Comment Letter Guide - CUNA

Field of Membership

Comment Letter Guide Comments on NCUA’s proposal on the Chartering and Field of Membership Manual are due to the agency on or before February 8, 2016. The proposed revisions to the Chartering and Field of Membership Manual would substantially improve NCUA Field of Membership (FOM) requirements for federal credit unions although there remain numerous areas that should be improved. Further, CUNA expects significant push back from the banking community in opposition to this proposed rule. Thoughtful comment letters from credit unions outlining their concerns are the best way to ensure the necessary improvements are made and make sure the credit union voice is clearly articulated to the NCUA. This guide provides some suggestions on how to develop and submit your comment letter and lists a number of issues you may wish to address. CUNA strongly urges all credit unions to comment on the proposal. Before drafting your comment letter, refer to CUNA’s Field of Membership Resource Page which provides information to help your understanding and analysis of the effect the proposal will have on your credit union. You will find CUNA’s full summary of the proposed rule and questions to consider before commenting. Listed below are a number of issues you may wish to cover in your letter. Please see CUNA’s detailed summary for a more detailed analysis and explanation of the issues.

Need for the Rule: NCUA in its proposal states it is proposing this rule to accomplish several objectives: 1. To ease any undue burdens and restrictions on an FCU’s ability to provide services to consumers who are eligible for FCU Membership, particularly those of modest means and those who may not currently be members of a credit union; 2. To enhance the menu of strategic options for FOM expansions; and 3. To maximize competitive parity between federal and state charters, to the extent allowed by law, while respecting the national system of dual chartering.

Issues to Consider for Inclusion in Your Letter Please also include any suggestions or problems that your credit union has when requesting FOM expansions from NCUA in your letter. (i.e., Suggested timelines, documentation requirements, etc.) Community Chartered Credit Unions I. Core Area Service Requirement – NCUA’s current FOM regulation for community credit unions requires that credit unions that wish to serve a community consisting of a Core Based Statistical Area ©Credit Union National Association 2016

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(CBSA) must serve what NCUA defines as the “core area” of the CBSA. NCUA defines the core area as the most populous county or named municipality in the CBSA’s title. For example, under the current regulation a credit union wishing to serve the Riverside-San BernardinoOntario metropolitan area would not be able to serve the area because the population of the area is over 4 million (see II. Below). But if it could, it would have to serve the “core area”, which is San Bernardino County, CA, as it is the named county with highest population. San Bernardino County has a population of 2.1 million and is 20,056 square miles of area (an area larger than 7 states). The result is the credit union would be forced to serve the City of Needles (population 5000), which is 212 miles away from the City of San Bernardino, but likely could not serve the City of Riverside (population 316,000), which borders San Bernardino County, because of the requirement to serve the “core area” and 2.5 million population limitation (see IV. below). Another way of understanding the example is that NCUA defines the core area as an area of 20,056 square miles, but not the most populous city in CBSA. CUNA Position: Serving a CBSA or “core area” is not required by the Federal Credit Union Act (FCUA). This is a standard the agency devised for describing a well-defined local community (WDLC) that is not a single political jurisdiction (county or city). NCUA should not place limitations on service areas in a statistical area, because these limitations or requirements can divide these areas into portions that do not represent a viable community or can exclude the viable portions of a community. Issues to Consider: // D efining a community or WDLC by a statistical area limits a community credit union to an area that might not properly describe a community that a credit union can serve. // Imposing specific areas in a CBSA that a community credit union must serve makes little sense when one examines the practical limitations that these NCUA devised limitations impose. // T he FCUA contains real limitations on who credit unions can serve, the NCUA should not impose an additional layer on credit unions. II. Population Limit as Applied to a Well-Defined Portion of a CBSA – The current FOM regulation does not allow a community chartered credit union to serve a portion of a CBSA if the overall population of the CBSA exceeds 2.5 million. Contrast this with the fact that the current regulation allows a community chartered credit union to serve a portion of a CBSA with a population of 2.5 million or less as long as the credit union serves the core area. CUNA Position: This requirement makes little sense. It clearly renders all CBSAs with populations that exceed 2.5 million useless for the purpose of being used as a WDLC for a community chartered credit union. Under the current FOM regulation, the Riverside-San Bernardino-Ontario metropolitan area used in the example above would not be allowed to be used as a WDLC. A credit union seeking to use this CBSA could not use it because its population exceeds 2.5 million. A community credit union seeking to serve this population center would be forced to base its WDLC on a county or city, which would limit the population served to the City of Riverside with a population of 315,000, or would be forced to serve a county with an area greater than several states. This requirement harms community credit unions wishing to serve a CBSA with populations that exceed 2.5 million that are made up of many small lesser population Single Political Jurisdiction (SPJs). These credit unions are currently limited to the largest city or county in the CBSA when these do not adequately represent a community. ©Credit Union National Association 2016

