Statement of NCUA Chairman Dennis Dollar
on
2003 Revision Update to NCUA’s Field of Membership Rules
March 27, 2003
As we finalize today this, the third major update of NCUA’s
field of membership rules since Congress passed the Credit Union Membership
Access Act in 1998, I could not be more pleased with the results of
that significant legislation – both for credit unions and the
millions of Americans served by credit unions.
In seeking the right words to describe my thoughts as we take this
next step in the evolution of our field of membership rules to move
towards enabling credit unions and their members to take full advantage
of opportunities extended by the 1998 act, you will find in my remarks
today that I prefer to let others do the speaking who can demonstrate
much more eloquently than I, that the Credit Union Membership Access
Act was designed to accomplish exactly what it has accomplished – the
extension of credit union services to literally millions of Americans
from all walks of life while still maintaining the integrity of the
original statute, both in its letter and its spirit...its restrictions
and its opportunities.
The Chairman of the Senate Banking Committee, Senator Alfonse D’Amato,
opened the hearings on the bill that came to be known as CUMAA by saying “No
consumer should be denied the opportunity to choose a particular kind
of financial institution – whether it is a credit union or a
bank. They should not be denied the opportunity to deposit their hard-earned
dollars in cooperatives that offer low-cost loans, better interest
rates for savings, and overall more affordable financial services in
a more personalized setting. Moreover, consumers should not have to
worry if the credit union they already belong to will one day be dissolved
due to limits placed on its ability to grow.” (Senate Hearing
105-1025, transcript page 43).
This final rule builds upon the already established foundation of
safety and soundness of America’s credit unions, enhances the
risk diversification of those credit unions, protects broader consumer
choice, and will ensure a stronger federal charter option necessary
for an effective dual chartering system. Most importantly, it does
so very clearly within the original intent of CUMAA.
In an official comment letter on this proposal dated January 28, 2003,
the two primary sponsors of the Credit Union Membership Access Act,
Representative Paul Kanjorski (D-PA) and Representative Steven Latourette
(R-OH) wrote about the proposed rule we are finalizing today that “As
members of the Financial Services Committee and authors of the Credit
Union Membership Access Act we are pleased to see that you have used
the latitude that has been conferred upon you by law in preparing these
changes.”
Since passage of the Credit Union Membership Access Act in 1998 through
the end of December 2002, there has been an average of 25 federal
credit unions per year which have converted from the federal charter
to state charters. Greater field of membership growth opportunities
at the state level in many states and restrictions on field of membership
growth at the federal level was the reason cited in almost all of
these conversions. Perhaps even more significantly, there have been
over 20 conversions from credit union charters to thrift and bank
charters over the past years in which restrictive field of membership
rules have been viewed by some credit unions as too confining to
their ability to serve their members and communities in a way that
fits into their long term business projections and needs. We should
not allow field of membership restrictions which go beyond what the
law requires to contribute to the de-mutualization of the credit
union movement, nor should we force credit unions to make their state
or federal charter decisions based solely upon federal restrictions
that are, in some cases, more stringent than what the law mandates.
The charter decision is the most basic of business decisions. It
should be driven by business considerations, not by the lack of sufficient
growth opportunities for a visionary credit union. To make our credit
union dual chartering system a more effective one, both charters
must be able to offer visionary credit unions the opportunity to
have planned and managed growth.
The courts have ruled decisively in upholding our earlier field of
membership rules passed under the authority of CUMAA that visionary
credit unions must have the opportunity to adapt to a changing financial
marketplace. If not, long term safety and soundness ramifications could
develop. We see this final rule today as consistent with both this
statutory intent and the overriding principles of safety and soundness,
but it is also an opportunity for credit unions to be positioned to
have managed growth and enhanced service opportunities without having
to abandon the federal credit union charter to do so.
The late Representative Bruce Vento (D-MN), in discussing the need
for maintaining an update to both the laws and regulations credit unions
operate under and in a quote cited by U. S. District Court Judge Kollar-Kotelly
in her ruling in support of NCUA’s earlier field of membership
rules under CUMAA, spoke eloquently during the 1998 congressional debate
of the “need to modernize the credit union field of membership
definitions which do not fit the socio-economic reality of the 1990’s…Credit
union law needs to be modernized, addressing the membership base of
credit unions because they would not be able to sustain a membership
base and reasonable services under the strict interpretation of a 1934
federal credit union law.” (Congressional Record, April 1, 1998,
p. H 1874)
Although the areas of the final rule have been well covered in today’s
excellent presentation by the Field of Membership Task Force, I want
to just briefly touch on several of the key updates which will, I believe,
respect both the restrictions and the opportunities within the Credit
Union Membership Access Act and enhance the field of membership options
available to federal credit unions.
