Thursday, December 29, 2016

More Than 110,000 Members at Summit CU Will Not Receive a Dividend Payment

At Summit Credit Union (Madison, WI), not all member-owners are equal.

The $2.6 billion credit union announced that more than 46,000 members will share in a a declared $1.9 million dividend. However, this means that over 110,000 members of the credit union will not share in the dividend.

The credit union stated "[i]ndividual member cash payouts were based on the financial success of the credit union as well as how much the member saved and borrowed between October 1, 2015, and September 30, 2016."

In other words, this dividend is part of a loyalty or rewards program. Members who do the most business with the credit union will probably see the largest dividend payment.

If this was true dividend declaration, all member-owners would have received a dividend payment, as they each own a share in the credit union..

Wednesday, December 28, 2016

Evangelical Christian CU Evicts Church over Almost $22 Million in Unpaid Debt

Evangelical Christian Credit Union (Brea, CA) evicted a Georgia megachurch from its 4,000 seat sanctuary before Christmas over nearly $22 million in debt.

The sanctuary of Higher Living Christian Church (McDonough, GA) will be sold in public auction to the highest bidder for cash on January 3, 2017.

The church building includes a multi-purpose sanctuary with removable seating. It could be modified to accommodate trade shows, graduation ceremonies, cultural events, art displays, or a fellowship hall. The facility also boasted eight classrooms, indoor children's play area, administrative offices, and choir rehearsal room.

Evangelical Christian Credit Union is currently under an enforcement order with the the California Department of Business Oversight.

Read the story.

Tuesday, December 27, 2016

Visions FCU to Double Size of Corporate HQ

Visions Federal Credit Union (Endwell, NY) will more than double the size of its corporate headquarters over the next two years.

The credit union is constructing a new 91,000-square-foot building behind its current 79,000-square-foot building.

The credit union expects to double in size from $3.5 billion in assets to $7 billion in assets by 2025.

The cost of the project is to be determined.

Read the story.

Thursday, December 22, 2016

Metsger: Contingent Legal Fee Was the Best Available Option

In a December 20th letter to Rep. Mick Mulvaney (R - SC), National Credit Union Administration (NCUA) Chairman Metsger wrote that "the decision to pursue legal action using a contingency fee arrangement was the best available option" for the agency over the failure of five corporate credit unions that had bought faulty mortgage-backed securities.

The letter was in response to a November 21 letter from Rep. Mulvaney.

NCUA has paid more than $1 billion in legal fees on $4.3 billion in recoveries from legal settlements.

In pursuing its contingent fee arrangement, Chairman Metsger stated that NCUA did not have the in-house resources or expertise to independently pursue its legal strategy.

He also noted that the agency lacked resources to hire law firms on a hourly basis. Therefore, an hourly fee arrangement would have required increased assessments on credit unions, which credit unions would have had difficulty paying.

Metsger contended that a contingency fee arrangement insulated credit unions from most expenses, if the lawsuits failed, and provided significant upside benefit to credit unions, if the agency's legal strategy was successful.

Metsger claimed that the agency could not have brought these complex lawsuits without the contingency fee arrangement.

Metsger pointed out that the recoveries from NCUA's lawsuits "enabled the agency to stop assessing credit unions the cost of the repayment of the Stabilization Fund since 2012."

Metsger also stated that the agency created a website for credit unions to get information regarding the legal settlements.

The letter also addressed the agency's efforts to control expenses and to increase budget transparency.

The letter appears below (click on image to enlarge)

NCUA Fines 24 CUs for Late Filing 2nd Quarter 2016 Call Reports

The National Credit Union Administration (NCUA) announced that 24 credit unions have agreed to pay civil monetary penalties for late filing their 2nd quarter 2016 Call Reports.

In comparison, 14 credit unions consented to civil monetary penalties a year ago.

The total amount of fines paid were $9,364. Individual penalties ranged from $150 to $1,057. The median penalty was $303.