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Issues to Consider: // T here is little reason for this limitation as it eliminates all CBSAs with populations that exceed 2.5 million. // C ommunity credit unions can serve portions of a CBSA with populations of 2.5 million or less. III. Use of Combined Statistical Area – Includes Combined Statistical Areas in the definition of a WDLC. NCUA’s current regulation does not allow a credit union to use a Combined Statistical Area (CSA) for a WDLC, regardless of population. A CSA is defined by the Census Bureau as consisting of two or more adjacent CBSAs that have substantial employment interchange. The CBSAs that combine to create a CSA retain separate identities within the larger CSA. A CSA goes beyond the concept of a CBSA and yet is constituted by a combination of CBSAs. Additionally the Census Bureau requirement for substantial employment interchange further substantiates commonality. An example of a CSA is the Washington-Baltimore-Arlington, DC-MD-VA-WV-PA Combined Statistical Area as defined by the Office of Management and Budget (OMB). This area is comprised of two MSAs and some smaller urban areas with strong community ties. There is strong community ties throughout the areas that are not adequately captured by one of the CBSAs. CUNA Position: CUNA supports the NCUA’s proposal to allow CSAs to be used as a WDLC. CSAs are comprised of statistical areas with close community ties and naturally represent a WDLC even better than CBSA. Issues to Consider: // W hether there are other statistical areas produced by the federal government that describe a community. // C redit unions should have the option of using other federal or state statistical models available to define their community. IV. Population Limit - NCUA currently applies a population limit of 2.5 million to the use of CBSAs and the proposed use of CSAs. The proposed rule does not change this population limit. CUNA Position: The population limit is not an FCUA requirement. It serves to discriminate in favor of community credit unions in areas with large SPJs even though a CBSA or CSA can better represent a community. For Example, Los Angeles County has a population of 10 million people and one credit union can serve that county, but a credit union could not serve an entire CBSA or CSA as proposed with a similar population. CUNA supports NCUA eliminating the population limit or at the very least setting equal to that of the most populous SPJ, which would put community credit unions on a more equal footing. CBSAs and CSA adequately represents communities as much as some large SPJs and thus the population served should not be limited by an arbitrary number. Elimination of the population limit would make the changes in I. II. and III. above more effective, as the population limit would represent the only barrier to a community credit union serving a large metropolitan community that is not dominated by one large city or county, such as Los Angeles or Cook County.

