Tuesday, May 31, 2011

An Unguarded Backdoor to CU Membership?

To circumvent field of membership restrictions, more and more credit unions are making use of associations.

You make a donation to or join an association and this makes you eligible for credit union membership.

While some credit unions will simply list the various associations among all membership groups and state if you are a member you can join, other credit unions are overtly steering individuals who would otherwise not qualify for membership to an association.

For example, NuVision FCU writes on its website:

"If you do not qualify based on the above criteria, no problem! You can become a member of the American Consumer Council (Council) as a path to NuVision membership.

Thanks to a cooperative agreement between NuVision and the Council, members can join NuVision as well as having access to materials that will aid in improving their financial planning efforts.

We can sign you up for membership in the Council, at no initial cost to you, at the same time you become a NuVision member."

NuVision further writes that you don't have to renew your membership in the Council to retain your membership in the credit union because of its "once a member, always a member" policy.

It seems to me that if a credit union tells individuals that you don't have to renew, then the credit union is making a mockery of this associational membership.

Below is a table (click to enlarge) of 37 credit unions with at least $1 billion in assets that are using membership in associations to allow people to qualify for credit union services.

For some of these credit unions, it appears that the ends justify the means. Their goal is to grow membership and they don't care how.

What is worse is that credit union regulators seem to be partners in this duplicitous behavior on the part of credit unions.

NCUA does not appear to be enforcing its own field of membership manual were it says that "[i]ndividuals ... who only make donations to the association are not eligible to join the credit union."

In closing, a U.S. Federal Court wrote in Texas Bankers Association v. NCUA and Communicators FCU that Congress never intended for the association language "to be the unguarded backdoor to credit union membership."


  1. You make no distinction between organizations that exist outside the credit union and those created by credit unions for membership purposes.

    Besides, this has been going on for decades. When I was a student at a state university, students were not eligible to join the FCU. However, members of the Athletic Association were. Thus I joined the AA and joined my first credit union. Membership eligiblity in the FCU was a adjunct benefit to joing the group financially supporting the athletic department at the Division II university.

  2. What exactly is your point? That credit unions take advantage of a loophole and their regulators let them get away with it? Big deal? Who's complaining about it but the bankers and their trade association and, let's face it, who in the public cares? If they want to have credit union services, and are ineligible through traditional fields of membership; they can go this route. If they don't want to join a credit union, no one is forcing them to. Stop your whining already.

  3. I'm sorry, but I don't see the down side to this. Credit unions offer so very many benefits over any bank, shouldn't we want to make those benefits available to as many people as possible, especially in these trying economic times? Not-for-profit credit unions give back all their "profit" to their members. Do banks do that??? And not a single credit union received one dime of taxpayer bailout dollars. I say get people to credit unions any way you can!

  4. It appears that you all believe the ends justify the means with regard to credit union membership.

    However, there are rules associated with being a member of a credit union. Congress wanted there to be a meaningful affinity among credit union members and the meaningful affinity is not wanting to be a credit union member.

    I'm sorry a donation does not constitute a meaningful affinity and there are credit union officials that agree with me.

    Those credit unions that are abusing the rules are jeopardizing the industry's tax exemption.

  5. I promise that I primarily use credit unions for my banking...I'm not just saying that I am.

    That being said, I agree with Dr. Legget that buying a club membership is a completely unacceptable method to qualify for credit union membership. There is no common bond in these instances.

    I see a bigger problem, however. The FOM issues that are most troubling to me relate to the mega, regional credit unions that are being formed to in the liquidation of failed institutions. I agree that the NCUA needs to do whatever is necessary to protect the share insurance fund and the credit unions with the means to absorb failed CU's are limited. I do think that sometime in the future, there will be problems with these billion plus dollar credit unions with offices and FOM's spread throughout the country.
    In Utah, we have two CU's with at least $1B in assets headquartered here, plus subsidiaries Security Service CU out of Texas and Chartway CU from Virginia. I share as much of a common bond with people in Virginia as I do with people who join a club to become eligible for CU membership.

  6. I wish the banks would realize that the bad players in its industry threaten the public confidence in banks overall and the Bank Insurance Fund specifically. As to the CUs taking over out-of-state failed CUs, perhaps one thing to think about is that diverification of FOM will allow those credit unions to better handle regional economic difficulties. It has worked for some national FOM credit unions.

  7. You make a very good point about diversification helping with the mitigation of risk. I'm still not comfortable with regional credit unions, but the economy is pushing the industry in that direction.

  8. I would hope that bankers would not complain about interstate banking. Since it was a state-by-state issue until Congress permitted it in the 1980s. And bankers don't seem to care about the laws that limit any single bank to 10% of the total deposits (banks/S&Ls) in the country. It seems the four largest banks surpass that legal limit.

  9. The nationwide deposit cap of 10% applies to interstate acquisitions. Deposits in savings and loans don't count against the cap because savings and loans are not a bank, as defined by statute (12 U.S.C 1842(d)).



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