most of the new rules will not have much impact on its business.
“But we are thrilled for credit unions everywhere that will benefit from the greater flexibility the new rules allow, and even more thrilled for the millions of consumers who will enjoy greater access to a better way to do their banking,” she declared. “It is about time the federal rules caught up with the states, several of which have been much more progressive and much more pro-consumer than the feds.”
Freeborn said she also was pleased to see NCUA acknowledging the modern technology credit unions are using to serve members. She noted consumers’ move toward mobile banking turns the whole notion of “reasonable proximity to a group” on its head.
“Frankly, while these changes are great, I would not be at all surprised if we need to revisit them again, sooner rather later, simply to keep up with technology.”
Consumers get it, even if bankers don’t
After NCUA announced the new field of membership rules, the American Bankers Association filed a lawsuit. Because there is pending litigation over its rules, NCUA had to declined to offer comments for this story.
Xceed Financial CU’s Freeborn said, “Of course the banks howled, but I think even they know these are sensible changes.”
“There is a lot of jargon, of course – they are, after all, federal regulations. But when you translate that jargon into normal language, average people can understand that credit unions have been needlessly hampered in the past and that these changes are good for consumers,” she added.
Dollar said he “got a kick” out of the bankers suing over these new rules, because he asserts the new rules do not go as far as the 1999 rules did – and back then the bankers sued and lost.
“When my administration put in the 2003 rules the bankers did not even try to sue because they lost so badly in 1999,” Dollar recalled. “There were no population caps in the 1999 rules or the 2003 rules. The 2003 rules created the TIP charter.”
In 2010, Dollar said, the Debbie Matz administration put in population caps and limited community charters to one MSA. “Credit unions could not even apply to serve more than one MSA. There is a second proposed rule to take the cap to 10 million. It just finished its comment period. The rules put in place in February still have the 2.5 million cap.”