©Credit Union National Association 2016

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Issues to Consider: // T he 2.5 million limit is not required by the Federal Credit Union Act. // T he 2.5 million unfairly discriminates against credit unions that base their WDLA on a CBSA or CSA. V. A ddition of an Area Adjacent to a WDLC – This proposed change would allow a credit union to serve a contiguous area outside of a CBSA, CSA, SPJ or rural district if that area is within the WDLC. NCUA proposes a very strict test to meet this standard. CUNA Position: CUNA supports this provision as it will allow credit unions to expand into communities that don’t fall within a WDLC or rural district. However, CUNA is concerned that NCUA may impose policy or process hurdles that make this provision less flexible. NCUA states “the more expansive the adjacent area, theoretically even surrounding the original community’s entire perimeter, the more challenging and burdensome it may be for a credit union to, first, subjectively demonstrate a sufficient totality of indicia of interaction or common interests among residents of the expanded community, and then to establish through the credit union’s business and marketing plans its ability and commitment to serve the entire expanded community.” Issue to Consider: // N CUA needs to provide more information on the standards and process a community credit union must following when trying to add areas using this provision. VI. Reinstate The Narrative Approach: CUNA continues to push NCUA to reinstate the narrative approach. Although we appreciate the limited narrative approach in the Areas Adjacent to a WDLC above, the narrative approach is needed when all of the other WDLC areas do not adequately encompass a community. CUNA Position: The narrative approach should be used to allow credit unions to describe why specific NCUA requirements for any method to determine a community have not completely captured a community. The narrative approach should also be allowed in the case that a credit union does not fit any of the criteria above but has a compelling reason that an expanded field of membership is within its community. Issues to Consider: // Is the narrative approach needed with the Addition of an Area Adjacent to a WDLC provision in the proposed rule? // Is there any process that could be used to make the narrative approach more efficient, as one barrier to the NCUA using this is the burden they say that it puts on their staff to review and approve? VII. Congressional District - Allows a Congressional district to be used as a WDLC. In states with multiple Congressional districts, a credit union would be allowed to serve a district and the same area if the district boundaries were changed. CUNA Position: CUNA strongly supports NCUA’s proposed use of a Congressional district as a WDLC. CUNA advocated publicly and privately for NCUA to add this to the proposed rule. A Congressional district inherently defines a community with shared interests. Congressional districts are contiguous in land area, contain smaller populations than many SPJs, are less than the 2.5 million population currently allowed for a CBSA, and are the ultimate “political” jurisdiction. An FCU would


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recognize that the exact boundaries of a Congressional district might change every decade, but it would be able to continue to serve anyone who is a member-of-record at the time of re-districting. This would allow community chartered credit unions in Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont and Wyoming to serve their entire state. Issue to Consider: // W hether a Congressional district adequately represents a WDLC. VIII. Rural District Population Limits - Increases the current limit of the population that rural district charters can serve from 250,000 to 1 million. CUNA has strongly advocated for the elimination or the increase of the population limit. CUNA Position: The current population restriction is too low and unduly limits credit union access. The only limitation should be the credit union’s ability to serve the rural district. And, with the realities of internet banking, a credit union with an acceptable level of online banking services should be authorized to provide membership to people living in rural areas of the country. Issue to Consider: // Whether NCUA should expand the population limit to a higher number. Multiple Common Bond Credit Unions IX. Exclusion of Non-Depository Institutions and Non-Community Credit Unions when Calculating the Concentration of Facilities Ratio - Excludes non-depository institutions or non-community credit unions from the concentration of facilities ratio under certain circumstances. NCUA proposed to recalculate the concentration of facilities ratio analysis when an initial calculation fails to designate an area as underserved. CUNA Position: CUNA supports the exclusion of non-depository institutions or non-community credit unions from the concentration of facilities ratio test as these institutions by definition or in fact cannot actually serve the proposed area, despite having a branch there. Issue to Consider: // N CUA will consider alternative methods an FCU can use provided the test uses NCUA or other federal banking data. X. Reasonable Proximity through Members’ Online Access to Services - Allows for modern technology to be utilized in determining whether “Service Facility” is present for purposes of demonstrating reasonable proximity to a group. CUNA Position: CUNA supports the expansion of the definition of “Service Facility” to demonstrate reasonable proximity to a group. This allows for the use of modern technological advances to serve members. The internet, online banking, sophisticated ATMs and other methods should be sufficient to demonstrate a credit union’s ability to serve its members. Issues to Consider: // S hould this definition be expanded to allow for demonstrating the establishment and maintenance of a service facility in an underserved area?


