The Evolution in Field of Membership

SAN FRANCISCO–Is the whole concept of field of membership for credit unions now “antiquated?” 

Feature NASCUS

One person told credit unions here she believes that’s the case, while also sharing a number of other interesting developments and trends when it comes to FOM.

Indeed, the trend lines between state and federally chartered credit unions include a number of surprises, including how in some instances credit unions headquartered in one state have now gotten statewide fields of membership in other states, and how the concept of “parity” is expanding even further. 

In light of all that, state regulators here were also urged to think about how competitive their own sate charters are, not just when compared to the Federal Credit Union Act but when compared to those of other states, as well. 

Those developments, recommendations and other news were shared by Lucy Ito, president of the National Association of State Credit Union Supervisors (NASCUS) during its State System Summit here. 

Here’s an overview of the points made by Ito during her remarks, beginning with the data as seen in the charts below: 


“I was stunned to look up the data and for 2017 and see there were actually 111 state charters that disappeared via merger versus 109 on the federal side,” said Ito. In 2018, 76 SCUs disappeared in mergers, one vs. 23 in FCUs. 


Noting that in 2018 that for the first time a federal charter in Nebraska converted to a state charter based in Iowa, Ito asked the state supervisors on hand, “How competitive is your state CU charter relative to federal charter andother states’ charters? It is not a competition between federal and state, but it is a competition for the charter to evolve.”

For state charters converting to federal, Ito said the primary driver is typically related to interstate branching. When moving from federal to state, she said the usual reason is field of membership. 


Here’s a look at some of the many issues related to charters and more as discussed by Ito during her remarks”

Field of Membership

Ito said five states now have “effective” statewide fields of membership, including Alaska, Iowa, Michigan and Washington have confirmed “effective” statewide FOMs. In some cases the geographic area has to be county by county or district by district, and in some cases those counties and districts must be contiguous.

“I worry about the state system overall if we’re handcuffed by field of membership, whether state or federal,” said Ito. “We do need to think about how antiquated is the concept of field of membership when people access their financial services today and people feel closer to someone who lives across the country or across the world or feels a stronger bond with someone digitally than they do with someone locally.”

A regulator from Florida who was in the audience told the group a Michigan-based CU now has the entire Sunshine State in its FOM. 

New Type of Parity

Typically in Credit Union Land, said Ito, the discussion is around federal/state parity. Forty two of 43 states offer parity, with Alaska the lone state that doesn’t offer parity, according to a NASCUS survey.  Five states offer what Ito called “super parity,” which is parity not just to the federal charter but also to other states: Connecticut, Idaho, Texas, Utah and Washington. 

Now there is a new type of parity being developed, said Ito, who termed it “Ultra parity.” Ultra-parity is when a regulator allows not just parity with the federal charter and the charter of other states, but also with the powers granted to any other type of competitor. 


NASCUS' Lucy Ito speaking to meeting in San Francisco.

“This is the first time I’m aware of the term super-parity,” said Ito. “It can be the powers a bank has at the state or federal level, or with fintechs it can be a power a non-depository has. They don’t get it automatically, but the director in Michigan has the authority to look at new powers.”

CUs As Depositories

In a number of states, credit unions are the largest of any type of state-chartered depository. In Florida, it’s Suncoast and Vystar. In Idaho, it’s Idaho Central. In Iowa, it’s GreenState, while in Minnesota it’s Wings Financial, in New Hampshire is Service CU, and in Washington its BECU. 

“In part this is because many state banks are being acquired” by regional players, said Ito.

Third Party Vendor Authority

Twenty-nine of the 45 states that have a state credit union charter provide their respective regulator with third party vendor authority, said Ito. It’s critically important when it comes to cybersecurity, Ito added, describing it as the “issue regulators worry about most.”

“NASCUS’ position is we are in favor of state regulators having third party vendor authority,” Ito said. “We are also in favor of NCUA having the same authority with two caveats: it’s limited to technology service providers and that in states where regulator has that authority, they defer to the state regulator.”

Ito acknowledged many credit unions, along with their trade groups, have objected to giving the federal agency third party vendor authority. 

“But as the cyber risks continue to pile on, and particularly for small credit unions that have limited resources to do the due diligence, it raises the question of whether it’s getting to the point of being in the best interests of the credit union industry to have third party vendor authority, and to allow regulators to share warnings over a particular vendor if necessary,” Ito said. 

CU Acquisitions of Banks

Ito noted the first federal credit union acquisition of a bank took pace in 2012. As of July 2019, there have now been 29 acquisitions, 24 by state charters, five by federal charters. From 2012-18 the average size of a selling bank was $106 million, with the largest taking place this year at $733 million in Florida.

“My guess is federal acquisitions are going to increase,” predicted Ito.

NASCUS Acquisitions
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Copyright Year: 2019
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