NCUA Cracking Down on “Open to All” Federal Credit Unions
The NCUA has sent a letter to federal credit unions warning them about advertising that says anyone can become a member. The issue of “open membership” has been talked about for several years. In 2010 a New York Times article reported on this issue and the history of how large credit unions like PenFed evolved into an open membership. It took awhile, but the NCUA is responding. Perhaps the bankers have forced the NCUA to crack down. The bankers are currently fighting hard to end credit union tax exemptions, and bankers have been using this issue as one of the reasons why the tax exemption should end. Below are some excerpts of this NCUA letter:
If your credit union is advertising that anyone, without limitation, is able to become a member of your credit union, then you may be in violation of federal law and regulation.
Some overly aggressive marketing campaigns by federal credit unions to facilitate membership through associational groups are providing consumers with misleading information about single and multiple common bond membership requirements.
NCUA is particularly concerned about advertising by federal credit unions stating their fields of membership are “open to anyone.” Several recent examples of such overly expansive advertising focus on becoming a credit union member by first joining a particular association.
The letter explains the details of the requirements for associational common bond. This a membership “back door” that many credit unions have used to make it easy for anyone to join.
NCUA rules, specifically the Chartering and Field of Membership Manual, explain the requirements for the associational common bond. NCUA determines whether a group satisfies the associational common bond requirements based on a “totality of the circumstances” test, which has the following seven factors:
NCUA’s Office of Consumer Protection has begun conducting quality control reviews of federal credit unions that may be improperly using associations to sign up members without a common bond.
- Whether members pay dues;
- Whether members participate in the furtherance of the goals of the association;
- Whether the members have voting rights;
- Whether the association maintains a membership list;
- Whether the association sponsors other activities;
- The association’s membership eligibility requirements; and
- The frequency of meetings.
Can the credit unions that have been known to be open to all satisfy the above factors in the eyes of the NCUA? One important thing to note is that this letter only applies to federal credit unions (those with federal in their names). These are the credit unions that have the NCUA as their primary regulator. Credit unions that are state-chartered may not have to worry about the NCUA coming after them. However, their state regulators may choose to follow the NCUA on this.
Most of these seven factors don’t seem to be black and white. If the NCUA is lenient in its interpretation of these, it may not affect the federal credit unions that have been careful in how they allow association members to join. The only one that can cause some credit unions problems may be the first one, “member pays dues”. I’ve seen cases in which the credit union offers to pay for the first year dues for the association in the credit union membership application. I could see the NCUA objecting to these cases.
Even if this doesn’t end the “back door” membership, credit unions may make it more difficult and more expensive to join through an association to ensure compliance with the NCUA. This is bad news for savers who want as many deposit account options as possible.
In the section of the letter titled consequences of non-compliance, I don’t see any mention that individual members could be thrown out of the credit unions. It may only affect people who want to join the credit union. If that’s the case, you may want to join some all-access credit unions now while the back door is still open. You can see the list of credit unions open to anyone. We’ll have to keep an eye on these credit unions. Please leave a comment if you see any credit unions remove associations from their fields of membership. Hopefully, we won’t see this list shrink.
Finally, I find it interesting that the NCUA’s Office of Consumer Protection is conducting quality control reviews on this issue. Too bad this office didn’t help us any when a federal credit union chose not to honor its early withdrawal penalty on existing CDs. This issue seems to be much more relevant to consumer protection than associational common bonds.
I think the answer is found in examining the charter of the organization. The NCUA Office of Consumer Protection has four divisions, none of which - despite the consumer-friendly name - appears to have much to do with consumers other than at a general level .
For instance, the Division of Consumer Affairs is responsible for member complaints, congressional inquiries, interagency coordination on consumer protection issues, and a consumer website. Member complaints in this case appears to be complaints from its (NCUA's) members, not from consumers.
The Division of Consumer Compliance Policy and Outreach is responsible for consumer compliance policy and rulemaking, fair lending examinations, interagency coordination on consumer compliance issues, financial literacy and outreach programs, and ombudsman functions. The issue of a member organization choosing not to honor early withdrawal penalties on existing CDs does not appear to be under their control,
The two Divisions of Consumer Access are responsible for chartering, charter conversions, bylaw amendments, field of membership expansions, and low-income designations. Issues with early withdrawal penalties on existing CDs don't appear to be issues for these divisions.
In short, the bad / unfair actions of its members are not the concern of this agency. It deals with problems / issues on a more macro level. The issue of one of its members choosing not to honor its EWP on existing CDs is too small for them and doesn't even appear on their radar.
