NCUA’s FOM Rule ‘Obliterates’ Congressional Limits: Bankers
“Because of their tax-advantaged status, credit unions are able to offer financial products in direct competition with banks at a substantially lower cost.”
The NCUA’s amended Field of Membership rule “obliterates” the limitations that Congress placed on credit unions, state banking and community banking trade groups said, in a brief filed in a federal appeals court Friday.
“The Final Rule is simply further effort by NCUA to expand the competitive advantages of Community Credit Unions,” the Independent Community Bankers of America, 50 state banking associations and 25 community banking groups, said in the brief.
The American Bankers Association filed suit against the NCUA, charging that the agency’s Field of Membership rule effectively removes all limits on credit unions. That gives credit unions an unfair competitive advantage over banks, since credit unions are text exempt financial institutions, the associations contend, in their brief that attempts to bolster ABA’s case.
In addition, the credit unions are not required to comply with the Community Reinvestment Act, as banks are required to do, they said.
“Implementation of the Final Rule to expand fields of membership will have a substantial adverse effect on banks across the nation,” the trade groups said. “Because of their tax-advantaged status, credit unions are able to offer financial products in direct competition with banks at a substantially lower cost.”
The ABA filed suit against the agency, arguing that NCUA amended its rules in ways that violated federal law.
Judge Dabney Friedrich of the U.S. District Court for the District of Columbia ruled that certain sections of the rules violated the law, while also upholding other sections.
The ABA is appealing a portion of the rule dealing with allowing credit unions to add members in an adjacent area under certain circumstances.
That section of the rule allows a credit union serving a Single Political Jurisdiction, Core-Based Statistical Area, or Combined Statistical Area to add an adjacent area as long as the credit union can demonstrate if the credit union can demonstrate that a “sufficient level of interaction” exists between the adjacent area and the already-served area.
Friedrich also said that in the past, the NCUA defined a portion of a Core-Based Statistical Area as part of a local community if it included the core of the area. The new rule deletes that requirement.
Friedrich threw out a provision of the field of membership rule that increases to one million people the population limit for rural districts. She also threw out a provision of the rule that automatically qualified a “Combined Statistical Area” or a contiguous portion of it with fewer than 2.5 million people to be a local community.
The NCUA is appealing those sections of the ruling.
The associations said that bankers have accused the NCUA being a cheerleader for credit unions.
“The Final Rule permits NCUA, an entity criticized for inadequately performing its gatekeeping function, to approve applications that do not protect low-income individuals in core areas that are not part of a Community Credit Union’s charter area,” they said.