About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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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:
  1. Whether members pay dues;
  2. Whether members participate in the furtherance of the goals of the association;
  3. Whether the members have voting rights;
  4. Whether the association maintains a membership list;
  5. Whether the association sponsors other activities;
  6. The association’s membership eligibility requirements; and
  7. The frequency of meetings.
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.

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.

Previous Comments
  |     |   Comment #1
What I have found to happen with credit unions I use is that their rates are no longer better than banks.  I had to use a bank this week to get the 2% 5 year CD I needed.  In the past, my credit unions usually were at least a bit higher or matched the highest banks.  This could mean unwelcome changes are already happening within the credit union system concerning CD rates.
  |     |   Comment #2
Ken, re: "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. 
I Hate Fort Knox CU
  |     |   Comment #3
'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.'

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.
  |     |   Comment #4
Maybe the $5 ( or other amount ) life membership fee that is not available for w/d until you close account would meet the DUES paid requirement?
  |     |   Comment #5
Re:  Anonymous - #4,Thursday, September 5, 2013 - 10:10 AM

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.  
  |     |   Comment #6
Once again, it really isn't the people the Gov't is helping with this endeavor, but the banks who are whining about what amounts to fairly small amounts of accounts.  But, credit unions were never really intended to have a common bond that would extend nationally.  And by some agressively marketing it, they have thrown it in the banks face.  Generally, not a good idea to start a fight with a Gorilla.

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.
  |     |   Comment #7
Personally I don't like any CU.  Recently, I spoke to an officer of a local CU about interest rates and her attitude was terrible.  She acted/talked as though she owned the CU.  At that point, I decide no CU for me ever.  So I wasn't surprised by the EWP not being honored.
  |     |   Comment #8
There are bad attitudes/apples on both sides.  Personally, credit union or bank, I look for rates and service.  I don't exclude an entire industry because of one person. 

  |     |   Comment #9
I think #4 and #5 are confusing the issue.

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.
  |     |   Comment #10
CUs want the benfits of both banks and CU.  No taxes and nationwide members.  I don't blame the banks for complaining.
  |     |   Comment #11
I agree with anonymous #10.   Maybe the CEO and the other board of directors need to reduce their salary and benefits in equal to what the management of credit unions receive.
  |     |   Comment #12
All my local CUs pay interest rates LOWER than banks.  CUs are worthless.
  |     |   Comment #13
Having been a member at many credit unions over quite a few decades I've learned to either love 'em or hate 'em. About half of the credit unions are grateful for your business and the other half couldn't care less whether you deposit your money there or seek a loan from them.  Outside of the too big to fail (TBTF) banks, the smaller, local banking institutions may have a legitimate gripe against the advantages the mega-credit unions hold. For the time being, I'll stick with my locally owned bank for my core checking account, where my direct deposits go and my recurring bills are automatically paid-out from. I have a safe deposit box with them and it's nice to get personal treatment these days. On the other hand, the vast majority of my laddered CD accounts are currently held in large credit unions.
  |     |   Comment #14
The heck with banks. They control at least 98% of all the deposits in the country, although I guess they won't be happy until they have 100%. Credit unions are no threat to them so I don't want to hear their b*tching and the usual nonsense from their paid K Street lobbyists.

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.
  |     |   Comment #15
About a year ago, I received a lot of criticism for suggesting that it would be advisable for credit union to reconsider their de facto open membership policies.  Fortunately, the NCUA has finally stepped in to address this issue before the banking industry's allies in Congress do it. Paying a one time "tribute" to a third party charitable association is plainly an artifice to circumvent the common bond requirements for joining a credit union. So are some of the community charters that the NCUA has been granting to credit unions in heavily banked metropolitan areas. Credit unions like Navy Federal have been thriving without breaking the common bond requirement. Accordingly, there's no business necessity for breaking this rule. Furthermore, since banks are using open membership as an argument for revoking the tax exempt status of credit unions, there's plenty of incentive for the NCUA as well as the credit unions to end this practice.
  |     |   Comment #17
I agree with Lou.  I think the common bond requirement shouldn't be an important basis for tax exemption or anything else.  I think the tax exemption test should simply be whether the entity is run for the mutual benefit of those who do business with the entity, not for the profit of stockholders.  Even mutual funds have a tax exemption at the entity level, though they have stockholders with no common bond.  Banks clearly are organized for the benefit of stockholders, not depositors or borrowers.  They should get back to the basics of banking and get out of politicking this thing.
  |     |   Comment #18
Think about it. 

It might just be credit unions that keep banks from charging you to hold your money.
  |     |   Comment #19
I agree with #18.  I think the banks knowing we can go to credit unions as an alternative for our CDs is probably the one and only ace we are holding in this.  I sure would have to lose cus as an option.
  |     |   Comment #20
Old Guy: What you're saying is that credit unions shouldn't be held to the most fundamental requirement for obtaining a credit union charter. That makes absolutely no sense. The original purpose for credit unions was to create a fund for the use of an affiliated group of members, usually in a  workplace. Eliminating the common bond requirement leaves you with a mutual savings bank. However, mutual savings banks pay taxes, including federal income tax. In fact, a number of credit unions have converted to mutual savings banks to escape the strictures surrounding credit unions. I won't deny that using a charitable organization as a loophole to join a credit union is handy, but it's a sham if the charity has no meaningful business affiliation with the credit union. So, enjoy the loophole while it's still open, but don't blame the NCUA for enforcing its regulations.
  |     |   Comment #21
Actual letter:


"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."  
  |     |   Comment #22
Another disingenuous argument  by Bancxman. Mutual Savings Banks are nearly extinct, most of them have converted into stock ownership banks, making their top executives a bundle of money. Over $40 billion has been raised by these conversions. Again, credit unions can't go public, thereby enabling their executives to become filthy rich. I wonder how many banks are clamoring to become credit unions because of the tax exemption?
  |     |   Comment #23
The history of one federal credit union's conversion to a bank...