We have for the first time put in place a mechanism that has been
legally authorized but never implemented for single sponsor credit
unions to diversify their fields of membership and better manage their
risk by adopting a single trade, industry or profession as their occupational
group rather than a single employer. In this age of business restructuring,
unanticipated industry shutdowns and military base closures, there
is indeed much benefit in avoiding the risk of losing a good, solid
credit union because its only sponsor closed down. Some have chosen
to diversify by becoming multiple group occupational credit unions
and this update assists these credit unions with faster approvals and
streamlined process when they seek to add select employer groups of
3000 and less employees. This is an important update for multiple group
occupational credit unions and is certainly consistent with the statute
because it uses the same number Congress used for potential economic
viability. However, a large percentage of our federal credit unions
have chosen to remain single sponsor credit unions for business reasons
of their own. Those who have made that very legitimate business decision
should have some reasonable diversification options of their own within
that decision.
As I said when the proposed rule was discussed, for a local hospital
credit union to be able to diversify into all of the medical personnel
in their geographic service area or a labor union credit union to be
able to diversify into all of the plumbers or electricians in their
area could make the difference in saving or losing a credit union if
the hospital closed down or unemployment spiked three-fold or a year-long
strike dramatically changed the economic landscape. TIP, as it is called,
is an important diversification option which, although restricted to
the geographic service area of single sponsor credit unions, is totally
consistent with both the Credit Union Membership Access Act and good
risk management. It can also be a real beneficial option which could
perhaps save some of the smaller, single sponsor credit unions that
we have unfortunately lost in recent years.
In a colloquy on the House floor on August 4, 1998, between Representative
Paul Kanjorski (D-PA) and House Banking Committee Chairman Jim Leach
(R-IA), the legal foundation for what five years later has evolved
into TIP was clearly laid. Representative Kanjorski asked “Is
it the gentleman’s understanding that the definition of a single
common bond credit union does not preclude a credit union from having
subgroups in its field of membership as long as the subgroups share
the same common bond of association or occupation?” Chairman
Leach replied “The gentleman is correct. The definition of a
single common bond credit union does not preclude subgroups, but all
such subgroups must have the same common bond of occupation or association.” (Congressional
Record, August 4, 1998, p. H7044)
Another timely update is the definition of an ATM or a shared branch
with credit union ownership interest as a service facility for making
select employer groups eligible to affiliate with a credit union. Although
we continue to require a physical branch location when a credit union
adopts an underserved area into its field of membership and the Board
unanimously believes that commitment must be made by a credit union
taking advantage of our Access Across America initiative as it relates
to underserved areas, we see no reason to require a credit union to
invest in a bricks and mortar presence in order to recruit a SEG. In
this “clicks and windows” technological era in which we
live, if a business and a credit union are mutually satisfied with
their service options through an ATM in the business’ cafeteria
or a shared service center a block away, why should we as a regulator
require the credit union to take on the fixed asset costs of a building
and furnishings, not to mention the personnel costs to staff a branch.
Long term, I personally cannot see why any effective safety and soundness
regulator would require bricks and mortar in a clicks and windows age,
except where it makes business sense or meets otherwise unmet member
service needs to do so. As I said earlier, this update is truly deserving
of the term “update” when it comes to establishing a new
millennium’s definition of reasonable proximity as it relates
to a service facility.
In her ruling on the challenge to NCUA’s field of membership
rules under CUMAA, Judge Kollar-Kotelly wrote “Indeed, the departure
from a policy that envisions a world of service centers where customers
always receive personal attention from live representatives is both
realistic, and in accordance with Congress’s overarching intent
in enacting the CUMAA to modernize credit union law. In view of the
discretion afforded the NCUA to decide the contours of this phrase,
the agency’s decision to account for the advantages acquired
from advancing technologies is a permissible one.” In fact, as
Judge Kollar-Kotelly so accurately noted in her earlier rejection of
a plaintiff’s request for injunctive relief from NCUA’s
field of membership rules under CUMAA, “the only section of CUMAA
in which Congress used the word ‘facility’ was the exception
for the underserved areas; never does the word ‘facility’ appear
in the reasonable proximity provision of the CUMAA.” (93 Federal
Supplement, 2nd Series, p. 42) We likewise understand this statutory
distinction and, as I stated a moment ago, this Board has no intention
of removing the requirement for a physical presence beyond an ATM in
an underserved area.
Lastly, although less than 10% of federal credit unions are community
chartered, the vast majority of the federal credit unions who converted
to state charter were or became community charters after their conversion
to state charter. NCUA must streamline the process for federal credit
unions who find it appropriate for their long term business vision
to convert to a charter which will enable them to serve their entire
community. This is another significant diversification option for a
credit union to spread risk beyond a single employer or group of employers.
