The changes contradict existing federal law and would "limit, not enhance, service to underserved areas," CUNA Deputy General Counsel and Senior Vice President Mary Mitchell Dunn wrote.

NAFCU President/CEO Fred Becker wrote that the proposed rule is "unnecessarily complicated" and would increase the regulatory burden on credit unions without benefit.

The rule, which the agency put out for comment in May, proposed changing the chartering policy to clarify the procedures for ensuring that an "underserved area" qualifies as a "local community." It increases the documentation required in the application process and also clarifies what data can be used to determine whether an area is "underserved by other depository institutions."

Dunn said the proposed rule ignored the Federal Credit Union Act's provision directing the agency to use the community as a geographic basis for determining if an underserved area exists. The rule change, which would require credit unions to apply "distress criteria" established by the Community Development Financial Institutions Fund when classifying an area as underserved, would cause fewer approvals to areas that need them most, she added.

CUNA also objected to requiring credit unions to provide a separate letter in its application on how presumptive local community meets the agency's criteria. The group suggested that the NCUA rely on data already collected by its regional offices.

Dunn added that the proposed "formulaic approach" for determining if an area is underserved by financial institutions--which compares ratios of institutions to the population in distressed and nondistressed areas--doesn't take into account factors such as the affordability of services being offered.

She also criticized the agency's plan to withhold action on existing applications until the rulemaking process is complete. Doing so voids board policy and penalizes credit unions who applied in good faith to serve underserved areas.

Dunn also said the agency should withhold action until the outcome of Congress' deliberations on the Credit Union, Bank and Thrift Regulatory Act--which has passed the House and is pending in the Senate--is known. The measure grandfathers existing approvals of underserved areas and allows federal credit unions to apply to serve underserved areas outside their field of service. Loans in those communities and to religious nonprofit institutions would not count against their member business loan cap.

NAFCU said the proposed application process and additional documentation goes in the wrong direction and instead the NCUA should "ease the burden by streamlining the application process and adopting objective methods."

NAFCU's letter made similar points to CUNA's, objecting to the requirement for separate letters and on the dangers of using a formula to determine if an area is underserved by financial institutions.

Becker also criticized the NCUA's moratorium on considering applications. He made the further suggestion that the agency grandfather underserved areas already designated as such and those approved for the designation while the rule change is being considered.

--cmarx@cutimes.com

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Trades Take Issue With Proposed NCUA Changes on Underserved Areas

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