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ALEXANDRIA, Va.-In a lengthy open board meeting, the NCUA Board unanimously passed several motions, including an expansive proposed update to the chartering and field of membership (FOM) policies to benefit the credit unions they regulate. Though board member Deborah Matz admitted that she was initially skeptical of the FOM changes, all votes were ultimately unanimous. NCUA Senior Staff Attorney Mike McKenna, chair of the FOM Task Force, pointed out that changes were made to virtually everything in the FOM rules, but 10 major amendments stand out. The NCUA Board created an entirely new category of occupational common bond. The update would allow credit unions to serve groups in the same trade, industry, or profession-thus the code name TIP-within the original geographic area of the FOM. For example, a medical services credit union could apply to serve all nurses in the city of San Francisco. NCUA Chairman Dennis Dollar called the addition an “important diversification option.” He pointed out that it could save some of the smaller, single sponsor credit unions that have gone out of existence in recent years. NCUA also amended the requirements for proving a “local community” to allow the application to serve a single city, county, or small political jurisdiction without further documentation. Additionally, the change would increase groups in multiple political jurisdictions from 200,000 to 500,000 and permit them, as well as metropolitan statistical areas, to simply provide a narrative on why it is a community. The definition of “reasonable proximity” to a service facility as used when adding select employee groups (SEGs) was expanded to include the location in relation to wholly-owned ATMs and shared branches with an ownership interest. Overlap protection also would be eliminated except in cases of multiple groups over 3,000, which is required by statute. Another item that credit unions were seeking was to allow institutions converting from state to federal charters to convert without losing their original SEGs. The agency is also seeking comments on how to streamline the conversion from federal to state charter. Other items in the proposal include: *permitting national associations within a credit union’s FOM; associations would also have to hold meetings open to all members, sponsor activities demonstrating an objective, and define eligibility; *increase the number of potential members in determining economic viability to form a new credit union from 500 to 3,000, and, in turn, increase the threshold for use of the Internet applications (should cover 99% of requests); *eliminate the three-year waiting period for common bond conversions; *updated application forms (Appendix D); and *clarification that a credit union requesting a second reconsideration will be considered an appeal and be prepared for a board decision. The proposal carries a 60-day comment period. Dollar pointed out that 143 federal credit unions have converted to state charters since H.R. 1151, mostly because of “greater field of membership growth opportunities.” He added, “Perhaps even more significantly, there have been over 20 conversions from credit union charters to thrift and bank charters over the past years in which restrictive field of membership rules have been viewed by some credit unions as too confining in their ability to serve their members and communities in ways that fit into their long-term business projections and needs. We should not allow field of membership restrictions, which go beyond what the law requires, to contribute to the de-mutualization of the credit union movement, nor should we force credit unions to make their state or federal charter decisions based solely upon federal restrictions that are, in come cases, more stringent than what the law mandates. The charter decision is the most basic of business decisions. It should be driven by business considerations, not by the lack of sufficient growth opportunities for a visionary credit union.” CUNA Associate General Counsel Mary Dunn said after the board meeting, “The agency has done a yeoman’s job for credit unions,” in response to the FOM changes. She added that CUNA’s Federal Credit Union Subcommittee will be reviewing the proposed policy. The NCUA Board also approved several changes to the Prompt Corrective Action (PCA) rule in an attempt to make it easier on credit unions. Changes include: *quarterly net worth classification unless an error is discovered in the previous calculation; *a lower-risk weighing alternative for “callable” real estate loans; *an alternate risk weighting for loans sold with partial recourse; *elimination of the `fail first’ requirement to receive the risk mitigation credit; *adequately capitalized credit unions (or lower) meet 40 basis point annual minimum earnings on average basis over the quarters; *a requirement to request NCUA approval, with 14 days notice, to decrease earnings retention; *compliance with an approved net worth restoration plan is consistent with “other corrective action” for critically undercapitalized credit unions; *removal of minimum quarterly earnings retention as disincentive for new credit unions to reach adequately capitalized level; *providing parity for uncapitalized new credit unions allowing 30 days for all credit unions to file revised business plans; *eliminating requirement for agency approval to charge losses to regular reserves unless it causes the net worth ratio to fall below 6% instead of 7%; and *removing requirement for NCUA approval before paying dividends out of regular reserves, unless it causes the net worth ratio to fall below 6% instead of 7%. NCUA also approved to issue for a 60-day comment period a proposal to allow marginally undercapitalized credit unions to file an abbreviated `first tier’ net worth restoration plan. The first tier was designed to simplify the process for credit unions that do not pose a risk to the insurance fund and only fell below the capital requirements due to a large influx of deposits. As presented during the budget review a few short weeks ago, NCUA cut its budget. The final cut turned out slightly higher than what was projected at 0.6% or $887,750. At the same time, the agency decided to bump up its $200,000 salary study from 2004 to 2003, which NAFCU in particular had been pushing for. Extra savings in the computer leases allowed for the changes. Dollar had a question for those who criticized the salaries of the agency’s top employees: how can you criticize when you do not cap your own salaries? NAFCU President and CEO Fred Becker, having worked both in the public and private sectors, responded after the meeting that the “rights and privileges” of federal employees are different from those in the private sector. By the end of 2003, NCUA also expects to trim another 24.18 full-time equivalent positions (FTEs) bringing total staffing down to approximately 971 FTEs. At year-end 2003, the agency will have eliminated through attrition over 78 FTEs or 7.44% since 2000. The budget also anticipates a nearly 4% increase for 2004. Consequently, the agency was also able to lower the operating fees charged to federal credit unions to fund the regulators. The operating fee scale was dropped by 2.13% and is due by Monday, April 14, 2003. The Chairman also pointed out that there would be a $500,000 reduction in the funds transferred from the insurance fund to cover agency expenses as well. Also, according to an NCUA proposal, the definition of a small credit union would be raised from $1 million to $10 million with regard to NCUA regulation. It would not apply to the $5 million threshold for the Small Credit Union Program. The proposed rule has a 60-day comment period. The NCUA Board also gave a collective nod to its Annual Performance Plan for 2003 and for the conversion of $229 million Army Navy Federal Credit Union of Corpus Christi, Texas to convert to a community charter serving the nearly 381,000 residents of Nueces and San Patricio Counties. [email protected]

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