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Modern Field-of-Membership Rule Improves Consumer Access to Affordable Credit

October 2016
Modern Field-of-Membership Rule Improves Consumer Access to Affordable Credit

Board Action Bulletin

Board Proposes Further Community Charter Options for Federal Credit Unions

ALEXANDRIA, Va. (Oct. 27, 2016) – The National Credit Union Administration Board held its ninth open meeting of 2016 at the agency’s headquarters here today and unanimously approved five items:

  • A final rule modernizing existing field-of-membership definitions for federal credit unions to improve consumer access to affordable credit.
  • A proposed rule to provide further field-of-membership community charter options for federal credit unions.
  • A final rule re-naming NCUA’s consumer office as the Office of Consumer Financial Protection and Access to clarify its function and role in promoting consumer access to affordable financial services.
  • A final rule adjusting civil monetary penalties for inflation, as required by Congress.
  • An interagency proposed rule to implement the private flood insurance requirements for loans in special flood hazard areas contained in a 2012 statute.

The Office of Examination and Insurance also briefed the Board on issues relating to credit unions using supplemental capital for risk-based capital calculations.

Field-of-Membership Rule Provides Greater Flexibility and Consumer Choice

More Americans will become eligible for credit union products and services under a final rule (Part 701) approved by the Board to modernize NCUA’s field-of-membership regulations.

“This comprehensive rule expands consumer access to credit and provides them a safe place to invest their life savings,” NCUA Board Chairman Rick Metsger said. “Congress passed the Federal Credit Union Act and the Credit Union Membership Access Act to improve access for consumers to a national system of not-for-profit cooperative credit. But, the world has changed since we last put in place rules to implement these laws. We cannot anchor our regulations to the past; we have to keep pace with how consumers access financial services today.”

In recent years, several states have updated their field-of-membership rules for state-chartered credit unions. Within the requirements of federal law, NCUA Board Member J. Mark McWatters said that the final rule would similarly enhance consumer access to credit by sensibly and reasonably updating NCUA’s rules.

“Our field-of-membership final rule is consistent with both the letter and spirit of the law,” McWatters said. “During our deliberations, I carefully examined the Federal Credit Union Act and the requirements of the Administrative Procedure Act. Based on more than 30 years of legal experience working with issues of complex statutory interpretation, I am confident that the final rule we’ve approved today follows the law. More importantly, these changes will expand access to affordable financial services for consumers, including those in underserved communities.”

Consistent with the limitations of the Federal Credit Union Act, the final rule updates key definitions and makes more than a dozen changes to NCUA’s chartering and field-of-membership rule for federal credit unions by:

  • Allowing greater flexibility to community charter credit unions in how they define the local communities they serve;
  • Providing credit unions with better opportunities to serve underserved areas by updating the process for defining those areas;
  • Enhancing access to credit union services for residents of rural areas by allowing rural district credit unions to serve up to 1 million people;
  • Streamlining paperwork for multiple common-bond credit unions that seek to serve additional groups, such as including independent contractors with a strong dependency relationship with an employee group; and
  • Expanding credit union access for honorably discharged members of the armed services by allowing them to join credit unions serving their active-duty counterparts.

The final rule also modifies the type and extent of information that a federal credit union must submit to support an application to expand its field of membership.

The final rule, available online here, will become effective 60 days after publication in the Federal Register. A comparison chart, available online here, summarizes changes made to the previous rule.

Proposed Field-of-Membership Rule Responds to Stakeholder Suggestions

The NCUA Board approved a proposed rule (Part 701) that would make additional changes to the agency’s field-of-membership rule for federal credit unions.

The proposed rule responds to stakeholder suggestions received during the initial field-of-membership rulemaking, but which could not be incorporated because of the Administrative Procedure Act. Specifically, the proposed rule would:

  • Raise the current population cap for a “well-defined local community” from 2.5 million people to 10 million;
  • Allow the use of a narrative approach to create a new well-defined local community; and
  • Correct an error in the final rule that inadvertently restricts fields of membership inside core-based statistical areas to not more than 2.5 million people in a metropolitan division, rather than the core-based statistical area.

