In the decades-long march toward nationwide field of membership, the National Credit Union Administration – the regulator and deposit insurer for federal credit unions – has championed numerous policies relaxing membership regulations, making it easier for people to join credit unions.
Credit unions are tax-exempt financial institutions, chartered by Congress to serve low- and moderate-income (LMI) individuals in otherwise underserved local communities. Defined fields of membership, which limit who can join a credit union to those who are meaningfully connected via some common bond, exist to ensure that credit unions remain focused on serving underserved communities.
But as a result of the NCUA's incremental adjustments, membership criteria has become so diluted that anyone can join a credit union, with the industry now comprising more than 136 million members across the country. One of the nation's largest credit unions openly dismisses any idea of a membership limit by advertising "great rates for everyone."
And the NCUA is at it again.
At first glance, the NCUA's most recent
Comment letters from credit union groups spelled out their goal of eliminating field of membership entirely. One trade association
Expanding access to financial services in underserved areas is laudable. Indeed, credit unions were created — and receive preferential tax and regulatory treatment — to provide services to individuals in those communities. The NCUA's proposal, however, includes several amendments that would ultimately dilute credit union service to the local communities they are meant to serve.
Lake Trust Credit Union in Brighton, Michigan, works with a development agency in Lansing to provide entrepreneurs with the financial and educational support they need to go it alone.
For example, the proposed rule would allow credit unions chartered to serve a specific local community to add remote workers for companies headquartered in that community to its field of membership. That might seem reasonable on its face, but in practice it means that a tax-exempt credit union chartered to meet unmet financial services needs in the city of Seattle can now focus instead on meeting the needs of Starbucks employees worldwide.
Similarly, the proposed rule would allow credit unions to add noncontiguous rural districts to their fields of membership. Practically speaking, this new policy would enable a credit union in New Mexico to add an underserved rural district in Louisiana to its field of membership, flying in the face of the Federal Credit Union Act, which requires credit unions to maintain a "local" presence.
Furthermore, for credit unions seeking to enter underserved markets, this proposed rule would simplify the statement of unmet needs (SUN statement) that must be submitted. This one-page narrative describes the unmet need for financial services in the identified area supported by third-party data. In eliminating the one-page and third-party evidence requirements, the NCUA further waters down this already simple but crucial requirement to provide thoughtful analysis of the needs of the communities they seek to serve.
As it relates to business and marketing plans for new community charter and community charter conversion or expansion applications, the NCUA's proposal would remove requirements that applicants outline community access to the credit union vis-à-vis parking availability, public transportation availability and a host of other elements. While these adjustments are billed as minor technical adjustments, the omission of information regarding branch structure might adversely impact disabled and elderly populations as well as those with mobility limitations.
The NCUA's proposed rule on chartering and field of membership follows five other rules relaxing membership standards throughout the last several years. While each imparts only subtle changes to the overarching field of membership architecture on its own, the cumulative effect of these rules is undeniably a weakening of the standard for credit union membership and community service. The common bond used to be a central component of the credit union movement. Without strong ties between members, how are modern credit unions any different than banks — aside from not paying taxes? Congress ought to take up that question.
