NCUA Tells CUs How to Craft Narrative Field of Membership Applications

Federal credit unions that use a narrative to apply for, expand or convert to a community charter should rely on as much third-party evidence as possible—not just anecdotes—to make their case to the NCUA, the agency said, in new guidance.

First and foremost, credit unions must demonstrate their ability to serve the requested community and their intent to serve the entire community, NCUA Board Chairman J. Mark McWatters wrote in a letter to credit unions that accompanied the guidance.

“The federal credit union can use a written narrative, with sufficient supporting documentation, to establish the existence of a well-defined local community,” McWatters wrote in his letter.

He added, “Independent third party or statistical data to support the area qualifies as a well-defined local community is the most persuasive.”

On the other hand, anecdotal evidence is far less persuasive, the agency said.

In June, the NCUA board approved a new field of membership rule that allows 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.

The rules went into effect on Sept. 1 and the NCUA has scheduled an Oct. 24 webinar on the rules.

At the time they were adopted, the American Bankers Association charged that the NCUA was obliterating any semblance of field of membership standards.

In the guidance, the NCUA said that the presence of an economic hub can be effective evidence to be used in a narrative. The agency said that it is the most persuasive criterion because a common employment center promotes other activities, such as shopping and recreation.

Credit unions may rely on third-party evidence, such as government agencies and newspapers in demonstrating that a well-defined local community exists.

At the time the regulation was adopted, ABA President/CEO Rob Nichols said the narrative approach goes far beyond what federal law allows.

The fact that the NCUA today chose to allow tax-exempt credit unions to make up what constitutes a ‘well defined local community’ is disappointing, but given previous decisions, not terribly surprising,” he said. “The reality is the rule approved today effectively allows large credit unions to operate with no membership limitations at all, well beyond Congress’ original intent.”

The ABA sued the NCUA over its last amendment to field-of-membership rules. A Portion of those rules were voided by a federal court, while others were upheld.

That case is still pending in the U.S. Court of Appeals for the District of Columbia.