NCUA Board Adopts Court-Requested FOM Changes
Chairman Hood says the proposal complies with a court decision that the agency swiftly respond to concerns expressed by federal judges.
The NCUA board Thursday approved a proposed rule that members said will ensure that credit unions that want to serve core-based statistical areas without serving the area’s urban core are not discriminating against low- and moderate-income people.
The changes to the agency’s Field-of-Membership rule come in response to a direction by the federal Appeals Court for the District of Columbia to better explain that section of its NCUA’s new FOM rule.
Board Chairman Rodney Hood said the proposal complies with a court decision that the agency swiftly responds to concerns expressed by federal judges.
A three-judge panel of appeals court judges said, in dismissing much of a lawsuit filed by the American Bankers Association, that the NCUA has broad authority in issuing rules governing fields of membership.
However, the court also ruled that the NCUA must better explain the part of its rule stating that credit unions may serve core-based statistical areas without serving the area’s urban core.
The ABA had said that section of the rule essentially would allow federal credit unions to engage in redlining.
The ABA has asked the full District Court of Appeals to examine the case.
In the proposed rule, the board would restore a provision to allow an applicant to designate a Combined Statistical Area (CSA), or a contiguous portion, as a well-defined local community, provided that the chosen area has a population of 2.5 million or less.
The proposed rule also would make it clear that the agency will not tolerate redlining in Field-of-Membership expansion and will reject applications if it finds evidence of discrimination.
The rule would ensure that the expansion “is based on sound legal and business judgment and not an attempt to redline or discriminate on an illegal basis,” the agency stated in the proposal.
Hood said the rule emphasizes the agency’s responsibility to increase access to people of modest means.
Board member Todd Harper said he agreed with the rule but added that he also is concerned that agency examinations do not do an adequate job of emphasizing consumer protection.
He said examinations stress the safety and soundness of credit unions, but neglect consumer protection.
Harper said he hopes that the agency’s next budget calls for “a dedicated and robust compliance program.”
At Thursday’s meeting, the board also approved a final rule that increases the percentage of nonmember and “public unit” shares allowed from 20% to 50%.
In adopting the final rule, the board approved one change—restoring an alternative limit of $3 million.
The NCUA rules currently limit the amount of shares to 20% of all shares, or $3 million, whichever is greater. The $3 million limit was included in current rules, but the agency proposed to eliminate it.
Agency officials said that several commenters on the proposed rule said that eliminating that alternative would hurt new credit unions or those serving low income members.
In adopting the final rule, the agency rejected criticism by banking trade groups, which contended that the rule would undermine the purpose of credit unions.
During a briefing on cybersecurity, Hood endorsed legislation that would provide the NCUA with the power to examine third-party servicers. He said that while legislation has been introduced in the House, he favors some changes to that bill.
He did not expand on his what changes he would favor.
Hood pointed out that other banking regulators have that power, saying that leaving out the NCUA amounts to a “regulatory blind spot.”
Larry Fazio, the NCUA’s director of the Office of Examination and Insurance, said that currently, the agency must discover servicer problems by examining individual credit unions.
If the agency had the power over the servicers, agency officials could go directly to the servicers.