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ALEXANDRIA, Va.-In unanimous decisions, the NCUA Board passed a final field of membership rule and a member business lending proposal that will each serve to invoke broad change in the way credit unions do business, and likely bring further wrath from the bankers. The long-awaited and controversial FOM amendments will come to fruition 30 days after publication in Federal Register. The regulation makes sweeping changes to credit union FOMs and their chartering, much to the chagrin of the banking community, which has shown rumblings of a potential lawsuit over the issue. Of 670 comments received during the comment period, 131 came from Florida bankers, 69 came from other banks, 14 came from state bank trade groups, and three came from national bank trade associations. Most of the rest came from credit union-related organizations. In the final rule arguably the most popular change among credit unions has been the TIP-trade, industry, profession-provision. Under this section, a single common bond credit union has an opportunity to diversify its membership by adding persons from related trades, industries, or professions. NCUA did decide to maintain the geographic limitation and keep the TIP option solely for single common bond credit unions in the rule at this point as necessary for implementation purposes. However, the board felt it was significant to clarify that credit unions with a national FOM or operating in multiple states should be permitted to request a TIP. In response to commenters, NCUA added retirees and corporate accounts to be eligible within a TIP. The board decided against a preapproved, though not limiting, list of TIPs as not very helpful for credit unions, but directed them to the Labor Department’s Standard Occupation Classification System or the Census Bureau’s North American Industrial Classification System. Finally, NCUA clarified that if a TIP credit union needs to convert back to its original FOM for safety and soundness reasons, it may continue to serve members of record from the TIP. Major changes were also approved for community charter conversions. For example, any city, county, or smaller political jurisdiction, regardless of population, is automatically qualified as a local community. Additionally, 1) a metropolitan statistical area, or its equivalent, or a portion thereof, with a population under one million, or 2) multiple political jurisdictions with less than 500,000 residents, also qualify as local communities. These last two require the credit union to submit a letter explaining how the area meets the community interaction or common interests standard. Community charters can also serve persons or organizations that regularly do business in the community. NCUA will provide an example in the rule. Out With Overlap Overlap protection was eliminated from the current regulation, except for multiple group credit unions, and credit unions have the option of removing or maintaining existing exclusionary clauses. Additionally, NCUA stated that overlaps of groups under 3,000 are “incidental” and no overlap analysis should be required. “NCUA has approved charter expansions that overlap other credit unions for decades, without any evidence that the overlap harms the overlapped credit union,” NCUA’s Board Action Memorandum (BAM) stated. NCUA also removed the requirement for a single common bond credit union to obtain a letter from a select group’s sponsor explaining the group’s desire to join. The final rule only requires that the credit union state that a common bond exists and how it will serve the group. In addition, the agency clarified that a single common bond credit union completely overlapped by a multiple common bond credit union may merge into that credit union without analyzing the group’s ability to form a separate credit union. Under the FOM reg, wholly-owned ATMs, regardless of the services they provide, would be included as a service facility in the definition of “reasonable proximity.” Ownership interest in a shared service center, shared service network, or similar organization is also to be considered in determining reasonable proximity. This interest entitles the credit unions to expand around any of them, not necessarily a specific facility. Easing the requirements for associational common bond, the NCUA Board decided to eliminate the three-prong test in favor of considering the “totality of circumstances.” In addition, NCUA also said that entire national associations qualify for service if the headquarters are in reasonable proximity to the credit union. NCUA Chairman Dennis Dollar pointed to an average of 25 federal to state charter conversions each year since the passage of the Credit Union Membership Access Act and a total of 20 thrift conversions, partially due to restrictive FOMs. “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 some cases, more stringent than what the law mandates,” he said. “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.” American Bankers Association Senior Economist Keith Leggett was at the meeting, and he said he did not think the passage of the FOM rule would lead to a banker lawsuit. The board also unanimously approved to issue for a 60-day comment period a proposed rule to lighten the regulatory load related to member business lending. As anticipated, the rule adopts three provisions it had previously approved for numerous states, including lowering the equity requirements for construction and development loans to a minimum of 25% from 35%, eliminating the need for personal guarantees by the principals for business loans, and permitting unsecured business loans under certain limitations. In addition, under NCUA Vice Chair JoAnn Johnson’s initiative, CUSOs would be permitted to originate member business loans, which credit unions can purchase. And credit unions participating out loans would only count the outstanding loan balance toward its aggregate loan limit when sold without recourse, while those purchasing participations sold without recourse would not count them toward the aggregate member business lending limit. However, the BAM warned that in these instances credit unions should be able to demonstrate a bona fide transaction and not just use the system to circumvent the aggregate loan limit. Participating credit unions must comply with all other business lending requirements. Member business loans would also enjoy more favorable treatment under Prompt Corrective Action risk-based net worth requirements. The proposal includes a 6% risk weighting for credit unions with business loans less than or equal to 15% of its total assets; above 15% to less than or equal to 25% would be risk-weighted at 8%. Finally, credit unions with more than 25% of their assets in business loans would have those subject to 14% risk weighting. In addition, member business vehicle loans could be financed to 100% under the proposal, up from 80%, and the proposed regulation clarifies that loans made by federal, natural person credit unions to other natural person credit unions and CUSOs do not count toward the member business lending cap. NCUA also approved three community charter conversions at its March board meeting. South Carolina Federal Credit Union of Charleston was approved to serve an area of 554,831 new potential members. Paragon Federal Credit Union (Township of Washington, N.J.) was granted a community charter for a population of 884,118. A community-based FOM comprised of 393,525 new potential members in northern Los Angeles County and Southeast Kern County was granted to Edwards Federal Credit Union. [email protected]

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