However, the Ohio Bankers League pointed, “Credit unions are provided several advantages so they can better serve people of modest means, but those advantages are tied to limitations.”

Minnesota Bankers Association General Counsel Tess Rice chimed in, “The current Chartering Manual already exceeds Congressional intent by making any city or county a local community regardless of population size. NCUA should not further circumvent Congressional intent by adding two new additional categories of presumptive well-defined local communities.”

OBL also wrote, “OBM (sic) in fact specifically cautions that these definitions should not be used to implement government policies or programs without a full consideration of the effects of using those definitions for such purposes.”

Recognizing this language, CUNA in a pre-emptive move outlined that NCUA's own analysis and by inviting comment on this approach is already considering the totality of the circumstances.

However, the credit union groups objected to the five-year time limit for exempting credit unions from documenting a community in previously approved areas. If at all, the trades felt 10 years was more appropriate as it is consistent with the federal census.

Notice and Comment

The provision that would require communities that do not meet any of the pre-approved definitions to be subject to a notice published in the Federal Register and a comment period raised some controversy.

“From our perspective, the most potentially dangerous part of this proposal is the requirement for a public notice and comment period to be posted in the Federal Register for some community charter applications,” Corning Credit Union President/CEO Gary Grinnell stated in his comment letter. “We feel that the determination of a credit union's field of membership is between the credit union and its regulatory agency, not competitors, community activists, opponents or even supporters. While their comments may be interesting, they are irrelevant to the decision making process.”

Bethpage Federal Credit Union President/CEO Kirk Kordeleski added, “This requirement will establish an irrevocable precedent that both opponents and supporters of a credit union's application have standing in a regulatory compliance matter. Not only can opponents and competitors ferret through a credit union's community charter application for business strategies that should be protected from such scrutiny, but supporters can be rallied to provide countless testimonials for the credit union that–while strengthening the record–contribute nothing to the question at hand.”

As part of the proposal, NCUA clarified and added more detailed information regarding the business and marketing plans submitted for a community charter application. Some credit union advocates said this would be acceptable if the information was not made public. Clarifications in the requirements would help ensure consistency across the regions, according to NAFCU.

The notice and comment provision was where American Bankers Association Senior Economist Keith Leggett found something to agree on with NCUA. “Such a process would have helped provide a balanced record in the case currently in litigation in Pennsylvania.” The ABA is currently engaged in a legal battle with NCUA over its approval of a six-plus county community charter for Member's 1st Federal Credit Union.

Leggett highlighted, “Significantly, the NCUA Board acknowledges that 'it is proposing a definition that reflects an area that may lack the traditional characteristics of interaction or shared common interests.' The lack of meaningful affinity is clearly at odds with statute and would make it more difficult for credit unions to fulfill their public mission.”

The Independent Community Bankers of America took a different tact. “Each community charter application or conversion proposal should be handled on a case-by-case basis rather than on presumptions of what are 'local' communities,” Regulatory Counsel Christopher Cole said. “ICBA strongly objects to NCUA's attempts to expand the statutory definition of a 'well-defined local community' by defining presumptive local communities. Without a distinct field of membership, a credit union should convert to a bank.”

A group calling itself the Credit Union Strategies Task Force of Pennsylvania–whose slogan is “Educate, Contain & Convert: Advancing the challenge against unfair credit union expansion”–argued that proposed communities “should be subject not only to public review and comment, but also to administrative hearings upon the application of other adversely affected financial institutions located with the same alleged 'community.'”

Seeking a middle ground, credit union consultant and retired NCUA employee Charles Agricola wrote, “Publication is a reasonable requirement as espoused in the proposed rule. However, publishing the notice in the Federal Register could be costly and is a virtual overkill.” He suggested publication in the proposed community's most widely read local newspaper.

CUNA, NAFCU, and the Texas Credit Union League generally agreed. “Such a method would be less burdensome on the credit unions and is similar to the method banks follow in proposed mergers,” TCUL Vice President of Regulatory Compliance & Legal Affairs Suzanne Yashewski offered.

