NCUA Service Facility Proposal Is Overdue Public Policy

In the next several months it is quite possible that the NCUA board will be taking final action on its December 2020 proposed rule to consider shared branching and ATMs as credit union service facilities for field of membership purposes. This action is long overdue and, frankly, should have been done 20 years ago when I was at the NCUA. If the Credit Union Membership Access Act had been more mature and technology had become the leading means of access for most credit union members as much then as it is today, I believe we would have made this move during my NCUA tenure. I wish we had stepped out to do so nonetheless based upon the technological delivery of services we were seeing at the time. Credit unions would have been much more competitive and, with the ability to compete in a dynamically changing marketplace, even safer and sounder than they are already today. Mea culpa on that missed opportunity.

However, even though it is perhaps a couple of decades late, this is a good proposed rule. And I must say that I strongly hope this is only the beginning of a true modernization of the agency’s view of today’s financial service delivery system and how they recognize them as indicators of consumer access. Even though this proposal seems to many as perhaps 20 years past its prime, since ATMs matured in the financial marketplace during the 1970s and shared branching matured in the 1990s, it is undoubtedly a major step forward from the NCUA’s perspective. Nonetheless, I think we must be realistic and consider that – even with these changes – members are still required to physically go to an actual branch, an ATM or a shared branch to be considered by their chief federal regulator as utilizing a service facility of his or her credit union.

In an era in which the majority of Americans access their financial institution through a smartphone in their pocket, a tablet under their arm or a laptop on their knees, I feel that we still have a ways to go in credit union regulators coming of age when it comes to defining today’s service facility and the consumer access question.

It is telling that in 2019 and again in 2020, credit unions have fallen below banks in their consumer satisfaction rankings from the American Consumer Satisfaction Index for the first time since the ACSI began including credit unions in 2008. For the previous 11 years, credit unions had surpassed banks in consumer satisfaction. What has changed? Are credit unions larger? Sure, some are. But so are banks. Are there fewer credit unions? Yes, but there are also fewer banks than in 2008.

The biggest change in the consumer satisfaction numbers seems to be that consumers are judging their satisfaction with their financial institution less and less on how friendly the staff is at the branch, whether they know their name and how they treat them when they go in to do a transaction or apply for a loan. Those are, of course, historical credit union strengths. But consumers today are instead judging their satisfaction on how easy it is to access their financial institution without having to go into the branch. How user friendly is the website or the app? Is it versatile enough to meet my needs from where I am now while working from home? Is the technology robust enough to save me the trip to the branch or the ATM while I am quarantined and hesitant to go out?

With banks having larger size, scale and technology budgets, credit unions already face a competitive challenge keeping abreast of changing consumer satisfaction needs. They do not need to face a regulatory challenge as well in this regard.

The effective delivery of financial services and the question of more convenient access through digital means is a challenge that banks and credit unions are facing strategically every day. Regulators must also strategically be looking for ways to enhance, not throw stumbling blocks, into this crucial issue for our stakeholders.

While it doesn’t go as far as is needed, the NCUA’s proposed service facility rule is absolutely needed. As said before, it is a solid step in the right direction. However, it must be realized that this is a journey that requires many steps … and some nuance. For example, an ATM might be sufficient as a service facility for a SEG or associational group; however, it might not be enough to meet the needs of an underserved area where a shared branch would be better. An ITM, already allowed by NCUA interpretation for SEG and associational reasonable proximity to a service facility, might be an option to be included in the actual NCUA regulation. Perhaps in some cases the ATM should be an owned instrument and not simply a part of a network the credit union belongs to. There are ways to make this regulation work and bring credit unions at least into the 2000s – if not 2021.

I trust that this proposed rule, when finalized, is the beginning of serious and focused internal examination at the NCUA – as well as in consultation with its credit union stakeholders and sister regulators of federally-insured credit unions at the state level – of ways to make it easier, not harder, for credit unions to safely and soundly expand their service access options now that we have moved as a financial services industry well beyond the bricks and mortar age and into the fast-moving clicks and apps era.

We all can see that COVID has accelerated the movement of consumers of all ages from doing the bulk of their transactions through brick and mortar branches – many of which still remain essentially closed a year after the pandemic began – and conducting business digitally on the “service facility” he or she has with them at all times, doesn’t require a mask to enter and the robustness of which has rendered their need to stand in a queue or sit in a drive-thru lane less and less pertinent.

The regulatory environment must also accelerate its recognition of that societal change and begin to reflect it, as this proposal by the NCUA does, in public policy.

Dennis Dollar is a former NCUA Chairman and Principal Partner at Dollar Associates, LLC, a full-service credit union consulting firm headquartered in Birmingham, Ala.