Of the 24 credit unions agreeing to pay penalties for the second quarter of 2016:
  • Sixteen had assets of less than $10 million;
  • Five had assets between $10 million and $50 million; and
  • Three had assets between $50 million and $250 million.
Eight of the late-filing credit unions had been late in a previous quarter.

NCUA informed late filing credit unions that their fines could be reduced if they signed a consent agreement.

Read the press release.

Wednesday, December 21, 2016

Corporate CUs Are Required to Disclose Executive Pay, Then Why Not All FCUs

It is time for the National Credit Union Administration (NCUA) to require natural person federal credit unions to disclose senior management compensation.

Let's look at the facts, state-chartered credit unions are required to disclose senior management compensation via Form 990s. Also, NCUA requires a corporate credit union to annually prepare and maintain a disclosure of the dollar amount of compensation paid to its most highly compensated employees, including compensation paid to the corporate credit union's chief executive officer (read the regulation).

NCUA's corporate credit union regulation states that a corporate credit union "must distribute the most current disclosure to all its members at least once a year, either in the annual report or in some other manner of the corporate's choosing."

The regulation also states that "[a]ny member may obtain a copy of the most current disclosure, and all disclosures for the previous three years, on request made in person or in writing. The corporate credit union must provide the disclosure(s), at no cost to the member, within five business days of receiving the request."

The rule allows a corporate credit union to provide supplemental information to add context, such as salary surveys.

If NCUA believes that it is appropriate for corporate credit unions to disclose compensation information to its members, then why hasn't NCUA required natural person federal credit unions to do the same thing.

Clearly, requiring such a disclosure would improve accountability and transparency and would promote good corporate governance.

Monday, December 19, 2016

Supreme Court to Hear Important Patent Troll Case

The Supreme Court last week announced that it would hear the case of TC Heartland v. Kraft, which will be closely watched by banks and credit unions due to its implications for financial institutions facing litigation from patent trolls.

The case hinges on whether patent trolls -- entities that hold patents, often of dubious quality, but use them primarily as the basis for threats of litigation -- can bring cases in any federal court district or must bring them only where defendants are incorporated or doing business.

Last year, 40 percent of patent suits were filed in just one of 94 federal judicial districts: the Eastern District of Texas, known for its friendliness to patent trolls.

The appellate court’s decision in TC Heartland upholds a broad understanding of corporate residence -- rejected by the Supreme Court in a different case -- that would allow patent trolls to continue cherry-picking friendly courts for patent cases against faraway defendants, which increases the pressure on defendants to settle cases.

Read more.

Friday, December 16, 2016

Leasing of Excess Space by FCUs Should Be Subject to UBIT

Federal credit unions (FCUs) are leasing their excess space; but the income from such leasing arrangements is not subject to unrelated business income taxes (UBIT).

Recent examples of FCUs announcing plans to lease excess space include:
  • Apple Federal Credit Union with $2.1 billion in assets is building a six-story, 150,000 square-foot headquarters building in Fairfax, Virginia. Apple FCU plans to occupy three floors and will lease the remaining office space.
  • Pentagon Federal Credit Union has paid $164.1 million for a new 11-story, 307,634 square-foot headquarters building in Tysons, Virginia. The credit union plans to initially occupy about half of the office building. Pentagon FCU will lease about 150,000 square feet to LMI.

This trend should continue as the National Credit Union Administration yesterday finalized a rule eliminating the requirement that FCUs plan for, and eventually achieve, full occupancy of acquired premises. The final rule modifies the definition of “partially occupy” to mean occupation and use, on a full-time basis, of at least 50 percent of a premises by an FCU or by a combination of the FCU and a credit union service organization in which the FCU has a controlling interest.

This would allow an FCU to venture into real estate activities, which are outside the mission and purpose of an FCU's tax exemption.

Therefore, Congress should repeal Section 1768 of the Federal Credit Union Act. This would permit the income from unrelated activities such as the leasing of excess space be subject to UBIT.

