Back to Basics: Businesses and Field of Membership
Written by Jennifer Aguilar, NAFCU Regulatory Compliance Counsel
Last week, our compliance team hosted compliance professionals from across the country in San Antonio for our Compliance School and Compliance Seminar. It was a busy but very successful week. Congratulations to all the new NCCOs!
Since Compliance School is all about the compliance basics, today’s blog focuses on the basics of businesses and field of membership (FOM) for federal credit unions. Like any member, a business must also qualify for membership by being within your FOM, paying par value and meeting any other membership requirements the credit union has imposed. Under the federal field of membership rules, there are three options for how businesses can be within your FOM.
First, the credit union’s charter specifically lists the business name. This is most common for SEGs where the employer is listed in the FOM so it can also open an account. The credit union will need to review section 5 of its charter to determine whether the business is listed there. If so, then it is within your FOM and the business may open an account.
Second, your charter includes the phrase “organizations of such persons.” An “organization of such persons” is an organization that is composed exclusively of persons within the federal credit union’s field of membership. See, Chartering and Field of Membership Manual, Appendix 1 Glossary. The persons that make up the organization or own the business do not have to actually be members of the credit union, however, they must all be within your field of membership.
For example, suppose XYZ Federal Credit Union’s field of membership is “all persons who work for XYZ Corp. and organizations of such persons.” Amy, Bob and Calen have gotten together and formed ABC Inc. They want their corporation to become a member of XYZ FCU so that they can open a business account at the credit union. If Amy, Bob and Calen all work for XYZ Corp., then ABC Inc. qualifies for membership and XYZ FCU may open the business account. However, if any one of them do not work for XYZ Corp. at the time the account is opened, then ABC Inc. would not qualify for membership and the account cannot be opened. If your credit union is relying on this provision to qualify the organization for membership, all persons that make up the organization must be within your credit union’s FOM but none of them have to be members. The credit union may need to obtain additional information about each person who makes up the organization in order to determine whether they all are within your FOM.
Third, there is a special rule for community chartered credit unions and those serving underserved areas. For all community chartered credit unions, any business located within the community boundaries is eligible for membership as long as the charter language includes businesses. For example, persons who live, work or worship in and businesses located in Arlington County, Virginia.
The rules for underserved areas follow this same general rule. Section 1759(c)(2) of the FCU Act explains that a “credit union may include any person or organization with a local community” in its FOM if that community is an underserved area. This suggests that businesses located in an underserved area listed in the credit union’s charter are also within the credit union’s FOM.
Only one of these three tests must be met for a business to be within a credit union’s FOM. If a business is within your FOM, then it may generally open an account as long as it meets all other membership requirements, including paying par value. Depending on your credit union, there may also be additional requirements, such as completing a membership application or paying any applicable fees. The key is businesses qualify for membership slightly differently than individual members and, when in doubt, read your charter.