NCUA Releases New Rules That May Make It Harder To Join Credit Unions

Last week the NCUA released new rules that will impact credit unions' fields of membership (FOMs). The rules specifically deal with associations in FOMs, and they may limit the number of credit unions that can become "all access".

All credit unions are required to have a FOM which defines a common bond for members. When credit unions started, common bonds typically involved employers. This expanded to include community bonds in which anyone who lives or works in an area can qualify. Now many credit unions have FOMs that include members of associations, and those associations can often be joined by anyone.

The issue of association membership in FOMs has been a topic that the NCUA has been looking into for some time. In 2013 the NCUA issued a letter to federal credit unions warning them about advertising that says anyone can become a member.

In the press release for the new rules, the NCUA stated that:

The final rule more clearly defines which associational groups do and do not qualify for membership in federal credit unions.

The text of the new rules is available in this NCUA document.

On the positive side, the NCUA’s new rules list 12 types of associations that the NCUA will automatically approve as satisfying the associational common bond provisions. The following is a list of these groups:

1. Alumni associations;
2. Religious organizations, including churches or groups of related churches;
3. Electric cooperatives;
4. Homeowner associations;
5. Labor unions;
6. Scouting groups;
7. Parent teacher associations (PTAs) organized at the local level to serve a single school district;
8. Chamber of commerce groups (members only and not employees of members);
9. Athletic booster clubs whose members have voting rights;
10. Fraternal organizations or civic groups with a mission of community service whose members have voting rights;
11. Organizations having a mission based on preserving or furthering the culture of a particular national or ethnic origin; and
12. Organizations promoting social interaction or educational initiatives among persons sharing a common occupational profession.

On the negative side, not all members of the above associations will qualify for credit union membership. The rules state "NCUA only approves regular members of an approved group. Honorary, affiliate, or non-regular members do not qualify." In addition, the "NCUA may impose a geographic limitation if it is determined that the applicant credit union does not have the ability to serve a larger group or there are other operational concerns." Thus, the credit union may only allow members of an association who are residents of a specific state. We have already seen this at a few credit unions.

If an association doesn’t fall in the above list, it doesn’t mean it won’t be approved as an association in a credit union’s FOM. However, approval won’t be automatic. The association will be reviewed by the NCUA. If the association has been formed for the primary purpose of expanding a credit union’s membership, the NCUA will not allow the association to be added to the FOM. The NCUA’s new rules increased the number of factors to evaluate an association from seven to eight. The eighth factor ensures the association operates as a separate entity from the credit union.

Even if the association is a standalone entity with a legitimate purpose, the NCUA may not allow an association to be included in a FOM if the association is "based primarily on a client-customer relationship." According to the NCUA, health clubs like the YMCA are an example of an association based primarily on a client-customer relationship."

One thing to keep in mind regarding these new NCUA rules is that these only apply to federal credit unions (those that have "federal" in their names). State-chartered credit unions that are regulated by state regulators are not governed by these rules. However, state regulators may follow the NCUA on regulatory matters. So it may indirectly affect all credit unions.

Currently, my "Big List of Credit Unions Open to Anyone" has 82 credit unions. The vast majority of these have one or more easy-to-join associations in their FOMs. It’s a dynamic list that changes as credit unions change their FOMs by either adding associations or removing them. I’ve recently removed Patelco Credit Union from the list. Patelco used to be open to anyone who was a member of the Community Association for Engaging Youth (CAFE-Y). That association is no longer listed in Patelco’s FOM, and according to a Patelco’s CSR "there is no organization/association that anyone can join to use as a gateway to joining Patelco." Since Patelco isn’t a "federal" credit union, I don’t think the NCUA forced them to make this change. This might be a case in which the California regulator pressured them. So we’ll have to keep an eye on the FOMs of all the credit unions on the "big list".