Compliance Blog

Jan 04, 2017
Categories: Board and Governance

Finalized Field of Membership Rules: Multiple Common Bond Charters

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel

Welcome to 2017! Shake off that holiday sugar-hangover, and have a look at the upcoming field of membership changes. Last month, I wrote about the changes to the field of membership rules for community common bond charters. Now, with just a few weeks before NCUA's modernized field of membership rules go into effect, let's focus on the changes for multiple common bond charters.

What Became Final

The proposed rule included five changes for multiple common bond charters, three of which became final as proposed (more or less): the inclusion of contractors in SEGs, streamlined stand-alone feasibility determination processes and the addition of veterans as an affinity group.

Inclusion of Contractors in SEGs

Currently, a single common bond federal credit union (FCU) can include employees of contractors involved with the sponsor of the charter if there is a strong dependency relationship between the contractors and the sponsor. The final rule creates a parallel allowance for multiple common bond chartered FCUs to add employees of contractors who have a strong dependency relationship with a SEG sponsor.

Regarding what constitutes a strong dependency relationship, the new Chartering and Field of Membership Manual will state:

In this context, a strong dependency relationship is a relationship in which the entities rely on each other as measured by a pattern of regularly doing business with each other, for example, as documented by the number, the term length, and the dollar volume of prior and pending contracts between them. See, 81 Fed. Reg. 88412, 88435 (December 7, 2016).

NCUA stated that it intends that FCUs will determine whether a contractor and sponsor meet this standard themselves, so as to create a rebuttable presumption. NCUA anticipates issuing further guidance to clarify what documentation is acceptable to establish a contractual relationship based on a pattern of regularly doing business. See, 81 Fed. Reg. at 88421.

Streamlined Stand-Alone Feasibility Determination

Under the current Chartering and Field of Membership Manual, when an FCU seeks to add a group of potential members that numbers 3,000 or greater, it must perform a stand-alone feasibility determination establishing that the proposed group does not have the ability to form their own credit union. Under the new rule, the documentation involved will be reduced and the process will be streamlined. The approach will be tiered based on the size of the group, with separate processes for groups of fewer than 3,000 members, groups between 3,000 and 4,999 members, and groups of 5,000 or more. This change is the result of complaints to NCUA that this process involves excessive paperwork and that large groups have withdrawn from the application process in frustration. See, 81 Fed. Reg. at 88422.

Addition of Veterans as an Eligible Group

Lastly, NCUA finalized the proposed rule to permit FCUs to include honorably discharged veterans of any branch of the United States Armed Forces as an affinity group. This affinity group applies only to veterans; retirees of other groups, such as teachers or federal employees must be permitted by the FCU's charter. See, 81 Fed. Reg. at 88422.

What Was Clarified

NCUA had issued a proposal allowing tenants of an office park or industrial park to be considered a SEG able to be added to a multiple common bond chartered FCU's field of membership. After receiving comments on the proposal, NCUA decided that the ability to add the tenants of an office park or industrial park as a SEG would not comport with the Federal Credit Union Act, as the landlord is not typically the tenants' employer and the tenants lack a true common bond. However, NCUA also stated it believes the existing rule already permits tenants to become individual SEGs, thus allowing all employees of such a park to become members. To clarify the current availability of the multiple common bond option for employers within the same park, NCUA added it as a factual example within the Manual. See, 81 Fed. Reg. at 88421.

The Final Rule contains discussion of how credit unions can include this clause in its statement of its field of membership:

"To be able to have this type of clause in its charter, the multiple common bond credit union first must receive a request from an authorized representative of the group or the park to establish credit union service. The park must be within the multiple common bond credit union's service area, and each occupational group must have fewer than 3,000 employees, who are eligible for membership only for so long as each is employed by a park tenant. Under this clause, a multiple common bond credit union can enroll group employees only while the group's retail or business employer is a park tenant, but such credit unions are free to serve employees of new groups under the above conditions as each respective employer becomes a park tenant." See, 81 Fed. Reg. at 88435.

In addition, any new tenants to the industrial park would be eligible for membership so long as they meet those two conditions.

What Did Not Become Final

In the proposal, NCUA attempted to modify the definition of service facility to include an FCU's website or mobile platform, assuming it can perform certain functions. This was a potential change many credit unions were excited about. Unfortunately, the NCUA Board did not approve this change in the final rule, though it stated the proposal had merit. The Board decided to defer this change to a later date, after further study. See, 81 Fed. Reg. at 88420.

Here's to another year of credit union excellence in 2017! We hope to hear from all our NAFCU-member credit unions with their compliance questions and what they need to make 2017 the year of working smart, not hard. We are here for you, please don't hesitate to reach out!

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