Unfortunately, we have seen that we can not rely on our government agencies to protect us from obvious credit union fraud. And, prcatically speaking, the court system isn't really available to the individual small depositor.
So, we are at the mercy of unscrupulous 'bankers' and the bankers/credit unions know it! Sort of like the lawless wild west many years ago where anything goes.
If the membership due is refundable at some point, it would be hard to make a case that it meets the requirement of paid dues.
If you can afford it, join a few now. Just be aware of whether or not the account can basically set idle with a small balance or if there are hoops you will need to be jumping through.
The NCUA's document is talking about dues paid to join an association, not dues paid to purchase a share in the credit union.
Almost all credit unions require you to keep $5 in there as long as you are a member regardless of whether you joined through an association, a relative, or an employer. That has nothing to with the issue of people joining a credit union by being a member of an association that they paid nothing to join.
If it was up to me every credit union would be able to accept anyone as a member. Don't start with the tax issue, credit unions give up a lot in order to receive the tax exemption. For instance, they don't have access to the capital markets or can issue stocks or bonds to raise capital. How many banks would like to give this up in exhange for the tax exemption. I don't see banks knocking the door down to become credit unions. Here is my message to banks: shut up.
It might just be credit unions that keep banks from charging you to hold your money.
"Consequences of Non-Compliance The Federal Credit Union Act provides NCUA with a broad array of supervisory and administrative tools to enforce the law and rules. Depending on the degree of non-compliance, NCUA may initiate a supervisory contact, require a federal credit union to divest an associational group from its field of membership, and/or issue a Cease and Desist order. The tool NCUA chooses will depend on a variety of factors including the severity of a particular violation, available methods to rectify a violation, and the extent of a federal credit union’s cooperation."
Before converting its charter to a bank in late 2005, OmniAmerican was a credit union. OmniAmerican dates to 1956, when it opened as Carswell Federal Credit Union for staff and personnel at the former Carswell Air Force Base in west Fort Worth. It changed its name to OmniAmerican in 1992 to represent its expansion to employees beyond Carswell, which became Naval Air Station Fort Worth Joint Reserve Base in 1994.
When it decided to sell shares to the public for $10 apiece, it raised $119 million from investors, largely its own customers. The bank's stock has more than doubled since going public in 2010.
I believe it's time for you to be banned from this site. I can overlook your poorly reasoned statements and misprepresentations of mine and others' comments. However, your belligerent tone and insistence on incorporating ad hominem insults into virtually every one of your posts makes it evident that you are utterly lacking in respect for the opinions of others. It's time for you to go.
Ken: If you read this, please consider this my request to ban Lou for violating this site's prohibition against abusive comments.
The only personal thing I said to you is that you appear to be a hypocrite because you frequent the credit unions you seem to have a problem with. If that is wrong, tell me why.
All I am doing is advocating for more competition in this industry and less cronyism. Bancxman, in my view, is advocating for poiicies which will make it easier for banks to continue with these awful rates, since if he is successful, they will end up having less competition for attracting deposits. I would like to know why Bancxman has advocated these bank-friendly policies despite the harm they cause bank and cedit union customers. Bancxman are you paid or compensated in any manner whatsoever by the banking industry to promulgate these views? I think this is a reasonable question to ask.
The typical cd rates that the banks would offer would probably mirror the very low rates that Bank Of America currently offers. Their highest rate is a platinum cd (60 - 119 month term) paying a rate of .30%. By the way, if you earn .30% on your cd, it will double in value in approximately 240 years.
They sent us an email this morning stating they have sent 800,000 messages already to Washington. They are asking us to tweet our particular reps this Tuesday with the message "Don't Tax My Credit Union". I did not post the link earlier because I did not want anyone to think I am more involved in this than I am. However, since you asked, I am glad to share it with you. If you are concerned about this issue, I do hope you will consider signing the Petition. Thanks!
Why do you think this petition appears to be more successful than the "savers petition" was?
Possibly because CUs are a business?
In order to change their (NCUA-issued) charter to ADD association membership as a qualifier for membership; doesn't the CU first have to get member approval for a by-law change to add association membership AND then ALSO get it approved by the NCUA BEFORE accepting association members??
So if NCUA has to APPROVE it before it happens; why is it NOW such an issue that they must 'check compliance' with associational common bonf rules??
(such as: current active military service (YES) VS prior vietnam military service (NO))