New Legislation Could End 'Archaic' FOM Restrictions for Credit Unions

On Wednesday, members of the House Financial Services Subcommittee met to discuss the merits of the proposed Expanding Financial Access for Underserved Communities Act to find possible solutions to the unbanked problem in the United States.

According to letters sent to the committee by NAFCU and CUNA, the legislation under consideration is supported by both organizations. In it, the legislation would give federal credit unions the ability to expand their field of membership (FOM) by adding underserved areas. Current regulation only allows multiple common bond credit unions to take this action.

“As Congress grapples with ways to ensure that underserved and unbanked populations have access to affordable financial services, credit unions want to be able to help,” NAFCU’s vice president of legislative affairs, Brad Thaler, wrote. “Unfortunately, many credit unions are limited by the restriction on adding underserved areas to their FOM. One area where this legislation would be extremely helpful is in rural areas.”

In a letter from CUNA President/CEO Jim Nussle, he stated that this legislation would make three important changes to the Federal Credit Union act “to enable and encourage credit unions to serve underserved and abandoned communities and promote financial inclusion to all at no cost to the taxpayer.”

Those three items include:

1. Allowing credit unions to expand their FOM to include underserved communities;
2. Exempting business loans in underserved areas from the member business lending cap; and
3. Expanding the definition of an underserved area to include any area more than 10 miles from the nearest financial institution branch.

According to a survey completed earlier this year by the FDIC, more than 6% of households in the U.S., or 14.1 million adults, are unbanked.

“Credit unions are proud to be at the forefront of efforts to expand financial services access to rural areas, many of which are underserved, and want to do more,” Thaler’s letter stated. “However, not all credit unions can add underserved areas to their field of membership, making it challenging for some to expand in rural areas. We urge the Committee to support this draft legislation that would allow all types of credit unions to add underserved areas and make it easier to make critical member business loans to small businesses in those areas.”

Nussle made a similar point in his letter to committee members. “Rather than create a new government program or increase federal spending, reforming archaic field of membership restrictions through the Expanding Financial Access for Underserved Communities Act is a market-based solution leveraging the success of the credit union model. This legislation breaks down barriers that keep credit unions from being part of the solution to address financial access for underserved and unbanked communities.”

Committee members appeared to be polarized on the issue. Overall, Democrats asked those testifying how they could help turning the unbanked into banking consumers. Republican members believed this legislation was a bad idea since, for instance, online banking was already widely available and they did not want to add more government oversight.