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CUNA Regulatory Comment Call

January 27, 2006

EXECUTIVE SUMMARY

• The NCUA Board has issued a proposed Interpretive Ruling and Policy Statement (IRPS) that would amend its Chartering and Field of Membership Manual for Federal Credit Unions (Chartering Manual). This proposal follows the moratorium NCUA issued December 29, 2005 that suspends the addition of underserved areas for single common-bond and community federal credit unions; the moratorium will remain in effect while NCUA considers the comments filed in response to the proposal and whether the proposal should be adopted.
• The proposal would basically make policy changes in two areas.
  • Underserved expansions outside the credit union’s field of membership would be limited to multiple common-bond credit unions only.
  • Underserved area service facility requirements would be revised in the following ways. The definition of a “service facility” would be modified as discussed below and once an underserved area has been added, the credit union would be required to establish and maintain an office or service facility in the underserved area within two years. Currently, a preexisting facility may be within reasonable proximity of the underserved area. As under the current policy, an ATM or the credit union’s Internet web site would not be considered a service facility.
• The proposal would apply prospectively. This means that federal credit unions could continue serving underserved areas already approved and continue to bring in new members from those areas. However, a credit union that does not have a multiple group charter would not be able to add new undeserved areas.
• NCUA is also seeking comments on these provisions and other aspects of its underserved-area policy, as addressed below.
• The proposal will be thoroughly reviewed by CUNA’s Federal Credit Union Subcommittee and Governmental Affairs Committee. CUNA will also work closely with the Leagues to develop our comments.
• Comments on the proposal are due to NCUA by March 28, 2006. Please send your comments to CUNA by March 10, 2006. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004-2601. You may also contact us if you would like a copy of the proposed IRPS, or you may access it here.

Also, for comparison purposes, here is a link to NCUA’s current policy on serving underserved areas.

DISCUSSION

On November 2, 2005, the America Bankers Association filed suit in Utah to challenge the current policy of the National Credit Union Administration Board that permits all federal credit unions to add underserved areas to their fields of membership.

The bankers contend that because the Credit Union Membership Access Act only expressly authorizes multiple group credit unions to add undeserved areas that are outside of their fields of members, Congress meant to prohibit single group and community credit unions from adding underserved areas. Thus, they argue, NCUA’s policy, which also permits single group and community credit unions to add such areas, is not supported by the Federal Credit Union Act.

The agency is very concerned that the bankers’ litigation in Utah has created “a degree of uncertainty” – perhaps the understatement of the year – about whether single group and community credit unions may continue to add new underserved areas. The agency also said it is “concerned about the financial effect of continuing to approve new requests to serve underserved areas by non-multiple common-bond credit unions that then invest resources in serving these areas. We believe that is unfair to provide persons of limited means with needed financial services where the possibility exists that they could suddenly be deprived of those services.”

The agency said that since the moratorium was adopted in late December, it has conducted “a comprehensive review of its underserved area policy.” The review resulted in the amendments that the agency is proposing to its field of membership policy.

Here is a brief description of the amendments:

• The proposal would authorize only multiple group credit unions to add underserved areas that are outside the credit union’s field of membership.
• Under NCUA’s current field of membership policy, a “service facility” for the undeserved area must be established within two years. Such a facility is defined as a place where shares are accepted for members’ account, and loan applications are accepted and loans are disbursed. This would not be changed by the proposal.
• However, the proposal would modify the list of examples of a “service facility” provide in the agency’s FOM policy to exclude a credit union owned electronic facility. A credit union owned branch, a shared branch, a mobile branch, and an office operated on a regularly scheduled, weekly basis would continue to meet the definition, but it would not include an ATM or the credit union’s Internet website.
• Also, currently the FOM policy permits a credit union with a preexisting office within close proximity to the undeserved area to use that office to serve its underserved area, without having to maintain an office or facility actually in the underserved area.
• The proposal would change that to require credit unions serving underserved areas to maintain a service facility within the underserved area. NCUA said it is proposing the changes regarding service facilities to “’assure a physical presence in the area and further encourage a very active role by the credit union in the underserved area.”

NCUA is seeking comments on the proposed changes and is requesting input on all aspects of its policy on service to the undeserved. In addition, it is seeking comments on the five specific questions below.

We really need your input on the proposal and any related concerns you care to raise. CUNA’s Federal Credit Union Subcommittee will be developing CUNA’s letter and your comments will be important to Subcommittee members as they consider CUNA’s position on the proposal.

1. Does NCUA have authority to permit expansions into underserved areas for all three federal charter types (single common-bond, multiple common-bond, and community charter)?
   
   Please explain.
   
   

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2. Do you feel that NCUA should permit only multiple group credit unions to add underserved areas to their field of membership? What would be the impact of that limitation?
   
   Please explain.
   
   

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3. If only multiple common-bond credit unions are permitted to add underserved areas, should they be permitted to retain these areas in the event they change charter type?
   
   Yes ______ No ______
   
   Please explain.
   
   

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4. To what extent do non-multiple common-bond credit unions have existing investments in underserved areas? What types of investments are they? (For example, capital investment, loans, share deposits, and other programs targeting low income people.)
   
   Please explain.
   
   

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5. What would be the impact to members of underserved areas, and non-multiple common bond credit unions, of placing restrictions on the addition of new members in underserved areas they are currently serving?
   
   Please explain.
   
   

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6. Do you agree with the new provision requiring that a physical presence (service facility) be established in an added underserved area to ensure an active credit union role and better serve local residents?
   
   Yes ______ No ______
   
   If not, what other method should NCUA employ to ensure that the service needs of the local residents in the underserved area are adequately met?
   
   

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7. Other comments?
   
   

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