FOM Expansion: The Ball Is in the Credit Union’s Court

To the average person, the words field of membership carry little meaning or interest. Most would not know what FOM means or refers to. However, to many individuals engaged in the credit union industry, they are the key to future growth and success. To individuals in the banking industry they believe the words are a prelude to loss of income and infringement on their customer base.

For over 100 years in the United States, credit unions have engaged in providing financial services to an FOM approved by their state or federal regulator. This defined member base let everyone know who could join a specific credit union. The FOM could be the employees of a specific company; a community like a city, village, town or county; the members of a religious group; a fraternal group or branches of the armed services. This field became where each credit union played their game.

Each person who joined a credit union became a customer, but was legally referred to as a member. Unlike at a bank, being a member also meant you were an owner. Credit unions were organized as not-for-profit entities. They were created to serve individuals of modest means in need of financial services and their members were meant to be more than just customers.

As credit unions grew in stature and became the preferred place to go to conduct one’s financial business, they sought ways they could grow but were confined by FOM regulations. It was difficult to expand when playing on a small defined field. FOM regulations differed between federal and state regulations as well as from state to state. In an effort to find an expanded FOM for their institution, credit unions began forum shopping to get the best charter. To do this, some would convert from a federal charter to a state charter or vice versa. Forum shopping is best defined as the practice by some litigants of having their legal case heard in the court thought to be most likely to provide a favorable judgement. For credit unions it became the process to find which regulator would provide the most favorable FOM for them.

The effort by credit unions to have access to and serve as many people as possible has irritated the banking industry for years. The bankers believe that the law clearly defines who, what, when, where and how credit unions can do business. They have claimed in court and in the halls of Congress that FOM changes give an unfair advantage to credit unions and makes the financial playing field no longer level.

Much to the dismay of bankers, regulators and even Congress believe that credit unions pose no threat to any financial services provider, and that competition is good for the industry and consumer. The bankers have had some success in convincing certain judges that regulators skirted the law when allowing FOM expansions, but fortunately the regulators, acknowledging the courts’ findings and criticisms, quickly worked to solve the judiciary’s concerns and provide credit unions with additional FOM improvements.

Today credit unions have the ability to open up membership to more people than ever by crafting FOMs that enable them to attract more members and grow their business. What credit unions need to understand however, is that in constructing and defining these new FOMs, they are creating larger areas of service, bringing greater responsibilities. When given large geographical areas to serve, they must draw and execute a plan that will get people to become members and take advantage of the services provided. They will have to advertise, market, promote and sell themselves to those who may for the first time have the opportunity to join a credit union.

The effort needed to serve a broader FOM will require time, effort and money. The credit union must understand that if they asked for it and got it, they must now service it. Just bragging about what a great FOM they have means nothing if they do not take the opportunity to make sure everyone in that FOM has access and those who join have service.

With all the improvements that have been made in the FOM regulations, credit unions that take advantage of them will at some point be required to show how these changes have led to financial services being provided to a greater number of people. Their success will be judged by numbers alone. How many new branches have been opened? How many ATMs or teller-less facilities have been added? How many individuals have become new members? How much has the credit union grown in asset size? Regulators will want to see that their actions have led to more services for more people. The bankers will also be looking to see if credit unions delivered what they promised, and if they have not, will run to Congress yelling, “We told you so!”

It’s just another challenge for credit unions to meet head-on and do the job they said they would as they always have. To use a cliché, the ball is in the credit union’s court, or in this case on their side of the field, and it is up to them to advance it and score big.

Michael Fryzel is an attorney and former NCUA Chairman. He can be reached at meflaw@aol.com.