Charter Changer: ‘Is NCUA Overreaching On Membership Fields?


ROYAL, OAK, Mich.—After a lengthy 15-month review, NCUA has deemed the American Consumer Council (ACC) compliant with its field of membership guidelines for an associational select employer group.

An FOM announcement such as the ACC’s by itself might not be much of a headline. But numerous analysts have told that it’s indicative of a much larger issue, delays in getting field of membership issues addressed by the federal regulator.

Indeed, the decision comes at a time one CU consulting group says it is currently working 14 federal to state CU conversions, all driven by FOM concerns, and has called NCUA’s oversight of field of membership issues “overreaching.”

NCUA’s Office of Consumer Protection (OCP) recently informed representatives of the American Consumer Council that the large, national consumer education organization had met NCUA’s “totality of the circumstances” test requirements—within the agency’s field of membership rules—and could continue to partner with credit unions to enroll its 160,000 members in federal credit unions.

Decision Sheds Light

NCUA’s decision not only opens up membership to consumers across the 44 states in which the San Diego-based ACC has chapters, it sheds some light on how NCUA is evaluating associational common bonds—a concern many credit unions have held with the introduction of the agency’s new FOM rules.

“This is a significant moment when an association gets vetted and approved,” said Michael Bell, attorney at Howard & Howard here, who represented the ACC in the NCUA review process. “It clears the way for credit unions to begin the process of adding this association to their field of membership, which is extremely important. Associational common bonds play a significant role for credit unions, highlighted by (NCUA) board member Rick Metsger’s recent comments addressing how the FOM rule on the federal side is challenging.”

ACC’s chairman, David Romanski, called the decision “welcome news,” saying NCUA conducted an “exhaustive review of all aspects of our national association, and we are pleased after their 15-month review that they have found ACC to be fully compliant in all areas of their associational SEG requirements.”

Romanski added that during the review process, 18 credit unions that had submitted applications to the OCP to add ACC as an associational SEG, have been frozen. “We anticipate the Office of Consumer Protection will now act swiftly on those applications. Thousands of consumers are awaiting the NCUA/OCP’s action on these applications.”


Michael Bell, Howard & Howard

Bell beleives the decision is a positive sign for credit unions that continue to harbor reservations about the impact of the new FOM rules on associational common bonds.

CUs Need Clarity

Credit unions have previously complained that NCUA has not clearly explained what it will be looking for when it reviews existing associational relationships. Of particular concern is NCUA adding an eighth factor to the totality of the circumstances test used when analyzing a request to add an association. The new factor would analyze numerous sub-factors to determine if there is sufficient corporate separateness between the association and the FCU.

“In general, the decision with the ACC, a large national organization, tells credit unions this review process can be successfully completed,” said Bell.

NCUA’s letter to Bell and the ACC shed some light on the agency’s thinking in evaluating ACC.

In its letter, NCUA stated: “. . . we determined the totality of circumstances indicates ACC has the characteristics of a common bond that qualify it (or its individual chapters) for inclusion within the fields of membership of federal credit unions, subject to other requirements of the Chartering Manual. As such, NCUA intends to end its general review of ACC’s common bond characteristics. Going forward, ACC should make its chapter designations more clear by maintaining a “’chapter’ field in addition to an ‘address’ field in its membership list and making any other changes necessary to better reflect its chapter structure. Please note that the requirements of the Chartering Manual are ongoing, and NCUA will continue to consider new facts or circumstances that could affect ACC’s qualifications in the future.

“These include changes to ACC’s charter and bylaws,” continued NCUA. “Credit unions serving ACC members are responsible for submitting any such revisions for NCUA’s consideration and approval prior to adding individuals that would become eligible for credit union membership as a result of the change. In addition, as previously discussed, NCUA is still reviewing whether ACC meets the reasonable proximity requirements with respect to individual credit unions that have ACC within their fields of membership. To the extent we have concerns with ACC’s reasonable proximity to the service area of any related credit union and believe ACC could provide information that is helpful to the inquiry, we look forward to your continued cooperation.”

Many CU executives have shared concerns that the new FOM rules will be too restrictive, as the agency cracks down amid banker claims that some CU associational common bonds are formed solely to promote credit union membership—not only making it difficult to add new associational groups, but negatively impacting current associational ties as examiners review existing associational relationships. Analysts have pointed out that credit unions rely on associational common bonds to support indirect auto lending programs.

NCUA Vice Chairman Rick Metsger recently shared his concern for how FOM rules are impacting credit unions’ decisions to choose state charters. In remarks to the Education Credit Union Council’s Annual Conference in Orlando, Metsger said that NCUA’s field of membership regulations may have a greater impact on the nation’s credit unions than any other issue before the agency in the next couple of years.

“While the overall number of charter changes has gone down the past few years, the pendulum is now skewing heavily from federal to state charters at almost a three-to-one pace over the last four years,” Metsger said. “Over a similar four-year time period a decade ago conversions ran nearly two-to-one in the other direction.” 

NCUA Now Arbiter

Kirk Cuevas, who was chief of staff under Dennis Dollar when Dollar chaired the agency more than 10 years ago, said the situation is now being affected in part by banks. While Dollar and Cuevas were at the agency it was an era of rapidly expanding fields of membership, as many credit unions began moving away from ties to single or a limited number of sponsor groups in favor of multiple sponsors or community charters.

“Associational SEGs have been authorized by law since the Federal Credit Union Act was passed in 1934,” said Cuevas, a partner at Dollar Associates in Birmingham, Ala. “Only in the past two years, driven by a series of complaints by banker associations in a handful of states, has NCUA decided that it will be the arbiter of whether an associational SEG is really enough of an association to pass muster for a federal credit union’s FOM.”

Cuevas called what has resulted as turning a “win-win for credit unions and associations, both of which are looking for new members and additional services to provide them, into a lose-lose as NCUA has both rejected and delayed hundreds of associational SEGs through an overreaching and exhaustive process that is hurting both credit unions and legitimate associations—many of which have been in existence and functioning for decades.”

Rather than declaring itself as the arbiter of whether an association is enough of an association to meet NCUA’s test to become part of a federal credit union’s FOM, NCUA should be facilitating these associations to help make their members accessible to lower-cost financial services through a credit union, explained Cuevas. 

“Ninety-eight percent of associations are legitimate, have themselves structured in accordance with state law and should not have to jump through the hoops that NCUA is currently requiring to be a part of a credit union’s FOM,” added Cuevas. “In fact, this overreach on associations is driving a lot of federal credit unions to consider switching to the state charter which is much more open to associational SEGs in most states. Our firm is currently working 14 federal to state conversions, all driven by FOM concerns, and eight of them specifically looking to convert because of the NCUA’s overreaching approach on associational SEGs.”

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Copyright Year: 2019
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