NCUA Board Approves Field of Membership, Merger Rules

The NCUA board approved a final rule Thursday that will allow applicants for community chartering approval, expansion or conversion the option of presenting a narrative in order to provide it will serve a well-defined local community.

However, the final rule deletes a plan that would have increased to 10 million the population limit on a community consisting of all or part of a statistical area.

Board Chairman J. Mark McWatters and other staff indicated that the cap increase was deleted as a result of a federal court decision that voided portions of previous changes to the agency’s field of membership rules.

McWatters said that as an attorney he would never go along with a proposal that violated a court ruling.

A portion of the NCUA’s last field of membership change is tied up in federal court, where parts of the plan were voided by a federal judge, while other parts were allowed to go into effect.

Banker groups and the NCUA are appealing that ruling.

The board also decided that it will hold a public hearing for any narrative merger where the proposed community exceeds 2.5 million people.

The NCUA also will publish a list of criteria that credit unions using the narrative approach should use.

Board member Rick Metsger said that the use of a statistically presumptive community is more objective and less burdensome than the narrative approach.

“The narrative approach will simply be an option that a credit union can use if the borders of existing political jurisdictions do not represent their natural market,” he said. “This can be the case with political boundaries that were often created more than two centuries ago and no longer reflect today’s world.”

He said the rule will give individual credit unions more flexibility to establish their own well-defined communities.

Credit union trade groups applauded the field of membership rule.

“We support the provisions contained in this second FOM rule and will continue to support the agency’s first rule that is still being challenged by the bankers,” said NAFCU President/CEO B. Dan Berger. “We believe these FOM reforms fall well within the agency’s legal authority.”

“NCUA has once again acted within its statutory authority to modernize field-of-membership regulations, and we strongly support them in these efforts,” said CUNA President/CEO Jim Nussle. “We thank NCUA for continuing its work to ensure consumers have access to not-for-profit, member-owned financial institutions, despite bankers’ efforts to deprive them of that choice.”

The board also adopted a final rule governing voluntary mergers.

The final rule deletes a controversial requirement from the original proposal that credit unions establish a means for members to exchange comments about the proposed merger to each other.

Instead, the NCUA will establish a moderated portion of its website for credit union memberss to comment on the proposed merger.

The NCUA board also made it clear that the rule applies to Federally Insured State Guaranteed Credit Unions.

The final rule increases the required time for notice to members to a minimum of 45 days. The rule also expands the types of merger-related compensation for certain employees that must be disclosed, and the types of employees covered by the requirement.

The rule requires disclosure of compensation for the credit union’s chief executive officer or manager, the four most highly compensated employees besides the chief executive and all members of the credit union’s board or supervisory committee.

However, the final rule will not require employer-provided medical insurance, retirement and other benefits that are offered to all employees.

McWatters said that merging credit unions may have an employee who has served the institution well, but simply has a low salary; the merger might enable an increase in that salary.

“Credit unions may have a great story to tell,” he said. “The best answer is to disclose it, to tell the story.”

Berger said the board made some positive changes to the rule, but that he remains concerned that it could cause problems for credit unions interested in merging.

“While we support increased transparency and disclosure, the rule could create unnecessary and troublesome roadblocks for responsible credit union mergers,” Berger said.

When it filed its comment on the proposed rule, NASCUS questioned whether the NCUA was properly deferring to state law.

NASCUS President/CEO Lucy Ito said the final rule will increase the burden on state chartered, federally insured institutions.

“We are disappointed that NCUA is adding more burden to state-chartered CUs which already practice full transparency and disclose compensation in Form 990s.,” she said. “Voluntary mergers between healthy, well-managed CUs are a business decision, not an insurance nor safety and soundness matter. State regulators, as chartering authority, already set state charters’ disclosure requirements.”