Impacts of Closing A Service Facility
As member-owned financial institutions, a credit union’s field of membership (FOM) is crucial. The FOM sets the rules for who may join the credit union, and therefore receive services from the credit union. While nonmembers may be joint account holders on share accounts, the ability of a federal credit union to provide services to nonmembers is quite limited – for example, the Federal Credit Union Act (FCU Act) generally prohibits federal credit unions (FCUs) from making loans to nonmembers.
For that reason, federal credit unions often want to expand their FOMs. NCUA’s Chartering and Field of Membership manual discusses the different types of charters and how the field of membership can be amended to add new groups of potential members. Notably, however, the FCU Act also contains some exceptions to the general FOM provisions, including that a multiple common bond FCU may allow certain persons or organizations outside of the FCU’s FOM to become a member if they are located in an underserved area. The FCU Act states that if NCUA agrees that a local community, neighborhood or rural district is both “an investment area” and is underserved by depository institutions, then the multiple common bond may allow any person or organization from that underserved area to become a member. In order to use this exception, however, the FCU must establish and maintain an “office or facility” in the underserved area.
So, what is a “facility”? The NCUA Chartering and Field of Membership manual provides this definition of “service facility":
“A service facility for multiple common bond credit unions is defined as a place where shares are accepted for members' accounts, loan applications are accepted, or loans are disbursed. This definition includes a credit union-owned branch, a mobile branch, an office operated on a regularly scheduled weekly basis, a credit union-owned ATM, or a credit union-owned electronic facility that meets, at a minimum, these requirements. A service facility also includes a shared branch or a shared branch network location, including a shared ATM or electronic facility that meets the above requirements, if the credit union participates in a shared branching network. This definition does not include the credit union's internet website.”
Thus, a service facility can be many things, from a full branch to a shared branch or an ATM. Service facilities can also be important to other aspects of chartering and FOM expansion, such as determining if certain groups can be added to the FOM.
So, what happens when a federal credit union shuts down a service facility in an underserved area? Is the federal credit union permitted to still service the underserved area after the service facility’s closure?
NCUA Letters to Credit Unions 22-FCU-02 provides some guidance.
“The Federal Credit Union Act requires that the federal credit union establish and maintain an office or facility in the underserved area. Accordingly, any multiple common-bond federal credit union with a shared facility in an underserved area should have contingency plans providing for the prompt creation of a replacement facility should the shared facility close or move out of the area. The NCUA will remove an underserved area from a federal credit union’s field of membership and reserves the right to take other supervisory action if it determines that a federal credit union has not maintained a service facility in the underserved area.”
The last line stresses that NCUA will remove a credit union’s ability from servicing an underserved area from the field of membership if the agency determines the credit union has not maintained a service facility in the area. If the agency removes an underserved area from a credit union’s field of membership, then, theoretically, a credit union is unable to lend or offer other services to consumers in this area given it has fallen outside the field of membership.
If there are any remaining questions, please do not hesitate to contact NAFCU’s compliance team at compliance@NAFCU.org.
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