Thursday, December 15, 2016

Defunct Bronx CU Fined $500K by FinCEN

The Financial Crimes Enforcement Network (FinCEN) today assessed a $500,000 civil money penalty against Bethex Federal Credit Union, Bronx, New York for significant violations of the Bank Secrecy Act's anti-money laundering (AML) regulations.

In December 2015, the National Credit Union Administration liquidated Bethex, determining the credit union was insolvent with no prospects of returning to viability. At the time of its liquidation, the credit union had $12.2 million in assets.

FinCEN’s penalty is a claim against any assets that remain after the completion of Bethex’s liquidation. The penalty will not affect the National Credit Union Share Insurance Fund or any other credit union.

Since 2002, Bethex’s AML program maintained internal controls specific for low to moderate-income clientele within its designated field of membership in New York City.

But in 2011, Bethex began providing services to wholesale money-services businesses (MSBs) that were located outside New York and engaged in high-risk activity. It processed transactions for MSBs in more than 30 countries, including Mexico, Ghana, Bangladesh, China and Pakistan, all of which carried high risks for money laundering.

However, Bethex did not update its anti-money laundering programs. As a result, Bethex was unable to adequately monitor, detect, and report suspicious activity or mitigate the associated risks, leaving the credit union particularly vulnerable to money laundering.

The enforcement order found that Bethex was not adequately staffed to handle the volume of MSB transactions.

Bethex failed to timely detect and report suspicious activity to FinCEN and did not file any Suspicious Activity Reports (SARs) from 2008 through 2011. In 2013, as a result of a mandated review of previous transactions, the credit union late-filed 28 SARs. The majority of the suspicious activity involved high-volume, large amount transfers outside of Bethex’s expected customer base by MSBs capable of exploiting Bethex’s AML weaknesses.

Unfortunately, most of those SARs were inadequate and contained short, vague narratives encompassing a broad summary of multiple and unrelated instances of suspicious activity. FinCEN found that these SARs provided little benefit to law enforcement.

Read the FinCEN press release.

Read the enforcement order.

Rep. Duffy Seeks Answers to Impact of NCUSIF Premium on CU Lending and Operations

In a letter to National Credit Union Administration (NCUA) Chairman Rick Metsger, Rep. Sean Duffy (R - WI) requested that the NCUA Board carefully assess the impact of a National Credit Union Share Insurance Fund (NCUSIF) premium assessment on federally-insured credit unions.

NCUA staff had recommended a possible premium assessment of 3 to 6 basis points for the NCUSIF in 2017.

Specifically, Rep. Duffy requested answers to following five questions by December 27.

Has NCUA done any economic modeling on how assessing a premium could impact credit union lending and operations? If so, what were the results?

Considering that the fund is currently near the top of the normal operating range, does your "base" projection in your economic modeling have the NCUSIF falling outside of the normal operating range (and thus requiring a premium) in the next one to three years?

I understand that the equity ratio is affected by factors such as operating expenses. What is NCUA doing to seek operational improvements and increase efficiency? Will NCUA fully exhaust these possible improvements before seeking a premium?

When the Temporary Corporate Credit Union Stabilization Fund expires ... is it possible any refunds of remaining money in the fund go back to credit unions via the NCUSIF? How could that impact the equity ratio of the NCUSIF?

What is your best estimate currently for the amount of funds that credit unions will receive from the Corporate Stabilization Fund once that expires? How does NCUA make the decision to sell securities once the NCUA Guaranteed Notes (NGNs) mature? Is the agency working to maximize this amount for credit unions?

Read the letter.

Wednesday, December 14, 2016

NCUA Thumbs Its Nose at Federal Courts

The National Credit Union Administration (NCUA) in its final field of membership (FOM) rule has thumbed its nose at the federal courts.

On two separate occasions, federal courts have invalidated NCUA’s attempts to expand the FOM for community credit unions.

