Bankers' opposition to the NCUA's field of membership proposal has reached a heightened rhetoric, calling to mind their battle with credit unions that took place almost two decades ago. The comment period for the proposal ended on Feb. 8, with comments totaling nearly 11,000 letters, NCUA Chairman Debbie Matz noted during a Feb. 9 Town Hall webinar.

The NCUA's FOM proposal is so hotly contested by the banking industry that comment letters from the American Bankers Association and Independent Community Bankers Association have prompted trade organizations to go on the offensive in order to clarify what they see as errors in banking trades' letters to the NCUA and Congress.

In November 2015, before the NCUA board even met to discuss the FOM proposal, the ABA began attacking it. At that time, incoming ABA President/CEO Rob Nichols said the proposal stepped outside the bounds laid out by Congress.

credit union field of membership John McKechnie, partner for Total Spectrum, told CU Times that the banking lobby's harsh reaction to the proposed FOM rule “should have been a wake-up call to the credit union community.”

“Combine this with the enormous volume of banker comments opposing modernization of MBL rules, and you get a pretty clear picture of just how aggressively banks will try to define how credit unions serve their members, or how vehement bank opposition will be to any reforms,” he added.

A Feb. 5 letter from 53 state bankers' associations escalated the rhetoric by calling upon leaders of the Senate Finance Committee and House Ways & Means Committee, among others, to investigate the tax implications of the NCUA's proposal.

The letter said the proposed membership rule “has the potential to exponentially explode this already-sizeable tax subsidy.” The group cited a Treasury Department's Office of Tax Analysis estimate for the credit union tax exemption worth $26.75 billion for fiscal year 2016-2025, calling it “one of the single largest corporate tax loopholes.”

In addition to citing the Treasury report, the group referred to NCUA Vice Chairman Rick Metsger's comments stating the agency is pursuing the changes now due to a congressional deadlock, just as the ABA did in a Jan. 20 letter to the NCUA.

“As a matter of tax policy, (the) NCUA's quasi-legislative proposal greatly impacts your respective committees' prerogatives, and in reality means less money to support education, public safety, teachers and highways,” the group wrote in the letter.

Strife between the two industries is not new, and a potential new battle could reexamine the debate that took place over H.R. 1151 almost two decades ago. The ABA also filed a strongly worded comment letter to the NCUA on Feb. 5 opposing the FOM rule.

credit union vs banks field of membership ncua “I believe that the ABA's approach also suggests that the trade association is prepared to revisit the CUMAA-like battle again under the current circumstances, both in the Congress and in the courts,” Olympia, Wash.-based consultant Marvin Umholtz said.

Umholtz warned tactics used by credit unions in 1998 to fend off bankers won't work in the current Congress.

“And the credit union industry in 2016 certainly has little resemblance to the one in 1998,” he added.

ABA Executive Vice President/Chief Economist James Chessen said in his trade association's comment letter that the FOM rule would effectively render the concept of a common bond among credit union members “meaningless.” By advancing the FOM proposal, the NCUA board overstepped its regulatory authority, sidestepping FCUA requirements of industry growth and replacing its own judgment for that of Congress, he added.

Chessen also called into question the NCUA's authority to implement the proposed changes, including amending the definition of a service facility to include online financial services, such as computer-based and mobile phone channels.

In contrast to the bankers' comments, credit union trade associations said in their comment letters the rule doesn't go far enough. In NAFCU's comment letter, President/CEO Dan Berger called for FOM reform that would remove the service facility requirement for multiple common bond chartered credit unions or allow online services to fulfill that requirement in underserved areas. Berger also recommended the NCUA eliminate or increase the core-based statistical area population.

“Credit unions believe that so long as a Metropolitan Division, or any defined area, regardless of size, shows evidence of commonalities, such as shared routine interactions, work experiences and interests essential to supporting a strong credit union, such proposed areas should not be so disproportionately denied simply because they exceed 2.5 million people,” Berger wrote.

NAFCU also wrote in its letter that the NCUA could more often utilize its emergency merger authority when two credit unions of unlike charters wish to merge.

“NAFCU's members have indicated that (the) NCUA often waits until a credit union is in irreparable economic distress before it will authorize an emergency merger,” Berger wrote.

CUNA President/CEO Jim Nussle wrote in his trade's comment letter that more can be done to put the federal charter on equal footing with most states.

Regarding mergers, Nussle wrote that the NCUA should facilitate mergers between credit unions with unlike fields of membership when there is no desire to retain the merged credit union's field of membership. The NCUA should establish a process that eliminates the need for a conversion, Nussle wrote.

“The NCUA could simplify this process by providing clear guidance stating the merged credit union can change its FOM and approve the merger in one step,” he wrote. “An update to (the) NCUA's chartering manual would be required for the charter conversion to be completely removed from the process.”

credit union field of membership dennis dollar Bankers' reactions, according to one industry consultant, are equivalent to a Henny Penny moment.

“This is the same tired, worn, anti-credit union rhetoric from the bankers that Congress and the courts have rejected in the past,” Dennis Dollar, principal partner for Dollar & Associates, said. “Every time any new action is taken to enable credit unions to keep up with the changing marketplace, the bankers act like the sky is falling on their record profit making heads.”

Dollar, a former NCUA chairman, added that the FOM proposal “does not go as far as the 1999 rules that the bankers challenged in court and lost – nor does it go nearly as far as the 2003 rules that the bankers elected not to challenge in court because they lost so badly in 1999.”

ABA Executive Vice President of Congressional Relations and Political Affairs James Ballentine said that this is one of the rare moments when bankers and credit unions agree.

“We both agree this is a very large expansion of their FOM and with that agreement in mind, we believe that members of Congress who have allowed the credit unions a tax benefit for staying a tight-knit group should be aware of this,” he said.

Ballentine also argued that the letter from the 53 state banking associations was a way of alerting members of Congress to the actions of the NCUA. He said the last time the NCUA testified before Congress as a stand-alone body was in 2011.

“It's not as if Congress is very aware of all the actions that [the NCUA is] taking, so we need to bring that to their attention,” he said. “More importantly, I think the letter the state bankers association sent, asking for them to investigate this proposal, it really does begin to make one wonder whether this is the industry that existed when H.R. 1151 passed in '98 and even before then.”

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FOM Proposal Fires Up Credit Union-Bank Battle

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