This update recognizes our over four years of experience in approving
and disapproving federal community charter conversions. Those conversion
applications that we have approved since 1998 have two things in
common - one is that they have extensively well documented business
and marketing plans demonstrating in great detail how they will serve
their entire community and their financial and management ability
to do so. The other part of those applications that we have approved
over the past four years is an extensive, time-consuming and extremely
costly community documentation process. I think it is time we streamlined
this cumbersome process for documenting the community itself and
return the focus of our approval process to where it should be -
on the ability of the credit union to serve an obvious and well-established
community that has been recognized by state law or other appropriate
agency action and the adequacy of its business and marketing plans
to do so within its financial means. This final rule gets NCUA back
to that primary focus by recognizing single political subdivisions
as communities, as well as MSAs less than a million and multiple
counties which are not MSAs less than 500,000. Communities larger
than those in the streamlined presumption designations still can
provide sufficient documentation to demonstrate their community status
and we certainly encourage them to do so. However, we just see no
reason for communities already clearly established by other political
and legal definitions to be required to do so again and again - as
we have required them to do since 1998, even though the law has never
required that.
Again, Judge Kollar-Kotelly wrote in her final decision in U. S. District
Court that “moreover, it seems entirely appropriate that the
NCUA’s rule be flexible enough to account for the remarkably
broad range of potential ‘local communities’ in a nation
as demographically and geographically diverse as our own.” (93
Federal Supplement, 2nd Series, pg. 48)
There are other modest updates that are included in this final rule
and each of these provides a reasonable progression of NCUA’s
approach to field of membership which has evolved based upon our experience
since CUMAA was passed in 1998.
There were a number of comments from credit unions during our comment
period suggesting that we should go even further with this rule, even
as there were comments by some who for competitive reasons did not
want to see us go as far as the law allows and actually seemed to propose
that the law passed by Congress and the court decisions upholding our
earlier rules be rolled back or at least ignored.
My observation to all commenters on both sides is that the federal
law clearly restricts how far we can go, should go or will go in the
arena of field of membership. We respect the integrity of the Credit
Union Membership Access Act and have not here gone beyond what that
law allows. However, even as we respect the restrictions contained
within the federal law, we must also empower the opportunities contained
within that same law. In doing so, we will further a dynamic dual chartering
system through which, whether they choose a state or a federal charter,
the result will be safer and sounder credit unions with more diversified
risk through better diversified fields of membership. Lower cost financial
options will be available to more Americans from all walks of life
and the American consumer and, yes, the American economy will be the
beneficiary.
As I have allowed voices integral to the passage and interpretation
of CUMAA to speak during my remarks today as a reinforcement of the
rulemaking we are engaged in to further the purposes of the “access” act – with
an emphasis on “access,” I choose to close my remarks with
statements made by two leaders in the battle for passage of CUMAA in
1998…one from each side of the political aisle. These views from
the framers of CUMAA close my remarks much more effectively than I
ever could.
U. S. Senator Christopher Dodd of Connecticut stated before the Senate
Banking Committee on March 26, 1998 the following:
“I think there are some fundamental principles that we as a
Congress need to examine. First and foremost, of course, we must ask
ourselves whether the NCUA’s 16-year policy of allowing multiple
common bonds was sound public policy, even allowing the Supreme Court’s
determination. I think it was sound policy, very good policy, which
permitted access to credit unions for literally millions of Americans
who might have never had an opportunity to join.
But even more important than ensuring that working Americans had financial
choice, the multiple common bond policy protected the deposit insurance
fund at a time when the thrift fund required massive taxpayer bailouts,
and the bank fund needed to be recapitalized through emergency assessments.
That point should not be lost in this broader debate here. It is critically
important.
The second question that we have to answer is whether we want the
maximum possible number of Americans to have choice.
We talk about choice all the time in this building, and this is a
fundamental issue of choice. We have discovered over the years that
when consumers have choices, they make pretty good ones.” (Senate
Hearing 105-1025, pp 38-39)
Chairman Alfonse D’Amato on the floor of the Senate on July
24, 1998 reminded us all of why consumer choice was the foundation
upon which CUMAA was built:
“For decades, the American dream has been made a reality by
credit unions. These cooperatives reach out to individuals, associations
and communities who have had the door slammed in their faces by other
financial institutions. Make no mistake about it, Mr. President, the
economy, while strong today, the economy – such that people can
get loans for a variety of reasons – may not always be that strong.
I hope it is. But if history is any reminder of what may be in the
future, there will be difficult times.
It has always been the credit union that has given to the little guy,
the forgotten middle class – I don’t mean little in terms
of size and not as a pejorative, but indeed I am talking about the
backbone of this country – the opportunity to look his or her
neighbor in the eye, who knows that they are good who knows they will
work to pay back that loan, as opposed to somebody 2,000 miles away
who doesn’t even see that person, who gets an application, who
views it in terms of what the income is or the fact that the person
is out of work, or the fact that the person has a small farm and is
running against tough times and says, no, and turns them down.
It has traditionally been the credit union neighbor, knowing a neighbor
employee, working next to his co-employee, recognizing their needs,
making that money available so they can send their kid to school. It
is one of the great strengths of this country, and it gives us economic
diversity, it gives people choice, and it provides competition.” (Congressional
Record, July 24, 1998, p. S8962)
Having a reputation as a man seldom with a loss of words, I nonetheless
find none today to improve upon those already in the record.
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