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ALEXANDRIA, Va.-The word, in general, from credit unions and their representatives responding to NCUA’s proposed regulation on which federal credit union charters may adopt underserved areas was to fight the bankers’ attempts to rein them in. The Pennsylvania Credit Union Association asked NCUA not to back down on its policy to permit federal credit unions of all charters to adopt underserved areas. “While we recognize that NCUA’s current chartering policy of allowing federal credit unions, regardless of charter type, to include low-income communities and associations in their field of membership has come under recent fire from bankers groups, we respectfully submit that now is not the time for NCUA to back down on a policy that supports credit unions’ mission of serving persons of modest means, who may not otherwise have access to affordable financial services,” Laurie Kennedy, PCUA associate counsel, wrote. “NCUA should defend its current policy. If the courts determine that NCUA’s current policy is inconsistent with federal law and Congressional intent, then the issue would be ripe to present to Congress for clarification.” She pointed out that this was how the Credit Union Membership Access Act (H.R. 1151) came about. Kennedy continued, “If NCUA’s policy is held invalid by the courts, Congress will have certainty that legislative action is required to correct this problem. It will be politically difficult for any group, especially the banker groups, to object to legislation that would grant the authority for credit unions of all charter types to fulfill its mission to serve persons of modest means.” PCUA also urged NCUA to lift its current moratorium on non-multiple common bond credit unions adopting underserved areas. In its official comment letter, CUNA Associate General Counsel Mary Dunn wrote, “At the outset, we want to emphasize in the strongest terms possible that prohibiting single group and community credit unions from adding underserved areas is an abomination. It is only because banker groups have filed a lawsuit criticizing NCUA’s policy that the credit union system is facing this unfortunate prospect.The fact that members and potential members in underserved areas will pay the price for this challenge is apparently of no concern to the banking industry.” She noted that the banks have not presented any information that they are being harmed by credit unions serving these areas, which are not typically targets of bank marketing. “There is absolutely no good public policy reason to change NCUA’s current policy on service to underserved areas,” Dunn stated. “Thus, we urge and support NCUA’s efforts to mount every reasonable legal defense whenever possible as appropriate in order that all federal credit unions have the right, as they unquestionably should, to include underserved areas.” However, she added, “[W]hile its proposed policy is abhorrent, CUNA recognizes that NCUA has little, if any, flexibility to pursue any other course of action.” At least, existing non-multiple common bond credit unions should be grandfathered in, which should “withstand future legal challenges.” NAFCU President and CEO Fred Becker asserted, “Credit unions provide competitively priced products and services to their fields of membership. Credit unions also provide competition to other financial institutions in order to help keep their rates for products more affordable. “Should the option of adding underserved areas be eliminated for two out of the three charter types, the ability of more credit unions to reach underserved consumers will be curtailed.” Do the math, he suggested: Under the current policy 5,393 credit unions are eligible to add underserved areas, but the proposed rule would limit it to just 2,385. NAFCU also advocated permitting multiple common bond credit unions that convert to community charters to maintain their underserved areas outside the community and that the new regulation should not be applied retroactively. Becker offered up some examples from NAFCU’s membership on the costs of a retroactive application: * One credit union reported that they would suffer a $2.6 million dollar write-off if it would have to close branches in underserved areas. * Another credit union reported that it would lose $1.3 million dollars if it would have to shut down branches in its underserved areas. * One credit union reported that it has invested $250,000 in a modular branch and is obligated to complete a $1.6 million dollar permanent branch in the community. “Banker-Speak” In contrast, the banking trade associations wanted NCUA’s proposed regulation to be more restrictive and apply retroactively. The American Bankers Association, which brought the lawsuit that spawned the moratorium and proposed regulation, objected to NCUA’s proposal to block non-multiple group chartered credit unions from adopting underserved areas as not restrictive enough. The ABA called NCUA’s proposal “a very small step in the right direction,” Senior Economist Keith Leggett wrote. “We respectfully submit, however, that the proposed amendments do not go far enough. The [NCUA] can and should do more to curb abuses by certain credit unions that illegally exploit the `underserved’ exception not out of a desire to help those in need of financial services but as a pretext to expand beyond the legal limitations of their permissible field of membership.” ABA argued that the agency should take away all underserved areas added by non-multiple common bond credit unions and permit the credit unions to only serve the members of record and not be permitted to add family members of those members. “An inappropriate membership cannot be allowed to serve as a pretext for a new membership,” the comment letter read. America’s