NCUA Chairman Debbie Matz recently announced at CUNA's GAC that 2015 will be the year of regulatory relief. This, coupled with strong statements from Vice Chairman Rick Metsger and Board Member Mark McWatters on the need for field-of-membership overhaul, along with the announcement of an NCUA field-of-membership task force, provides some hope that meaningful regulatory reform may be on the horizon for the industry. The news is welcomed, and frankly, has been a long time coming.
FOM Policy Needs Modernizing
While there are a number of key areas where reform is desperately needed in NCUA's current field-of-membership policy, one item particularly in need of a long-overdue modernization is NCUA's current 25-mile interpretation of a broad statutory requirement that states: Whenever practicable and consistent within reasonable standards of safety and soundness, a multiple common bond credit union should be within "reasonable proximity" to any SEG it seeks to serve. In meeting this requirement, the agency has historically taken a one-size-fits-all approach and focused all of its attention on the physical proximity the SEG or association has to a credit union branch. However, this approach is one-dimensional and fails to recognize the latitude afforded by the agency in the statute to consider other practical considerations that are still consistent, if not more consistent, with the safe and sound operation of a credit union.
Remote Channels Make 25-Mile Radius Rule Irrelevant
Although not specifically defined in the statute or implementing regulation, NCUA currently interprets the reasonable proximity requirement as having been met if the group to be served is within that magic, 25-mile radius of the credit union. While there may have been a time when the agency's 25-mile radius interpretation of reasonable proximity was appropriate, continued reliance on such an outdated standard 15 years into the 21st century simply no longer makes sense in a financial marketplace where products and services are regularly delivered through electronic means.
Today's credit unions can serve members through a wide range of channels, many of them remote, and the need for a branch within a short driving distance is less now than it has ever been. It is simply unreasonable to suggest that members of an association or SEG cannot be well-served (or even better-served) by a stronger credit union with a physical location more than 25 miles away than they would be by a weaker credit union right around the corner — or worse yet, no credit union.
New CU to Serve Members Remotely
Illustrating this view, the NCUA recently provided preliminary approval of a proposed field-of-membership for a new credit union that will have the ability to serve any professional or amateur sports organization in the country. What makes this interesting is that this credit union intends to do this without operating a single physical branch.
There is nothing inherently wrong with this approach as long as the credit union can clearly demonstrate its ability to serve the membership. In fact, the NCUA should be commended for its willingness to consider business and marketing plans that allow credit unions to rely on technological advances as they relate to their ability to serve members via electronic means. But it makes no sense for the agency to hang on to an outdated interpretation of "reasonable proximity" for SEG expansion when the statutory mandate provides considerable latitude in how the standard is defined.
If a newly-chartered credit union with no branches can be approved to serve members nationwide, it is difficult to justify why a well-established credit union with a documented history of serving its members cannot be authorized to serve a particular SEG outside a 25-mile radius.
The NCUA's current interpretation of reasonable proximity requires a 21st century recalibration of thinking, and added flexibility based on a credit union's unique circumstances and technological advances in the financial marketplace.
Kirk Cuevas is a partner at Dollar Associates. He can be reached at 205-991-1525 Ext. 302 or [email protected].
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