skip to Main Content


MAY 6, 2016

Originally Appearing in the Credit Union Times

The banking lobby has been making noise lately about NCUA’s recent field of membership proposal.  No big surprise there. As with their constant badgering about the eighty-year old federal credit union tax exemption, bankers complaining about credit union FOM rules is as certain as death and taxes – and about as creative.

The banking lobby would have you believe that NCUA’s most recent proposal to amend FOM rules goes well beyond what the statute allows.  It is the same tired argument they have used for years.

The problem with their argument is they are flat out wrong and they know it.

While NCUA is to be commended for their efforts in modernizing the agency’s field of membership rules, they did not go as far as they could have gone – or frankly have gone in the past.

Make no mistake about it, the proposed changes are clearly within the parameters of the Federal Credit Union Act and, if implemented as proposed, will not be nearly as far reaching as the 2003 FOM rules (or even the 1999 rules) that were in place until 2010.

For example, in the 1999 and 2003 rules there were no restrictive population caps and CSA limits on community charters.  There were no Concentration of Facilities Test requirements for underserved areas.  All three of these 2010 restrictions are retained in the proposed rule.

For legal history, it is important to remember that the 1999 FOM rules, enacted by NCUA shortly after passage of CUMAA, were challenged in court by the banker lobby and upheld.  The 2003 rules, which expanded the 1999 rules, were not even challenged in court by the bankers.  If these new rules are implemented as proposed, it will not take their lawyers long to recognize that they spent a lot of money attacking FOM rules in 1999 that went much further than what NCUA has most recently proposed – and they lost.

So why all the hype from the bankers on a proposal that almost every industry expert agrees does not go as far as the 1999 rules, their expanded version in 2003, and fall well short of what NCUA could have authorized under the current statute?

The simple fact is the high-pitched rhetoric we continue to hear from the bankers really has nothing to do with whether the proposed FOM rules go beyond the statute.  It has a lot more to do with limiting the ability of credit unions to play competitively on the financial services field to more American consumers.

Congress and the courts have made it clear that credit unions have the right to be on the field.  Congress did not delegate to the ABA the authority to define credit union FOM, nor did they give it to CUNA or NAFCU.

The presidentially appointed and Senate confirmed NCUA Board was given that authority.

What the banking lobby really wants is to keep credit unions on the sidelines or make them so ineffective that they are not able to be competitive in the game.

For example, when the bankers utilize mobile phone apps and the internet to expand service to their customers they call it financial modernization.  Yet, when credit unions attempt to do so – as this rule allows for SEG expansions – the bankers call it overreach or going beyond the law.

For a bit of perspective, consider that recently the 2016 Masters was held at Augusta National Golf Club.  One of the four major championship tournaments in professional golf, it is generally regarded as the world’s most prestigious golf event.

The very first Masters was won by Horton Smith in 1934 (interestingly the same year the Federal Credit Union Act was passed).  We can all agree that a lot has changed in the world of golf between Mr. Smith’s win in 1934 to Danny Willett’s win just a few weeks ago.

Since then we have gone from hickory shafts and persimmon wood drivers to titanium clubs with steel shafts and golf carts outfitted with GPS systems.  The course at Augusta National is even laid out differently than in 1934.

Technology has changed the way the game is played, but no one would seriously suggest that 2016 Masters winner Danny Willett should have to play the game with the same equipment that Horton Smith played with in 1934.  Yet, that seems to be the primary premise for the bankers’ objections to any attempt to update FOM rules for credit unions.

They know credit unions have a right to be on the field.  They just want to see them play with old and outdated equipment.

It is not about FOM.  It is and has always been about keeping credit unions less competitive in the financial marketplace with outdated restrictions that impede valuable consumer choice.