NCUA to Phase in FOM Regulations After Legal Victory

Credit unions have more options to expand their field of membership thanks to a legal victory over the American Bankers Association regarding a 2016 rule.

Sam Brownell


Sep 4



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Sam Brownell

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Sam Brownell

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Appeal Decision Reached in ABA vs. NCUA Case

The decision finally came down Aug. 20, in the appeal of American Bankers Association (ABA) vs. the National Credit Union Association (NCUA). The opinion could create a lot of field of membership expansion opportunities for community chartered and multiple common bond federal credit unions. The court sides with the NCUA on two main issues, meaning the following two changes in regulations from 2016 are now being phased in:

  • “Well-defined local community” was previously defined as within a County or a Core-Based Statistical Area (CBSA). This definition now extends to Combined Statistical Areas (CSA), which are groups of CBSAs. It is still limited to areas with populations of less than 2.5 million people.
  • A “rural district” was previously capped at a population of 250,000, but that cap increased to 1 million people.

NCUA Chairman Rodney Hood issued the following statement after the ruling:

NCUA Chairman Rodney Hood 2019-1

“In response to the D.C. Circuit’s ruling, which largely upholds the NCUA’s field-of-membership rules, the NCUA will take a phased approach to implementing this decision. Such a phased approach is necessary because the D.C. Circuit’s ruling remains subject to requests for further review.

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“With respect to credit unions serving rural districts, the NCUA Board will permit federal credit unions to submit applications seeking expanded rural districts serving geographic regions that encompass up to one million people and that meet the other requirements set forth in the agency’s field-of-membership rules. The NCUA will act on such applications at the appropriate time.

“The D.C. Circuit upheld the portion of NCUA’s 2016 rule, which allowed charters serving Combined Statistical Areas or a portion thereof, subject to a 2.5 million-person limit. We will announce further guidance on this issue shortly.

“In the near future, the NCUA Board will consider a limited proposal that will address another issue raised by the D.C. Circuit regarding the definition of local community that includes portions of Core-Based Statistical Areas that do not include the urban core. The format of this proposal will be a notice of proposed rulemaking with public comment.”

The court had issues with the update that permitted a well-defined local community within a CBSA to no longer include that CBSA’s core as part of its field of membership. However, the court did not entirely dismiss it for the time being, allowing the NCUA to provide further explanation.

The changes are widely considered a win, but what exactly do they mean for your credit union?

Community charters and underserved areas were previously limited to areas within either a single political jurisdiction like a county, or a CBSA, which is a broad term for a Metropolitan Statistical Area or Micropolitan Statistical Area. This regulation already provided fairly extensive expansion opportunities in larger CBSAs like New York-Newark-Jersey City or Los Angeles-Long Beach-Anaheim.

The update to allow CSAs will matter most for credit unions in small- to mid-sized CBSAs. There are 229 Metropolitan Statistical Areas and 255 Micropolitan Statistical Areas that have populations under 2.5 million and are part of larger CSAs. If your credit union has a community field of membership in one of these, you may now be able to expand your credit union’s field of membership.

Gavel and scales of justice

As far as underserved areas, this change is most significant for credit unions who want to extend an underserved area into a neighboring CBSA where they don’t have a branch. The NCUA rules now allow this as long as both CBSA’s are within the same CSA, the underserved area includes a branch, and all residents from the underserved area can reasonably be served from the branch.

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The rural district change loosens one of the two main limiting factors on the size of rural districts. The population cap has changed from 250,000 to 1 million, but a rural district must still have a population density of less than 100 people per square mile. The significance of this change really varies by state and region. In some area’s it will allow for much larger community charters and underserved areas, while in others the population density will remain a limiting factor.

Perhaps the largest expansion opportunity unlocked by this court ruling is the ability for multiple common bond credit unions to add multiple rural underserved areas. CUCollaborate has already worked with a community credit union to convert to a multiple common bond credit union, add seven rural underserved areas and expand the credit union’s community-based eligibility from roughly 600,000 residents to over 1.6 million. Previously each of these was capped at 250,000, but now a group of underserved areas like this could potentially have a total population of up to 7 million.

The final ruling, to “remand without vacatur” NCUA’s 2016 rule change allowing communities within CBSAs to not include the urban core of the CBSA is less clear in its repercussions. The court agreed with the ABA’s argument that the change could lead to community charters that cover wealthy suburbs while excluding low-income and minority areas of the urban center. The court has asked NCUA to further explain and defend how it plans to deal with this situation, which was compared to “redlining” or “gerrymandering.” The rule change is technically in effect for the time being, but it is unlikely the NCUA will process or approve applications like this until it is clearer whether this rule change will be allowed by the court in the long term.

The NCUA released a statement the day of the appellate court’s decision that read, “The NCUA is pleased with today’s Court of Appeals decision. The agency is still reviewing that decision. In the near future, we will provide guidance for affected credit unions.”

The NCUA – and everyone in credit unions – seems to be waiting to see what the ABA does next. The ABA likewise released a statement that read, “ABA staff will review the ruling in detail as the association determines its next steps.”

The ABA will likely appeal this decision in front of either the full DC Circuit Court of Appeals, the Supreme Court or both. The question here is whether either of these courts will agree to hear the appeal, as both of them accept only about 1% of petitions made to them for appeal – generally only those that have potential to set legal precedent. We will have to wait for further guidance from the NCUA and to see whether an appeal will be granted.

Overall, this decision is a big victory for the credit union industry and opens exciting opportunities for expansion.

Field of Membership Expansion

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