Community Bankers recommended that applications to adopt underserved areas identify branch locations, the agency should review service to low- and moderate-income consumers after one year, NCUA should require regular documentation of service to those of modest means in the underserved area, and field of membership applications should be open to the public notice and comment process. The bankers also focused on the location and type of facility to serve the underserved area. ACB wanted credit unions to have to establish a facility in one year, rather than the two proposed. However, ABA said the branch should already have to exist before the credit union is approved to begin serving the underserved area. “In our view, allowing a credit union to defer its commitment to establish even a minimal presence within an `underserved’ community for a full two years honors neither the spirit not the letter of the law,” Leggett stated. According to PCUA, on the issue of requiring a service facility in an underserved area, “[T]he focus should not be on the type of facility used.but rather the level of service provided.” NCUA has excluded electronic services in its proposed regulation. NAFCU’s Becker argued that the idea of a service facility in every underserved area is not even practical. For example, he said one credit union told NAFCU that it has two underserved areas with radii of 4.6 and 2.0 miles and branches within 2.0 and 1.8 miles, respectively, of the underserved areas. Through CUs’ Eyes CUNA completed a survey of the 182 member credit unions that would be impacted by the restrictions on underserved area adoptions with 52 responding. Though CUNA acknowledged the little wiggle room NCUA has on its proposed regulation, “such reality should not obscure the inevitable result that the litigation initiated by the bankers in Utah will be tragic, both for credit unions as well as for underserved areas across the country, if the banker groups prevail.” CUNA’s survey found that the 182 affected credit unions serve a total of 813 underserved areas. These credit unions have incurred $1.3 billion in expenses to bring their services into underserved areas, including 315 branches in and 153 near underserved areas and 107 shared service centers in and 35 near underserved areas. A total of 19 million potential members reside in the areas and 1.6 million have actually joined. Consolidated Federal Credit Union CEO Ed Baldwin told NCUA, “If we move forward with our request for a local community charter with the current moratorium in place, we could be forced to discontinue serving our Oconee, South Carolina members. Should this occur, almost 3,000 residents, most of them low income, will lose their credit union with no other federal credit union to serve them. In addition, Consolidated Federal Credit Union would be forced to close the branch, forcing us to terminate the staff and sell our land and buildings. If, however, we elect to withdraw our community charter request to reserve our low income underserved community charter, we place the entire credit union at long term risk because without the ability to effectively grow and diversify our membership, we do not have a sufficient base of members to allow us to sustain our current size, let alone grow.” Star Federal Credit Union in Charleston, W.V. serves four counties that are underserved. At least 18.5% of the population of each county is below the poverty level. All the counties have household income levels under $28,200. The population of all four counties combined is 196,264 spread out over 2,426 square miles. “[T]he proposed plan undermines the ability of credit unions to effectively offer alternative financial solutions to current and potential members in underpopulated and underserved regions of the country.In addition to expanding in this area, the business community is comprised primarily of small companies whose financial options are limited,” CEO Daniel Smithson, Jr., wrote. “For years NCUA has proselytized that credit unions need to expand and offer services to those consumers that need it the most. Now, the Agency is backpedaling to say that just a segment of the credit union movement should be able to serve those in need. With that type of logic, NCUA is hampering efforts to solidify the financial status of those in small, rural states who have few financial options.” AltaOne Federal Credit Union CEO Robert M. Boland explained how his community chartered credit union expanded into underserved areas in the Mojave Desert twice in the last three years where no other federal credit union services were available. Fort Belvoir Federal Credit Union, a multiple common bond credit union with an underserved area, would like to know the community charter is out there as an option amidst the uncertainty of base closings, without giving up their underserved area. The list goes on. Apathy? Despite entreaties from the NCUA Board members to comment on the proposal, the agency only received about 50 comment letters. CUNA Vice President of Communications and Media Outreach Pat Keefe said the issue is a complicated one “highlighted with legal and political tones.” He pointed out that CUNA’s comment letter was nine pages long and included an attachment and an appendix. “That’s a lot to bite off for anybody, but particularly not an everyday task for busy credit union managers and their staffs,” he said. That is what credit unions want their trade associations for, according to Keefe. NAFCU Senior Counsel Carrie Hunt said that 50 is not an insignificant number and pointed out that it is more than NCUA usually receives. It must also be considered “that not all credit unions necessarily have imminent plans to expand into an underserved area,” she said. -

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