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.

  |     |   Comment #24

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.


  |     |   Comment #25
Bancxman, I have been commenting on this site for 7 years and no one else has ever complained about my stuff. However, I will continue to call you out everytime you espouse your one-sided propaganda (why did you use the generic "bancx for bank" in your moniker?) It is already extremely difficult for many of the readers of this site to get decent rates for their money, causing undue hardship for them, and all you are doing is coming here promoting polices that will only make it only worse. Do you get some perverse pleasure poking these people in the eye?

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.
  |     |   Comment #26
In my previous comment, I meant to say, "that will only make it worse" in the second to last paragraph.
  |     |   Comment #28
Ok.  Now I know we are in the Twilight Zone.  The guys are fighting and no one can blame Paoli for anything!   :)  
  |     |   Comment #29
Maybe I need to more fully explain my vehement response to Bancxman's repeated attempts to curtail membership eligibilty for credit unions. Savers and seniors have seen their income slashed because of govt manipulation of the bond market and a concerted effort to take interest rates to almost zero perent. Now we have the banking industry, which because of a monopoly handed on a siver platter to a few banks, they are using their considerable resources to squeeze the credit union industry and by extension savers and seniors of receiving competitve interest rates for their money. It is very transparent why the bank's lobbying association is doing this. They don't want anyone to threaten their near monopoly status, so they can continue to give puny rates on deposit accounts and to charge usurious penalties and fees to their customers.

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.
  |     |   Comment #30
Lou:  I totally agree with you about what is going on with the banks about the credit unions.  It seems many others do too.  There is a Petition concerning helping to stop these negative actions against credit unions and it seems to be doing well with sigs.  I signed it soon as I heard about it and hope many others who agree with it will also step up and sign it.  BTW, I am not involved with that Petition other than being a signer.
  |     |   Comment #31
Lou, you pretty well summed it up on what this is all about.  If banks could keep getting more restrictions placed on credit unions, then they would have more leadway in maintaining rates to current low levels.   Lower savings rates and higher loan rates means more earnings for banks.  

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. 

  |     |   Comment #32
It occurred to me that Bancxman's attempt to silence me is not all that different from what the banks are endeavoring to do to the credit union industry.
  |     |   Comment #33
It sounds like NCUA just doesn't want the credit unions to tone down advertising the back door but it's not against including members of an association as qualification for joining a CU. As long as consumers can still join, whether the CU advertises it or not won't stop the DA readers. I'm OK with that middle ground: still have the association but not shine a bright light on it.
  |     |   Comment #34
Agreed, harrysit.  May even be best-case scenario for us if those credit unions end up having to take those marketing dollars and reallocate them to offering higher rates in order to attract new customers.  
  |     |   Comment #35
paoli2  May we all know the link to the petition?  I'm surprised you didn't post it...Thanks.
  |     |   Comment #36
What happened to my little own avatar???  :o)
  |     |   Comment #37
Rosedala:  the link is:  http://www.donttaxmycreditunion.org/

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!
  |     |   Comment #38
Re: paoli,

Why do you think this petition appears to be more successful than the "savers petition" was? 

Possibly because CUs are a business?
  |     |   Comment #40
#38 In order for a Petition to be successful it takes more than just signers.  It takes media help etc.  The Savers Petition did not have any of that and it was not even encouraged by many of our DA members.  This Credit Union Petition is not going it alone.  It seems to have professionals involved in it and it does have a cause that can be won.  People like being on the side of a winner especially for something they will gain by.  Think of all the savers who hope to gain if the cus can continue to give us decent rates.  Those are the people with tons of others who are helping get the sigs for that Petition.  It is not a "one man or gal job".  It has professionals with a cause driving it.  I expect it will get even more help and signers and that will be good for all of us savers.
  |     |   Comment #39
Maybe I missed something along the way; concerning the issue of using association membership to join a credit union. 

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??
  |     |   Comment #41
re: paoli2  If the CU petition is successful it will only be good for some savers.  I have stated before many CUs are paying interest rates lower than banks.  The CUs paying higher rates are being too selective in their membership requirements.

(such as: current active military service (YES) VS prior vietnam military service (NO))
  |     |   Comment #42
#41 I must agree with you concerning your statement.  However, I hope people like myself will be among the savers who can be helped if the Petition gets what they want.  I have already seen a difference in the rates at the credit unions I am a member of.  They are lower.  Last week we had to drive a good distance to find a "bank" to get the 2% 5 year CD I needed.  I could not get it at our cus.  I will still support the Petition for the hope that things will be better in the future if they aren't concerned about being taxed.
  |     |   Comment #43
Do you think it is possible that in light of the letter , that credit unions could drop existing members with existing cds who joined through an organization?

  |     |   Comment #44
#43  I cannot believe they would or could drop existing members who joined through an association.  They would have to return all those deposits and lose a lot of members.  I think the most they would do is to change rules for "new" members but dumping members who have joined in a way the cu allowed at the time would be a very bad move on their part.  I don't think the bad publicity they would get would help them either.  However, these days, we can't be sure about anything in the financial industry.

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