WASHINGTON-Like Wile E. Coyote and the Road Runner, the banks and credit unions are at it again. While the tension between the banking industry and the credit union community is omnipresent, the stakes have risen with the latest proposed update to NCUA's field of membership (FOM) rules. "It's indisputable that as credit union membership grows, so does the American taxpayer's liability," ABA Executive Vice President Edward Yingling argued. "It's ironic that NCUA would propose expanding both of these at a time when state and federal budgets are facing their worst deficits in years. Those who provide community services might prefer to see the money that currently subsidizes credit unions go instead to more police officers on the streets or more computers in classrooms." Currently, the banking industry is pushing to expand Subchapter S tax treatment, which allows taxes to be passed through to the shareholder level, and to allow state chartered banks to charter as Limited Liability Companies, which would allow for the pass through tax treatment and give banks an avenue around the 75 shareholder limit for Subchapter S eligibility. "It's more than ironic," CUNA Associate General Counsel Mary Dunn commented on the ABA's statement. "It's shameful." She said that the bankers made similar comments during a recent meeting between Treasury Secretary Paul O'Neill and the financial services industry in discussing tax code simplification. Banking representatives asked that credit unions be taxed and banks' Subchapter S tax treatment be expanded, Dunn said. What FOM? ABA Senior Economist Keith Leggett responded that banks pay taxes on their earnings while credit unions do not, which allows credit unions to gain market share at a faster pace. ABA specifically attacked NCUA's proposal to expand the definition of a local community. "For instance, NCUA has proposed that anyone who lives, works, worships or goes to school in a city or county – including one as large as New York City – automatically qualifies as a local, well-defined `community.' This stands in direct contrast to Congress' requirement – under the Credit Union Membership Access Act (CUMAA)- that NCUA limit the geographic reach of community credit unions," Yingling stated following the board's unanimous decision. America's Community Bankers President and CEO Diane Casey sarcastically posed the question: "Why don't they eliminate the words field of membership because there doesn't seem to be one anymore?" She pointed out that credit unions look more and more like mutual savings institutions everyday and this proposal expands that point of view. Casey said this may "send a message to Congress" that credit unions are losing their roots but, then again, "We believe that they've pushed too far, but credit unions enjoy remarkable support on the Hill." In stark contrast, Congressman Steven LaTourette (R-Ohio), one of the fathers of H.R. 1151, told Credit Union Times, "These proposals are definitely a step in the right direction, and I am very happy that the letter Mr. (Congressman Paul) Kanjorski (D-Pa.) and I sent to NCUA Chairman Dennis Dollar in September was given the attention it deserved. Breaking down the barriers to membership, and simplifying and clarifying the rules regarding credit union access, are critical first steps in allowing more people access to the many benefits federal credit unions offer their members." NCUA Public Affairs Specialist Cherie Umbel pointed out that the credit union would still have to demonstrate in its business plan its ability and desire to serve the entire field of membership; they would only not have to establish that an already defined city is a community. NCUA Board Member Deborah Matz admitted during a recent address to the Credit Union Affiliates of New Jersey's (CUANJ) annual meeting in Atlantic City, "We approved a proposed rule to our chartering and field of membership regulation that is likely to cause very far-reaching changes. Probably the most significant modification to that regulation is in the definition of a local community." The proposal would define as a local community any city, county, or smaller political jurisdiction, regardless of population size, or a metropolitan statistical area or its equivalent with up to one million residents, or an area comprised of multiple political jurisdictions that are not part of a single MSA with up to 500,000 residents. ABA's Yingling argued, ".