'Rural' Defined

NCUA was also using this proposed rule to establish a definition of a rural district as permitted in the Credit Union Membership Access Act, according to the agency, but not yet defined by NCUA. NCUA's proposal would define a rural district “as an area that is not in an MSA or MicroSA and has a population density that does not exceed 100 people per square mile where the total population of the rural district does not exceed 100,000.

To the contrary of NCUA's assertion that it does have the statutory authority, the Credit Union Strategies Task Force stated that a rural district by definition would not meet congressional intent.

Some executives from Wells Fargo even commented on the proposal, demonstrating that big banks do pay attention to credit unions, though the language was strikingly similar to the task force's letter, which borrowed language from ABA's.

CUNA and NAFCU applauded NCUA's attempt at defining a rural district though they found the actual language overly restrictive. CUNA suggested removing the 100,000 population cap altogether and rely on interaction standards. CUNA also recommended allowing for part of a rural district as well. TCUL agreed. NAFCU recommended increasing the cap to 250,000.

Consolidated Federal Credit Union President/CEO Ed Baldwin commented that the rural definition “seems to take a 'one size fits all' approach”, but wanted to at least see an increase from 100,000 maximum population to 500,000, consistent with a multi-county community that is not a metropolitan statistical area.

Agricola said the avoidance of MicroSAs (Micro Statistical Areas) in rural districts “is not logical since many of the MicroSAs are in rural areas with a single population center of between 10,000 and 50,000 and with a total population considerably under 100,000 people that are widely dispersed. Furthermore, job-community statistics are not always meaningful when related to rural districts.” Rural areas tend to have many self-employed farmers resulting in low-commuting statistics.

However, the former NCUA employee said, “Nevertheless, these residents share a high degree of social and economic integration with the MicroSA through shopping, entertainment, farm organizations, farm bureaus, shared county-fairs, etc.”

Hardin Community Federal Credit Union CEO Matthew T. Jennings pointed out NCUA's proposed definition conflicts with the USDA's interpretation. “Furthermore, there are MicroSAs in my home state of Ohio alone that have populations well under 100 thousand and sparsely populated. Therefore excluding Micro areas from the definition of a rural district appears unreasonable and inconsistent.”

Voluntary Mergers

Concerning the voluntary mergers of community charters, NCUA said it was “unaware of any particular problems in this merger context” but welcomed comments.

According to NAFCU, “NCUA's merger policy stifles growth and hinders many federal credit unions from making reasonable business decisions that might benefit their members.”

Berger outlined, “Under NCUA's current policy, voluntary mergers involving community credit unions are essentially limited to mergers with other community charters. A community credit union cannot merge into a single- or multiple- common bond credit union, except in an emergency merger.”

NAFCU stated that multiple common bond credit unions that choose to convert to a community charter should be able to retain all the groups previously added.

“Absent insolvency (or likely insolvency), these community credit unions have very limited options,” NAFCU said of many small or rural community charters. “Credit unions must not be pushed to the verge of insolvency before they are permitted to exercise their business judgment to merge.”

CUNA added that credit unions should have flexibility in mergers consistent with safety and soundness but the issue should be reviewed in the larger context of members, “not with the goal of further regulation but with the objective of facilitating the ability of credit unions to make their own decisions regarding mergers.” CUNA urged NCUA to issue a separate advance notice of proposed rulemaking on this matter.

However, ABA Associate General Counsel Gregory Taylor commented in a letter following up on Leggett's that hybrid charters are not allowed under the law as reinforced by the famous National Credit Union Admin. v. First Nat. Bank & Trust Co., that went all the way to the U.S. Supreme Court. The court found that NCUA could not create membership models not specifically in Section 1759 of the Federal Credit Union Act.

But, best options and not field of membership should drive merger decisions, Kordeleski advocated. “This is the criteria the agency utilizes when it facilitates an emergency merger. This should likewise be the criteria the agency utilizes to facilitate voluntary mergers among the candidates to avoid future emergencies,” he wrote.

Underserved Application

NCUA has also suggested applying the same requirements for proof of a to an underserved area application. However, those commenters aligned with the credit union community did not see the sense in this idea. “Underserved areas are not communities. Credit unions expanding service to an underserved area are not community charters…Our reading of the present regulation is that an area is either underserved or it is not. The standard is not interaction; it is need for service,” said Kordeleski.

–[email protected]