Paragraphs 31 and 32 of the American Bankers Association's complaint show that federal courts found that NCUA failed to comply with the Federal Credit Union Act (FCUA) by ensuring that community credit union must serve a single, well-defined local community.

A federal court in Utah in 2004 invalidated a community charter that included six counties with 1.4 million residents — almost two-thirds of Utah's population — and encompassed an area extending from the Nevada border to the Wyoming border of Utah.

Also, a federal court in Pennsylvania struck down NCUA's decision that a six-county area in south-central Pennsylvania constituted a single “well-defined local community.” The judge wrote in 2008 “[t]o a casual observer familiar with central Pennsylvania, it would likely be a remarkable finding that . . . a geographical area of more than 3,000 square miles with a population of over 1.1 million people and encompassing Harrisburg, Hershey, Carlisle, York, Lebanon, Gettysburg, and Shippensburg — constituted a ‘well-defined local community.’”

Nothing has changed in statute; but now, NCUA's final FOM rule will allow a Combined Statistical Area (CSA) with up to 2.5 million population to be treated as a presumptive well-defined local community. (See my earlier post)

For example, this final rule would allow Utah’s Salt Lake City-Ogden-Clearfield CSA to be classified as a presumptive “well-defined local community,” even though six of the eight counties in the CSA were part of previous litigation that found that those six counties do not constitute a single, well-defined local community.

So, how can these eight counties now be a presumptive well-defined local community?

NCUA is thumbing its nose at the federal courts and is unreasonably interpreting the FCUA.

Tuesday, December 13, 2016

Over Half of the Credit Unions Reported Fewer Members Compared to A Year Earlier

While overall credit union membership continued to grow during the year ending in the third quarter of 2016, more than half of the credit unions in the country lost members over the last twelve months, according to the National Credit Union Administration.

Fifty-one percent of federally insured credit unions had fewer members at the end of the third quarter of 2016 than a year earlier.

The median membership growth rate was a negative 0.1 percent over the previous year.

Twenty-two states had negative median membership growth. This means more than half of the federally-insured credit unions in those 22 states had fewer members compared to a year ago.

At the median, year-over-year membership declined the most in Pennsylvania (-1.6 percent) and Oklahoma (-1.3 percent). Three other states reported negative year-over-year membership growth rate of one percent or more at the median -- North Dakota (-1 percent), Montana (-1.1 percent), and New Jersey (-1.2 percent).

Approximately 75 percent of credit unions with declining membership had assets of less than $50 million.

Monday, December 12, 2016

Tiny Philadelphia CU Under Cease and Desist Order

The National Credit Union Administration has issued a cease and desist order to S M Federal Credit Union of Philadelphia, Pennsylvania.

S M Federal Credit Union officials have consented to the order, which requires the following actions:
  • Provide credit union records to the compensated auditor;
  • Complete a member account verification and supervisory committee audit;
  • Reconcile and maintain accurate financial statements and member share and loan records;
  • Calculate and track loan delinquency;
  • Actively and effectively collect past due loans;
  • Cease granting new loans;
  • Ensure the supervisory committee is fully staffed and fulfilling all obligations; and
  • Provide the agency with monthly financial statements; and board and committee minutes.
Chartered in 1959, S M Federal Credit Union has assets of $56,005 and serves 115 members, according to the credit union’s most recent Call Report.

Read the press release.
Read the final order.

Saturday, December 10, 2016

Short-Handed NCUA Board Will Likely Delay Incentive Pay Rule Until the Next Administration

Bloomberg is reporting that the Dodd-Frank Act incentive compensation rule is unlikely to be completed during the closing days of the Obama presidency due to the National Credit Union Administration (NCUA) Board being short-handed.

The article states that the opposition of NCUA Board member McWatters along with a bureaucratic quirk at the Securities and Exchange Commission (SEC) means the rule will likely be delayed until the next administration.

The Dood-Frank Act required six regulator agencies to engage in a joint rulemaking regarding incentive pay packages.

