Compliance Blog

Jul 05, 2019
Categories: Board and Governance


Written by Jennifer Aguilar, Senior Regulatory Compliance Counsel

Field of membership (FOM) is constantly one of the topics NAFCU’s compliance team is asked about. These questions run the gamut from helping credit unions understand the language in their charters to figuring out how a credit union can expand its membership base. Today’s blog is a roundup of a few of the common questions we get on the federal FOM rules. As NCUA’s field of membership rules only apply to federal credit unions, state-chartered credit unions with similar questions will want to review any applicable state laws or guidance from the appropriate state regulator.

We are a multiple common bond credit union with a number of SEGs and associations in our field of membership. Do customers of these businesses or associations qualify for membership?

Unfortunately, customers do not fall within either of these common bonds. Chapter 2, Section II.A.1 of the NCUA’s Field of Membership Manual (Manual) requires all occupational common bonds to be based on employment. As customers are not employees of the business, they do not qualify for membership based on their relationship with a SEG.

Chapter 2, Section III.A.1 of the Manual explains an associational common bond includes only “members and employees of a recognized association.” The Manual provides an eight factor test to determine whether a group has an associational common bond and includes a list of twelve groups that NCUA has already determined to meet this test. NCUA also provides some examples of groups that do not meet the associational common bond test. The Manual explains that those “associations based primarily on a client-customer relationship do not meet associational common bond requirements.” The Manual states “customers of Fleetwood Insurance Company” is an example of an unacceptable associational common bond because “customer/client relationships do not meet associational standards.” As a result, customers of a business would also not meet the associational common bond test.

What information does NCUA require credit unions to collect to prove a potential member lives, worships, volunteers or works in our community?

NCUA does not provide any specific documentation requirements for confirming membership eligibility. Generally, it is up to each credit union to decide what information it wants to obtain to confirm eligibility. As allowing persons outside the field of membership to become members is a violation of the Federal Credit Union Act, most credit unions, at a minimum, ask for some sort of supporting documentation.

Supporting documentation can come in various forms depending on the particular affinity involved. Some credit unions ask the applicant to simply check a box that they live, work, volunteer or worship in the community. Other credit unions ask for additional information such as the name of the applicant’s employer or a paystub, if the applicant indicates he works in the community. Whether to simply rely on an applicant’s indication they are eligible for membership or ask for more information will be a determination for each credit union to make based on the facts involved. For example, if a credit union has reason to believe the information is not true, it might consider asking for more information or documentation from the applicant, such as the name of the worship community or volunteer organization and contact information for a person at the community or organization. Some membership applications also indicate by signing the application, the applicant certifies the information provided is true and accurate. If a membership application includes such a certification, the credit union may consider whether this is sufficient to overcome any concerns the credit union may have over the accuracy of the information.

Our credit union has a community charter. We have developed a great relationship with a large company located in the adjacent county and want to allow their employees to be eligible for membership. Can we add the company as a SEG to our current charter?

NCUA does not permit community credit unions to expand using common bond criteria nor does it permit common bond credit unions to expand using community criteria. If the goal is for all the employees of the business to be eligible for memberships, the field of membership rules require either a change in the credit union’s charter or an expansion of the community boundaries. Expanding community boundaries is a less burdensome process than changing a charter so the credit union may want to consider whether that is the appropriate option in this case.

Chapter 2, Section V.B of the Field of Membership Manual (Manual) explains that community credit unions may expand their geographic boundaries into the next community. The Manual requires: (1) the proposed community must be a “well-defined local community,” as defined in Chapter 2, Section V.A.2, that is adjacent to the existing community and complies with any applicable population limit; (2) the persons in the proposed community must “have common interests and/or interact” and (3) the credit union must develop a business plan in accordance with Chapter 2, Section V.A.4. If the credit union determines that all three criteria are met, it can submit a charter amendment application to NCUA’s Office of Credit Union Resources and Expansion.