The proposed rule also asks questions about possible alternative approaches to field-of-membership issues and gives stakeholders an opportunity to comment.

Comments on the proposed rule, available online here, must be received within 30 days of publication in the Federal Register.

Name Change Better Reflects Consumer Office’s Role

The NCUA Board approved a final rule (Parts 708 and 790) to change the name of the Office of Consumer Protection to better reflect its role in facilitating consumer access to credit unions.

The office now will be known as the Office of Consumer Financial Protection and Access. Adding the word “financial” to the office’s title clarifies that the focus is on consumer financial protection, rather than other consumer issues. Adding “access” to the title highlights the office’s duties in the areas of chartering and field of membership.

Providing greater clarity in the office’s title about its consumer financial protection and access to financial services mission will benefit consumers, their communities and credit unions.

The final rule, available online here, will be effective upon publication in the Federal Register.

Final Rule Adopts Inflation Adjustments to Civil Monetary Penalties

The NCUA Board approved a final rule (Part 747) to amend its regulations and adjust the maximum amount of civil monetary penalties under its jurisdiction to account for inflation.

At its June open meeting, the Board approved an interim final rule making the adjustments. The final rule adopts those changes, which were required by the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015.

NCUA last adjusted civil monetary penalties in September 2015. Previously, these inflation adjustments were made every four years. In November 2015, Congress enacted legislation requiring annual adjustments and providing for a one-time “catch-up” adjustment for 2016. Beginning in 2017, agencies must publish their inflation adjustment rules in the Federal Register by Jan. 15 of each year.

Although the law requires NCUA to adjust the maximum levels for civil monetary penalties, NCUA is not required to assess the maximum level and retains discretion to assess at lower levels, as it has done historically. For example, the civil monetary penalties NCUA assesses for late filers are modest; the median penalty was $274 for the first quarter of 2016. The Federal Credit Union Act requires NCUA to send any funds received through civil monetary penalties to the U.S. Treasury.

The final rule, available online here, adopts the changes made in the interim rule, which became effective July 21, 2016.

Proposed Rule Would Amend Flood Insurance Regulations

The NCUA Board approved an interagency proposed rule (Part 760) that would implement statutory requirements for private flood insurance.

The proposed rule would require regulated lending institutions, such as credit unions, to accept flood insurance policies that meet the statutory definition of “private flood insurance” in the Biggert-Waters Flood Insurance Reform Act of 2012. It also would permit those lenders to accept private flood insurance policies that do not meet that definition on a discretionary basis, subject to certain restrictions.

NCUA is issuing the proposed rule along with the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Farm Credit Administration.

Comments on the proposed rule, available online here, must be received within 60 days of publication in the Federal Register.

Supplemental Capital Needs Careful Consideration

The inclusion of supplemental capital as part of the calculations for the risk-based capital rule raises legal and regulatory questions for federally insured credit unions, experts with the Office of Examination and Insurance told the NCUA Board in a briefing.

The Board approved a risk-based capital final rule at its October 2015 open meeting, but deferred action on the issue of supplemental capital. Agency staff have since explored the concept of supplemental capital, including researching studies on its use, reviewing applicable securities and tax laws, and holding discussions with industry experts and credit unions interested in using it.

Staff raised several important questions that must be answered before allowing credit unions to use supplemental capital in the risk-based capital regime, including:

  • Who—individual or institutional investors—would be allowed to purchase these securities;
  • What tax laws and securities laws—such as anti-fraud laws—would apply; and
  • What disclosure standards would apply.

Further regulation, staff said, would be necessary to allow for supplemental capital activities to be conducted in a safe and sound manner and to protect the National Credit Union Share Insurance Fund, such as the permanency of the capital, its capacity to absorb losses and the flexibility of payments. Rulemaking could also include streamlining some existing regulations.

NCUA’s Board is expected to issue an advance notice of proposed rulemaking on supplemental capital in early 2017. The notice will collect stakeholder comments and recommendations on the use of supplemental capital by credit unions.

NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at NCUA also live streams, archives and posts videos of open Board meetings online.

Board Member J. Mark McWatters
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