The article notes that many of these regulators are short-handed. This is particularly the problem at the NCUA, which has "one Democrat and one Republican on what’s normally a three-member board."

According to the article,
"The NCUA’s Republican, J. Mark McWatters, used to work for House Financial Services Committee Chairman Jeb Hensarling, a vocal critic of Dodd-Frank who has warned regulators not to move ahead with any more rules before Trump takes office. Though McWatters reluctantly voted in April to solicit public comments on bonus restrictions, he said at the time that people shouldn’t mistake that for support. NCUA officials have told staff members of other agencies that the credit union regulator won’t take action on the rules before Trump becomes president, said one of the people, who like others asked not to be named because the discussions were private."
Also at the SEC, the agency is down from five members to three. Were the SEC to schedule a final vote and the sole Republican Commissioner did not participate, the agency would lack a quorum to officially approve the new regulation.

Until vacancies at these agencies are filled, a vote to finalize the rule is unlikely to happen.

Read the story.

Thursday, December 8, 2016

ABA Sues NCUA over Its Final FOM Rule

The American Bankers Association (ABA) on December 7 filed a lawsuit against the National Credit Union Administration (NCUA) seeking to overturn the agency's final field of membership (FOM) rule that is scheduled to take effect on February 6, 2017.

The Final FOM Rule was published on December 7 in the Federal Register.

According to ABA's complaint, NCUA’s final rule “fails to adhere to the limitations on federal credit unions established by Congress. By exceeding these statutory limitations, the final rule upsets the balance Congress struck between granting federal credit unions tax-favored status and limiting their operations to carefully circumscribed groups or localities that share a common bond.”

ABA stated that the rule disregards Congress' explicit instruction that community credit unions serve only a single, well-defined local community. Instead, it declares that large regions including millions of residents and cutting across multiple states are single "local" communities.

Under the final rule, an FCU can apply to serve entire geographic regions. NCUA has defined Combined Statistical Areas with populations up to 2.5 million residents as a "well-defined local community." So-called “rural districts” can serve up to 1 million people, which would include the entirety of Alaska, North Dakota, South Dakota, Vermont or Wyoming.

ABA alleges that "[n]o reasonable agency could conclude that the vast areas covered by the Final Rule constitute a single "well-defined local community" or "rural district."

However, NCUA should not be confused with being a reasonable agency.

The lawsuit was filed in the United States District Court for the District of Columbia.

Read the complaint.
Read the press release.

Wednesday, December 7, 2016

Consumer Credit at Credit Unions Grew by Almost $5.3 Billion in October

The Federal Reserve reported on December 7 that outstanding consumer credit grew at credit unions by almost $5.3 billion during October to $378.8 billion, as both revolving and non-revolving credit increased.

Revolving credit increased by almost $200 million to $51.1 billion.

Non-revolving credit rose by approximately $4.9 billion to $327.6 billion.

Read the G.19 Report.

Will Examiners Second Guess Unguaranteed Business Loans?

Will the National Credit Union Administration (NCUA) examiners second guess credit union business loans that don't have personal guarantees?

In May 2016, NCUA replaced the explicit requirement of personal guarantees on business loans with an implicit expectation that credit unions should obtain a personal guarantee.

According to its updated Examiner's Guide, "[a] credit union should only waive a requirement for a personal guarantee when the credit union has a rigorous credit risk management program in place and the ability to properly mitigate the additional risk. The reliance on a personal guarantee should not be relinquished solely to meet competitive pressure."

NCUA expects that only financially strong borrowers would be eligible to receive a personal guarantee waiver.

NCUA lists multiple factors that should be used to determine if a borrower is financially strong, including superior debt service coverage, positive income and profit trends, a strong balance sheet with a conservative debt-to-worth ratio, readily salable collateral supporting the loan, and a low loan-to-value ratio for the loan.

In addition, credit unions must set concentration limits in their policies on the maximum amount of business or commercial loans that do not have personal guarantees.

