On June 30, 2014, the comment period closed for proposed changes to NCUA's Field of Membership requirements for federal credit unions (FCUs).
At the request of our clients, Howard & Howard drafted a comment letter with our concerns. Our formal comment letter is available here. Our detailed Regulatory Alert on the proposal can be found here.
Below are issues FCUs should review as the proposal continues through the rule making process.
Increased Scrutiny Before Approval
Under the proposed rule, NCUA would add a "threshold requirement" that must be met before NCUA would proceed to their "totality of circumstances" test. Specifically, NCUA would make the subjective determination of whether "the association has been formed primarily for the purpose of expanding credit union membership." Our comments explain this additional step is not necessary as any associations formed for this purpose would already be subject to the more objective "totality of circumstances" test. If NCUA retains the "threshold requirement," we have asked for a clear, independent appeal process.
One-Year Waiting Period
Related to the "threshold requirement," the proposal would require that any new association be in existence and operating independently for one year before it could be added to any FCU's field of membership. This requirement was mentioned briefly in Footnote 17 of the proposed rule and does not appear in the actual proposed regulatory text. Our comments criticize NCUA's approach and request the one-year waiting period be withdrawn. If adopted, we have formally requested that NCUA wait at least one-year before enforcing the waiting period. This would prevent a disruption of existing growth strategies for FCUs - including pending requests.
Quality Assurance Reviews
While not a formal part of the proposal, NCUA did discuss their ongoing quality assurance reviews of existing associations. Our comment letter highlights numerous concerns with these reviews - including the lack of information available to credit unions on the process. Further, NCUA has approved all existing associations and its authority to remove those associations - without a formal, independent appeal process - is unclear.
We have worked with clients undergoing quality assurance reviews from NCUA and have noticed inconsistencies in those reviews. Our letter requests that NCUA formalize its process to provide transparency to credit unions.
Importantly - if your credit union is selected for a review, we can help you navigate the process.
Conclusion
NCUA's proposal could fundamentally change the way FCUs utilize associations. Without changes, the proposal has the potential to significantly increase the burden related to adding a new association to a FCU's field of membership. We expect NCUA to finalize the rule later in 2014 and, hopefully, the final rule will be less burdensome and more transparent.
