In April, NCUA finalized a regulation which more clearly defines the procedures the agency uses to approve additions of associational groups to federal credit union charters. But this is only the first step in what CUNA anticipates will be important changes in the federal field of membership (FOM) rules.
At the end of 2014, NCUA Board Chairman Debbie Matz formed an agency staff FOM working group that is consulting with credit unions to identify a broad range of FOM rules restrictions regarded as undesirable.
NCUA Board Vice Chairman Rick Metsger has been very vocal about the need for action, noting the agency hasn’t performed a significant review of the FOM rules in 15 years. Metsger has said “the dual-chartering system works most effectively when both state and federal policies keep pace with changes in the financial marketplace,” and he has noted that states have done a better job in that respect—as evidenced by the number of federal credit union conversions to state charters.
Expect NCUA’s FOM working group to make its recommendations to the board later this year.
Associational common bonds
The NCUA Board has revised its chartering and FOM manual to clarify how it determines if an association that a federal credit union wants to add to its charter satisfies the agency’s associational common bond requirements. Although these changes officially become effective July 6, 2015, they spell out how the agency has been assessing charter applications that involve adding associational groups.
The most noteworthy part of the new regulation is the list of a dozen “preapproved groups” that automatically satisfy the associational provisions. Putting this into writing should help federal credit unions spend less time filing unnecessary paperwork. NCUA says it’ll issue guidance to further explain its new process.
NCUA now formally states that an association “must not have been formed primarily for the purpose of expanding [federal] credit union membership” and must serve “some other separate function as an organization.” NCUA says this is the “threshold requirement” in its analysis of whether to approve the addition of an association. If the group crosses that threshold, NCUA then uses a “totality of the circumstances test” to determine if the association satisfies the agency’s common bond requirements.
In reality, the agency will undoubtedly use some of the eight factors in its “totality” test to also evaluate its threshold requirement. NCUA says meeting the threshold has been an obstacle for less than 1% of the applications it has reviewed during the past three years, either because the actual, independent purpose of an association is questionable or the association’s separate mission faded over time.
NCUA originally proposed a list of seven preapproved categories, but at the suggestion of CUNA and others, the agency expanded its final list to 12.
According to NCUA, 87% of associational applications filed since the beginning of 2014 would have been automatically approved under these criteria. The categories include:
To request adding an association that doesn’t fall into one of these categories, a federal credit union needs to submit documents illustrating the group’s validity.
NCUA then will apply its “totality of the circumstances test” to assess the association’s membership eligibility. No single factor is determinative (and certainly not all eight factors have to be met).
NCUA will focus primarily on the first four factors. Only the eighth one, regarding corporate separateness, is new to the agency’s policies. The eight factors are:
NCUA reiterates its longstanding policy that associations based primarily on a “client-customer relationship,” such as a health club, don’t qualify to be added to a federal credit union’s charter, and that individuals only making a donation to an association— rather than joining—aren’t eligible for federal credit union membership.
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