Now is the time for NCUA to act on behalf of federal charter

Since I came on board at NAFCU, I have become a student of credit unions and their issues. To date, it's been a fascinating experience: I've found that credit unions and the people within them are vital, vibrant and passionate about the financial cooperatives they've built and nurtured. My observations have also led me to believe that there are key issues that must be addressed within the credit union community (and the sooner the better) to ensure that the passions of credit union people will continue to be focused on the nurturing and growth of vital and vibrant credit unions throughout the country. The top key issue, in my view, is ensuring that the federal charter remains an attractive and viable alternative for credit unions. Doing so makes certain that there is an alternative available to state credit unions - an option that strengthens the credit union community. The strength is rooted in the very reason why the federal charter was first established in 1934 - to make it easier to charter credit unions across the nation, so that more and more consumers could have access to credit union services. Under Pressure There is little question in my mind, however, that the strength of the federal charter is under pressure. An indication of that pressure is the growth in the assets of credit unions that are changing from federal to state charters. Since 1997, the average assets of these credit unions have more than doubled. That figure implies that the most progressive credit unions-those that are dedicated to expanding services to more Americans-are becoming increasingly less content with the powers and rewards available to them as federal credit unions. When these credit unions have been queried as to why they have taken this action, their common (and almost uniform) response involves: * Specific powers authorized under a particular state's law that are either unavailable or only available on a restricted basis under the federal statute, or * State practices that serve to enhance membership growth or provide a more favorable business climate. Early into my tenure at NAFCU (in fact, within the first two weeks of joining the association as president and CEO), I hosted a meeting of credit union representatives from around the nation to discuss with them what is happening to the value of the federal charter. Their comments: although there are some issues that should be addressed with H.R. 1151 (the Credit Union Membership Access Act), the more current problems relate to "the ultra-conservative interpretation of H.R. 1151." And, "the process (of NCUA approving expansions) has a chilling effect on SEG acquisition efforts." Finally, "it is important that the regulatory environment allow for continued growth and not impair our ability to remain competitive." These were all comments from credit union leaders who were either considering, or who were in the process, of changing their credit union charters from federal to state. Thus, the issue, as I see it, is that the value of the federal charter is eroding, primarily because of developments such as the narrow interpretation of H.R. 1151 by the federal regulatory authority. Further, I believe that some relief has to be forthcoming-and soon-from NCUA to curtail this erosion and begin reinforcing the foundation for federal credit unions. The recent decision in the U.S. District Court by Judge Kollar-Kotelly, which even goes so far as to suggest that the NCUA could be more aggressive in some areas, clears the way! With the virtual, complete dismissal of that lawsuit, NCUA now has little reason to be cautious in its approach to H.R. 1151 and field of membership additions. Having taken the lead in the issue of federal charter enhancement and conducted a thorough examination of the issue over the past several months, NAFCU has some specific suggestions for NCUA. Listen Up First, NCUA should articulate a more conclusive position on when it is "practicable" for a select group to form its own credit union. Doing so would speed up the process for adding groups of more than 200 potential members, but less than 3,000, and allow federal credit unions to move as quickly and efficiently as their brethren state charters in adding new member groups. Second, NCUA should issue formal procedures for each of its regional offices to adopt in dealing with select group additions. Currently, the lack of such procedures means that the regional offices tend to implement policy positions in different ways - resulting in confusion at the least, and delays at the worst. Furthermore, NCUA should require processing of select group additions within certain time frames, with reporting by the regions to NCUA when processing is outside the specified time frame and the reasons therefor. Third, in light of Judge Kollar-Kotelly's comments concerning the voluntary merger of credit unions in her recent ruling in the FOM case, NCUA should immediately loosen up its policy toward voluntary mergers of credit unions with select groups of less than 3,000 members. The agency can do so by merely subjecting all voluntary mergers (regardless of the size of the select groups constituting the merging credit unions' fields of membership) to the same regulatory scrutiny. NCUA's first concern in approving voluntary mergers should be the future viability of the surviving credit union (including the credit union's ability to provide a full range of services to the members). Simpler The Better Fourth, NCUA can and should streamline the process in which additions are made to multiple common bond credit unions, no longer requiring that all such additions be subject to the same requirements imposed on select group additions. Groups should be examined by their ability to be integrated into the credit union because they share a common bond with the existing field of membership. Additionally, NCUA should take steps to protect single common bond credit unions from being designated "multiple common bond" merely because of corporate restructuring by their sponsor companies. These four steps, if taken by NCUA now, would immensely help federal credit unions meet the kind of growth their business plans call for, and which they are telling us they need to remain effective financial institutions for their members. Additionally, and most important, these steps would help to maintain the value of the federal charter and encourage more credit unions to look to the federal charter as a viable alternative. I've personally discussed these four steps with each of the three NCUA Board members, focusing first and foremost on the impact these actions would have on the value of the federal charter. I sincerely appreciate the time and attention each board member devoted to discussion of this critical issue. NAFCU has also delivered two separate letters to each of the NCUA Board members on both the specific topic of streamlining the "member group addition" process, and on maintaining the significance of the federal charter. These efforts have worked hand in hand to forward our position that this is an issue of vital importance to all federal credit unions and, by association, the credit union community at large. Now is the time for NCUA to act - because this is the time when the issue of the value of the federal charter is so crucial. By keeping the federal charter viable and attractive, the entire credit union community can benefit from the resulting strength and flexibility. It's the top issue for NAFCU - one that we'll continue to press.