NCUA gets into the mind reading business
by. Henry Meier
NCUA has proposed important changes to its Chartering and Field of Membership Manual regarding how and if an Association qualifies for inclusion in a credit union’s field of membership. I know many of you have put in yeoman’s work responding to NCUA’s risk-based capital proposal and find the idea of taking a look at this proposed regulation about as tantalizing as a follow-up visit to the dentist to get a cavity filled, but there are some important issues at stake and more of you may want to comment before the June 30 deadline.
NCUA is concerned that some credit unions are forming associations for the primary purpose of gaining access to new members. In its own words, “As a threshold matter, when reviewing an application to include an association in an FCU’s FOM, NCUA will determine if the association has been formed primarily for the purpose of expanding credit union membership. If NCUA makes such a determination, then the analysis ends and the association is denied inclusion in the FCU’s FOM. If NCUA determines that the association was formed to serve another separate function as an organization, then NCUA will apply the totality of the circumstances test to determine if the association satisfies the associational common bond requirements.”
There are two basic problems with this approach. First, while NCUA has a list of criteria – which it is adding to under this proposal – to determine if a credit union meets the associational common bond requirements, the regulation provides precious little suggested criteria about how NCUA will determine if a perfectly valid association was actually formed for the purpose of increasing membership. This is another example of NCUA seeking to give itself the authority to substitute examiner judgment for the plain language of the regulation on a case-by-case basis. Second, so long as an association is a valid, legal entity separate and distinct from a credit union, the motivations of a credit union in helping to form it are irrelevant. If a credit union forms an association to Save the Amazon Rainforest, provide aid to service members, or to lobby for a moratorium on any new reality TV shows – I am a charter member of this one, so long as these associations actively further these goals by holding meetings and sponsoring events, communities are benefitting.
Right now the tireless gadfly and blog devotee Keith Leggett is one of only six people to have commented on this proposal. Even if you disagree with me, please take a look at this proposal and consider dropping NCUA a line or two if, like me, you think it is going to have important consequences for the industry.
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