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NCUA Board Member Todd M. Harper Statement on the Community Field of Membership Final Rule

July 2020
NCUA Board Member Todd M. Harper Statement on the Community Field of Membership Final Rule
NCUA Board Member Todd M. Harper Statement on the Interim Final Rule on Regulatory Relief in Response to COVID-19

Board Member Harper delivers remarks during a NCUA Board meeting remotely.

As Prepared for Delivery on July 30, 2020

Thank you, Ian, Marvin, Susan and to your colleagues in OGC and CURE, for all of the excellent work that went into winning the legal challenges to the NCUA’s community field of membership rulemaking and into developing the final rule before us today.

The U.S. Supreme Court’s decision in June on the NCUA’s 2016 field of membership rule provided some good news and ended nearly four years of legal wrangling. This decision results in expanding access to affordable financial services for people of modest means and diverse backgrounds. It also results in a stronger federal credit union charter by making our field of membership rules more competitive with the chartering regimes in many states.

Now that the Supreme Court has decided not to take up the lawsuit, I am very pleased that the NCUA Board is moving quickly to finalize the FOM 3 rule. I appreciate all of the staff efforts that went into ensuring that the NCUA Board acts “expeditiously” on this rulemaking, as the D.C. Circuit court made clear was its expectation.

I will vote in favor of adopting the final rule, which the Board proposed last October, and which flows from the ruling by the U.S. Court of Appeals for the District of Columbia Circuit.

As the presentation today spells out, the final rule would reinstate the previously approved Combined Statistical Areas field of membership standard; provide further explanation for permitting a credit union located in a core-based statistical area to opt out of serving the core; and bolster the NCUA’s authority to reject applications to serve community-based fields of membership, if the agency determines that the proposal is based on discriminatory intent or a desire to exclude low- or moderate-income individuals.

Thank you also, Marvin and Ian, for including the handful of minor edits that I suggested to the text of the final rule’s preamble. Once the final rule is approved and consistent with the parameters of that final rule, it makes sense for the NCUA to move expeditiously on processing previously approved field of membership applications affected by the lawsuit. I appreciate that CURE has already begun that process, because many credit unions across the country have been in limbo and unable to serve their true field of membership for several years.

One poignant example comes to mind. During my get-into-the-field swing through Pennsylvania one year ago this week, I learned about one credit union’s plight with numerous field of membership changes over the last 15 years from its CEO.

By way of background, in September 2005, the NCUA approved AmeriChoice Federal Credit Union’s application for an expanded community charter to include Adams, Cumberland, Dauphin, Lebanon, Perry and York counties. In July 2007, while approved to serve this six-county area, the credit union merged with another credit union. At that time, AmeriChoice Federal Credit Union acquired an office in York. In September 2008, a U.S. District Court order returned the charter to Cumberland County, and therefore to the credit union’s field of membership prior to the 2005 approval. In April 2009, the NCUA then approved the charter application for an expanded community charter to include Cumberland, Dauphin and Perry counties.

With the field of membership rules released in October 2016, and finalized in February 2017,AmeriChoice Federal Credit Union promptly applied to serve once again the entire core-based statistical area, which would include Adams, Cumberland, Dauphin, Lebanon, Perry and York counties. The credit union received its approval for this expansion in December 2017.

However, as the credit union began to implement its marketing plan in the area of the York office and to reach out to re-establish prior business relationships, the NCUA notified the credit union in April 2018 that based on the lawsuit, its charter was once again returned to Cumberland, Dauphin and Perry counties. Needless to say, the credit union has been very anxious to again regain the core-based statistical area of Adams, Cumberland, Dauphin, Lebanon, Perry and York counties, which have been previously approved two times.

Since my meeting last July, I have kept in my mind this credit union’s difficulties in having to maintain a branch to serve the existing members in a county previously within the field of membership but being unable to add new members within the county because of the lawsuit.

Economics demand organic growth in a branch if that branch is going to contribute to the success of the credit union. Thankfully, the credit union’s desired field of membership can be reinstated 30 days after publication of this FOM3 final rule in the Federal Register. CURE, which originally approved this application, recently verified once again that the core-based statistical area’s estimated population of 2.3 million is under the 2.5 million population cap. After three plus years of waiting, there should be no delay in reinstating this credit union’s field of membership.

And, Mr. Chairman, as our country continues to grapple with issues of economic equity and social justice, we must not lose sight of the credit union system’s mission to promote thrift, especially for people of modest means. With appropriate guardrails, the NCUA should foster an environment that increases access to financial services for the underserved and the unserved. This “people helping people” approach is the backbone of the credit union movement.

However, as the Court of Appeals opinion noted, the NCUA had not adequately responded to commenters’ objections that the elimination of the core requirement might allow federal credit unions to engage in discriminatory redlining.

In response to the court’s decision, the final rule we are considering today would amend the NCUA’s regulations for community field of membership applications, amendments and expansions for combined statistical areas and core-based statistical areas. For these fields of membership, the rule will require the applicant to explain one, why it has selected its field of membership, and two, demonstrate that its selection will serve low- and moderate-income segments of a community.

In order for the NCUA to ensure that a credit union is not engaging in redlining, we also need to have a robust fair lending compliance program. The truth of the matter is, however, that the NCUA has focused its examination program primarily on safety and soundness reviews for more than three decades, to the detriment of fair lending and other consumer financial protection laws.

In fact, in 2019, the NCUA completed only 25 fair lending exams, and the agency has a goal of completing just 30 fair lending exams in 2020. Due to the pandemic, however, we may not even reach that less-than-lofty goal.

Additionally, the NCUA’s current method of examining for compliance with consumer financial protection laws in a credit union with total assets of $10 billion or less differs from other financial institutions’ regulators, which complete regularly scheduled, risk-focused consumer compliance reviews and assign a separate consumer compliance rating outside of the CAMEL process for the depository institutions under their jurisdiction.

To evolve and address the imbalance in the NCUA’s consumer compliance program, I have repeatedly called for the establishment of an expanded, dedicated, and robust consumer compliance exam program, especially for the largest credit unions. Such a compliance program would ensure that federal credit unions are actually fulfilling their responsibilities under the Equal Credit Opportunity Act, the Fair Housing Act, and the Home Mortgage Disclosure Act.

Lastly, this final rule would increase the viability of the federal credit union charter as compared to the charters in other states, especially those states in which the laws and rules governing field of membership have recently expanded significantly. In this regard, I have a question for staff. Susan, of the 100 federally insured credit unions with the largest potential fields of membership, how many are federal charters and how many are state charters?

Given my comments today, I do have one other matter that I would like to explore with you.

Namely, Susan, would you discuss how the NCUA will conduct a rigorous analysis to ensure that an applicant for a field of membership change does not engage in redlining? Additionally, how and when will the NCUA conduct regular reviews to protect against redlining after the approval of an application?

In closing, Ian, Marvin and Susan, thank again for your presentation and for your work on this final rule.

Mr. Chairman, I will support this final rule and have no further comments.

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