NCUA Walks Back from Associational Common Bond Limits

Despite a promising proposal, the National Credit Union Administration walked back somewhat from its plan to rein in expansive fields of membership (FOM) for federal credit unions via associational common bonds.

The NCUA Board approved a final rule amending the associational common bond provisions of the agency’s chartering and field of membership requirements, including a requirement that the association must not have been formed primarily for the purpose of expanding credit union membership.

However, the final rule included carveouts and exceptions that undermine its stated purpose of the final rule. For example, NCUA expanded the pool of associations that will be considered to automatically meet associational common bond requirements to include parent-teacher associations, chambers of commerce, athletic booster clubs, fraternal organizations and professional associations. It also removed a requirement that an association operate independently for at least a year before being added to an FOM.

Moreover, the agency significantly weakened the requirement that a federal credit union (FCU) and the association the FCU wishes to add to its FOM demonstrate corporate separateness exists between the two entities. NCUA initially proposed looking at five factors to demonstrate corporate separateness, including an association maintains a separate physical location, which does not include a P.O. Box or other mail drop, and not on premises owned or leased by the FCU; the FCU and association are held out to the public as a separate enterprise; the FCU’s and the association’s respective business transactions, accounts, and records are not intermingled. The final rule will now only look at one factor to determine corporate separateness -- if an FCU’s and an association’s respective business transactions, accounts, and records are not intermingled.

Read the final rule.