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// T he proposed rule requires, at a minimum, a platform that allows accepting shares for members’ accounts, accepting loan applications or dispersing loans. Is this requirement reasonable or are there other criteria that should apply? XI. Inclusion of Select Employee Group (SEG) Contractors in a Multiple Common Bond and Inclusion of Office or Industrial Park Tenants in A Multiple Common Bond - Would allow multiple common bond credit unions to include as a Select Employee Group the employees of a park’s tenants in the FOM within certain limitations. CUNA Position: CUNA supports the ability to add contractors of a multiple SEG sponsor and employees of an office building or complex as a separate SEG. This should allow for greater flexibility in serving those members closely associated with a SEG or who work in a particular area. Issues to Consider: // F or an office/industrial park, the group must have fewer than 3,000 employees working at a facility within the park. Is this number adequate? // D ocumentation of the tenants present at an office/industrial park will need to be demonstrated by a letter from an authorized representative of the park (such as a leasing agent). Is this practical? // F or contractors of a multiple SEG, a credit union will need to demonstrate a “strong dependency relationship”. Is this practical? XII. Streamlined Determination of Stand-Alone Feasibility of Groups Greater than 3,000 – This provides a faster process for those groups between 3001 and 5000 to add them to a field of membership. CUNA Position: CUNA supports this provision that will facilitate the addition of groups that fall within the 3001-5000 member range. It will eliminate the presumption that a group of that size can form a credit union. This results in an easier process to add a group that falls within that category as an applicant will not have to demonstrate that a group between 3001 and 5000 members is unable to establish a stand-alone single common bond credit union. Issues to Consider: // Is 5000 members an appropriate threshold or should it be higher? (The Board specifically requested comments on this threshold). XIII. Trade, Industry or Profession (TIP) As a Single Common Bond – This provision expands the definition of a TIP charter to include employees of entities that have a strong dependency relationship with (and whose employees work directly with employees of) other entities within the same industry. CUNA Position: CUNA supports this provision as it will allow a TIP charter to serve those vendors, contractors, or other groups closely associated with a particular Trade or Industry, even though the group might not technically fall under the express category of the TIP charter. Issue: // W ill the credit union be able to demonstrate the “strong dependency” between the industry and the vendors and suppliers? The test requires a showing of the likelihood of a significant economic impact on either or both parties if one were unable to continue in its operations without doing business with the other.


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XIV. Other Persons Eligible for Credit Union Membership - Would include those who have been honorably discharged as a veteran of any branch of the U.S. Armed Forces to be included in the affinity groups and include them within its common bond. CUNA Position: CUNA supports honoring the service of the Veterans of the United States Armed Forces. This provision will facilitate their ability to join a credit union. Issue to Consider: // W ill this provision allow you to serve additional members?

How to Submit a Comment Letter NCUA’s comment letter deadline is February 8, 2016. Your credit union can submit a comment letter using Power Comment, which will automatically format and send the comment letter to NCUA. NCUA also details several methods for sending comment letters to the agency. To ensure lack of confusion, please put “Comments on Notice of Proposed Rulemaking Regarding Associational Common Bond” in the subject line of your e-mail or letter. Comment letters can be sent in the following additional ways: // F ederal eRulemaking Portal: http://www.regulations.gov. Follow the instruction for submitting comments; // N CUA Web site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the instructions for submitting comments; // E mail: Address to [email protected]. Include ‘‘[Your name] Comments on Notice of Proposed Rulemaking Regarding Associational Common Bond’’ in the email subject line; // F ax: (703) 518–6319. Use the subject line described above for email; // M ail: Address to Gerard S. Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428; and // H and Delivery/Courier: Same as mail address.


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