Credit unions that expand their fields of membership shouldbeware of also increasing regulatory risk when it comes to fairlending laws.

“The problem exists when you have taken on an underservedgeographic area with the intent of growing your membership andperhaps increasing profitability, but you haven't served that groupas you have served maybe your main geographic field of membership,”CU Direct Executive Lending Advisor Michael Cochrum said.

Credit unions need to take a hard look at their marketing habits, Cochrum noted.

“The issue becomes that they tend to market as if they'remarketing to their current field of membership,” he said.

“You need to be cognizant that any offers you make do not showfavor to one group over another,” he said.

For credit unions doing indirect lending, offering a ratediscount to current members could cause trouble, for example,because nonmember applicants may be very different from themembership demographically. If the discount is not based onanything other than the fact that the applicant is a favoredmember, disparate impact may occur.

Even expanding the universe of auto dealerships that a creditunion does business with and markets through in response to anexpanding FOM could increase exposure.

“They could, in effect, be redlining because of the customersthat that dealer does business with. If they say, 'Well, we're onlygoing to do business with Mercedes, BMW and Lexus dealers becausewe like the collateral,' they could be creating disparate impact,”Cochrum said.

He added, “You can't just make assumptions and say, 'Well, we'regetting the applications we get,' because there could be things inyour policy, for example, that are preventing those applicationsfrom coming to you.”

Marvin Umholtz, president/CEO of Umholtz Strategic Planning& Consulting Services, has been worrying about the possibledamned if you do and damned if you don't ramifications of unique FOMs for some time.

“As a practical matter, credit unions are stuck with this,”Umholtz said. “The vast majority of credit unions are going to beburied by the compliance-driven mindset of the regulators. It's notrisk-based anymore. It's not like, where's the most likelihood forall this stuff to go wrong. Prove to me, and I'm the regulatorspeaking, prove to me that you have a compliance system thatferrets out every instance of the problem. Prove to me that yoursystem is so bulletproof that nothing is going wrong.”

One way credit unions can mitigate the risk, Cochrum said, is torecheck the facts on their lending requirements. If time on the jobdoesn't statistically matter anymore, for example, credit unionsshouldn't use it in their credit criteria, he said.

Read more about fields of membership and examiner scrutiny inthe June 8 issue of Credit Union Times.