FOM Concerns Continue

NCUA's FOM objectives are commendable, but its proposal needs work.

July 29, 2010
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Questions about the role and objectives of field of membership (FOM) limitations continue to surface as credit unions seek to serve Americans’ evolving financial needs. While other issues are more immediate, this topic merits discussion.

The National Credit Union Administration’s (NCUA) current FOM proposal seeks to improve the charter and expansion approval process. Its objectives are commendable. But in our April comment letter—developed with the Credit Union National Association’s (CUNA) Field of Membership Task Force, chaired by Truliant Federal Credit Union President Marcus Schaefer—CUNA raised a number of concerns about the proposal. CUNA also offered key recommendations to address those concerns.

The purpose of the proposal is to insulate federal credit unions and NCUA from further FOM lawsuits. Banker groups, in particular, have challenged NCUA’s policies—often on the grounds of inadequate agency records—since passage of the Credit Union Membership Access Act.

The proposed changes would allow NCUA to approve community charters or expansions only if they meet the Office of Management and Budget’s (OMB) quantitative definitions of community. More specifically, the proposal would redefine the term “well-defined local community” for applications involving multiple political jurisdictional areas (such as more than one county). Such an area would be one in which:

• The population is 2.5 million or less;
• The area includes a dominant core—a dominant city, county, or equivalent with a majority of all jobs in the core; and
• The dominant city, county, or equivalent contains at least one-third of the area’s population.

Areas previously approved by NCUA would be “grandfathered,” so an exact area already permitted for another federal credit union would be allowed for an applying credit union, regardless of the new criteria.
NCUA also proposes defining the term “rural district” as one that has:

• Well-defined contiguous geographic boundaries;
• Greater than 50% of its population in census blocks designated as rural; and
• A total population of 100,000 or less.

CUNA’s letter supported the use of a statistical approach to determine communities, but urged the agency to allow federal credit unions to supplement such data with narrative information.

Also, because the proposal would exclude many communities, CUNA urged NCUA to reconsider the specific statistical criteria for multiple political jurisdictions and rural areas listed earlier. In their place, we encouraged the agency to consider following other OMB statistical-area categories that would provide more flexibility to federal credit unions.

Other provisions in the proposal would require a credit union to demonstrate how it will implement its business plan to serve the requested area, and would authorize examiners to review the plan and impose sanctions for noncompliance during the first three years after application approval. CUNA strongly opposed the use of such sanctions.

Regarding underserved areas, CUNA’s letter urged that the focus of a credit union’s application should be on the unmet needs of the area requested, and that a federal credit union should be able to submit narrative information documenting how it will meet those needs. CUNA also urged that underserved areas be grandfathered, so later applicants could serve the same area under a streamlined process.

Our letter refuted American Bankers Association (ABA) charges that encourage NCUA to reduce and contain credit union charters and expansions. CUNA’s letter stated: “The ABA wants credit unions to be limited to serving communities of the smallest size possible. Unfortunately for their argument, the Federal Credit Union Act doesn’t contain size limitations…”

In addition to pursuing a range of advocacy issues for credit unions, we’ll continue to seek an improved FOM process—even as the credit union system continues discussions about the utility of FOM limits.

MARY MITCHELL DUNN is senior vice president/deputy general counsel for the Credit Union National Association. Contact her at 202-508-6736 or at

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