Credit Unions I APRIL 29, 2014

NCUA Proposes Changes to Field of Membership Rules

At its April 24, 2014 board meeting, the National Credit Union Administration (NCUA) proposed a rule that would amend the evaluation process for a federal credit union (FCU) seeking to add an associational group to its field of membership (FOM).

Scope & Applicability

The proposed rule would impact federal credit unions that have a single associational FOM or a multiple common bond FOM. FCUs with a community charter and state chartered credit unions would not be impacted. 

Automatic Approval

For certain associations, the approval process would be streamlined and automatic. These associations include alumni associations, churches, labor unions, homeowners’ associations, and associations that have a mission of preserving or furthering the culture of a particular national or ethnic origin. 

Additional Scrutiny of Associations

Other associations would be subject to additional scrutiny by NCUA when it considers a request to add an association to a FCU's FOM. Specifically, the proposed rule would add a "threshold requirement" that would reject associations created primarily for the purpose of expanding a FCU's membership. The proposed rule would also require an association to be operating as an independent organization for at least one year before it could be added to any FCU's FOM.  

New Corporate Separateness Test

The proposed rule would add an eighth factor to NCUA's "totality of the circumstances" test when analyzing a FCU's request to add an association to its FOM. This new factor would analyze numerous subfactors to determine if there is sufficient corporate separateness between the association and the FCU.

NCUA Conducting Quality Assurance Reviews

NCUA's proposal also confirmed its continued efforts to perform "quality assurance reviews" of existing associations to determine if they continue to meet the "totality of the circumstances" test. If they do not, NCUA will remove the association from the FCU's FOM (existing members would be grandfathered but no new members could join). 

Next Steps 

Impacted credit unions should review their existing association groups to determine how the proposed rule would impact those relationships and the credit union's overall membership growth strategy.