[I]f NCUA's proposal is adopted and other credit union wishes are granted, large credit unions will dominate the industry and small, locally owned credit unions and banks will become historical references." Matz, small credit unions' strongest ally on the NCUA Board, said in her CUANJ speech, "I know I surprised some people by supporting these changes because they thought such a position was inconsistent with my strong support for small credit unions. But I did so because I believe these changes are vitally important to all credit unions. They will enhance the federal charter by providing credit unions with more flexibility and more choices and, in so doing, ensure the longevity and, ultimately, the safety and soundness of the credit union movement." She emphasized that the agency is "not abrogating our commitment to small credit unions." ABA pointed out that the proposal would allow professions, such as doctors and lawyers, to form a credit union. "Is this what credit unions' tax exemption is for – to subsidize financial services for anyone, anywhere?" Yingling asked. TIP tips bankers overboard Regarding the addition of permitting a trade, industry or profession (TIP) as an occupational common bond, Matz remarked during her CUANJ speech, "In fact, I believe the new TIP regulations will be especially useful to small credit unions. It provides an opportunity for a SEG credit union to greatly expand its field of membership. For example, a TIP might include all the teachers in Hoboken or all the nurses' aides in Camden or all the police officers in Newark. In fact, a credit union that currently serves employees of one hospital could, under the new proposal, apply to expand its field of membership to all health care workers in a geographic area." Another provision of the proposal surely to grab the bankers' attention that NCUA Board Member JoAnn Johnson specifically endorsed would expand reasonable proximity for establishing select employee groups (SEGs) for multiple common bond credit unions to add wholly-owned ATMs and shared branch networks to the definition of a service facility. "As we march further into the 21st century, alternative methods of providing credit union service will be established," Johnson said. "The use of wholly owned ATMs and shared branch networks recognizes the changing financial marketplace. As the marketplace changes, we here at NCUA need to change with it." NAFCU Senior Vice President and General Counsel Bill Donovan said that an area could easily be served by an ATM. "I belong to a number of credit unions and conduct business with those credit unions, but I honestly can't remember the last time I went into a credit union to conduct business," he said. Between ATMs, mail, e-mail and online banking, and the telephone, he asserted that every one should be able to find an avenue that works for them. NAFCU emphasized that by law underserved areas must have a branch present. Leggett asserted that CUMAA clearly states that ATMs are not a permissible physical presence for `reasonable proximity' determinations. While ABA Spokesperson Charlotte Birch said that it is too early in the process to even discuss whether a lawsuit will be filed, Leggett said if there were, he is confident the banks would win. CUNA's Dunn said that she feels both sides already have it in their minds to gear up for battle. ACB's Casey said her organization would seriously consider joining any legal battle that could arise from this latest FOM update. She called the NCUA Board cheerleaders that do not take their safety and soundness responsibilities seriously. At the board meeting, NCUA Chairman Dollar emphasized several time in his comments for the record that he believes the proposal "respect[s] both the restrictions and the opportunities" of CUMAA. "I know that we will get many comments from credit unions that we should go further," he said, "even as there will likely be comments by some who for competitive reasons do not want to see us go as far as the law allows. My observation to all commenters is that the federal law restricts how far we can go, should go or will go in the arena of field of membership. We respect the integrity of the Credit Union Membership Access Act and will never go beyond what that law allows." Leggett, on the other hand, said that NCUA is "pushing the frontiers" and acting as its own legislature. He pointed out that Dollar raised the issue of federal to state charter conversions and thrift conversions, and added, "From the point of a regulator, this is not being done on safety and soundness grounds." Instead, Leggett said, he is merely trying to create a competitive balance in the dual chartering system. Additionally, he said the expansions are straight out of CUNA's Renaissance Commission report. The FOM updates would be "fine if this was a level competitive playing field," he said. Leggett also claimed that broad expansions in credit union authorities have "gutted the credit union philosophy." "Where is the line going to be drawn?" Birch asked, rhetorically. "Is it going to be redrawn?" The proposed rule has a 60-day comment period. Dollar has said he wants the final rule out by April, which is also when his six-year term on the board expires. NAFCU has already come out saying that the proposal is an excellent start but does not go far enough. One example, according to NAFCU President and CEO Fred Becker, is when two credit unions merge at the behest of NCUA and the remaining credit union wants to convert to a community charter, it should be able to keep the original FOM of the merged credit union. The trade group is holding an audioconference on the new proposal December 4. Independent Community Bankers of America staff said they had not had time to review the approximately 200-page proposal. [email protected]

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