NCUA’s Disingenuous Underserved FOM Expansions Must Stop
Something disturbing happened during the May meeting of the NCUA board when it approved the underserved 2 million potential member field of membership expansion for Arizona-based $215 million AERO Federal Credit Union.
Apparently the federal credit union charter remains so hobbled by anachronistic rules that a well-capitalized institution that has been in operation for over half a century still has to beg its regulator for permission to serve more consumers.
AERO FCU deserves accolades for its efforts to grow its membership, but it shouldn’t have had to engage in such a convoluted regulatory kabuki dance to do it.
And it also seems somehow disingenuous for the NCUA board to bless a 15,802-member credit union with a huge underserved consumer marketplace knowing full well that the institution will prudently only be able to serve a small fraction of it.
It took the institution 50 years to grow to its current size, and even with good momentum it’s not going to max-out the expanded FOM in the next 50.
The NCUA board members cannot simply snap their fingers and magically expect AERO FCU to immediately conjure a branch network serving 413 census tracts in Maricopa County, Ariz., and 81 census tracts in Bernalillo County, N.M., including portions of seven Native American reservations that have virtually no financial services.
But the NCUA board’s grant of an unrealistic underserved FOM expansion supports that misperception. It also gives the appearance of gaming the system or even of outright political spin-doctor trickery.
The NCUA Board should stop this misguided practice immediately.
The vast majority of those millions of underserved potential members, who no doubt got their hopes up after reading the NCUA’s Board Action Bulletin touting the underserved FOM expansion, are surely going to be disappointed when they are unable to conveniently benefit from the credit union’s excellent products and services.
And it is unlikely that AERO FCU will be forced to restrict new members coming from the new FOM to only those that self-designate themselves as underserved.
Of course, this was the same NCUA board that in 2012 announced that it had designated 1,000 low-income credit unions as an integral part of the Obama administration’s drought relief initiative, even though many of them were not located in the affected states.
Although it would appear next to impossible to temper the NCUA Board’s propensity for political posturing about the agency’s underserved outreach or its frequent end-runs around statutory FOM restrictions, there is a compelling need to remove allFOM restraints.
Credit unions’ competitors have no limits on who they can serve. They target the underserved, the over-served, low-income consumers, high-income consumers, those of modest means, those of immodest means, and even non-person persons.
The antiquated federal credit union act and FOM rule weigh heavily on the ability to successfully compete. The NCUA’s Chartering and Field of Membership Manual is many unnecessarily detail-filled pages long. Navigating through the rule and obtaining a FOM expansion can be very complex and costly. It’s a no-holds-barred competitive marketplace out there, and because of the FOM restrictions a credit union steps into the ring with its arms tied behind its back and its feet encased in concrete galoshes.
In the very early days when credit unions served only one factory or one government office building, restricted FOMs were a hardwired form of credit quality control – no member wanted to default on a loan in full view of coworkers. That might have made sense at 1934’s federal credit union, but in 2014 it’s incredibly retro. The very concept of placing legal limits around who can be one’s potential customers, when there are so many nonbanks and online service providers operating in the same marketplace, borders on the insane.
Nothing about mandated FOM restrictions makes modern-day business sense.
Marvin Umholtz is president/CEO of Umholtz Strategic Planning & Consulting Services in Olympia, Wash. He can be reached at firstname.lastname@example.org.