Moreover, NCUA expects a credit union to "monitor a borrower's financial condition by requiring frequent financial reporting and compliance with specific well-defined financial covenants. The borrower’s operation should be monitored by frequent contacts by the credit union with the borrower to evaluate if there have been material changes to the operations."

In closing, the Examiner's Guide states that "[e]xaminers should determine whether a credit union adheres to its policy in granting unguaranteed commercial loans. Examiners should give particular attention to the credit union’s ability to monitor the performance of these loans. Loans without the benefit of a personal guarantee should be reported to the board in the aggregate and clearly monitored for adverse changes in their repayment performance or overall risk."

Unfortunately, too much of the guidance is based upon subjective language, which will give credit union examiners a lot of leeway to second guess business loans without personal guarantees.

Read the section on personal guarantees.

Tuesday, December 6, 2016

Alliance FCU Changes to State Charter and Private Share Insurance

Alliance Federal Credit Union (Lubbock, TX) switched from a federal charter to a state charter and changed from federal share insurance to private share insurance provided by American Share Insurance.

According to Scott Rose, President and CEO of the $245 million Alliance FCU, one of the main reasons he and his board of directors chose to convert to American Share was the simple fact that the role of the regulator and insurer needs to be differentiated.

Another key factor in the credit union's decision to move to a state charter, and to partner with American Share Insurance, was that they wanted to be regulated by local government officials that better understand the needs of Texas residents.

This is the third Texas-based credit union to join American Share Insurance in the last 18 months.

Read the press release.

Monday, December 5, 2016

CUs Report Double Digit Year-over-Year Loan Growth

The National Credit Union Administration (NCUA) reported strong loan and deposit growth for federally-insured credit unions at the end of the third quarter of 2016.

Total loans outstanding at federally insured credit unions reached $847.1 billion at the end of the third quarter of 2016, an increase of 10.1 percent from one year earlier.

Every major loan category posted year-over-year growth. New auto loans grew the fastest at a rate of 15.8 percent to $112.2 billion. Outstanding net member business loans grew at the second fastest pace by 14 percent to $63.9 billion.

Insured shares and deposits in federally insured credit unions grew, for the first time, to more than $1 trillion.

As a result of loans growing at a faster pace than deposits (shares), this caused the industry's loan-to-share ratio to increase. The loans-to-shares ratio was 78.6 percent, up from 77.8 percent at the end of the second quarter of 2016 and 77.5 percent a year earlier.

Net Income Up 5.7 Percent

Net income at federally-insured credit unions increased by 5.7 percent from one year ago to an annualized net income of $9.7 billion through the first three quarters of 2016.

Gross income at credit unions rose by $4.7 billion to $59.3 billion as of September 2016. Offsetting the increase in gross income was an increase in non-interest expense by $2.55 billion and interest expense by .52 billion. In addition, provisions for loan and lease losses jumped by $1.1 billion to $4.7 billion. Operating expenses as of September 2016 were 65.43 percent of gross income.

The annualized return on average assets ratio for federally insured credit unions stood at 78 basis points on September 30, 2016, down from 80 basis points a year earlier. The median return on average assets was 37 basis points at an annual rate during the first three quarters of 2016, up slightly from 36 basis points a year earlier.

Almost 98 Percent of CUs Are Well-Capitalized

The industry's aggregate net worth ratio was 10.85 percent as of the end of September, the same as the previous quarter. One year earlier, the system’s aggregate net worth ratio was 10.99 percent.

NCUA reported that 97.9 percent of federally insured credit unions were well-capitalized. At the end of the third quarter of 2016, less than 1.0 percent of federally insured credit unions were undercapitalized.

Delinquency Rate Flat, Net Charge-Off Rate Up

Credit union reported holding approximately $6.5 billion in delinquent loans. This was up from almost $6 billion one year earlier. The overall delinquency rate was largely unchanged -- down 1 basis point from one year ago at 77 basis points. Over the last year, the delinquency rates on member business loans and credit card loans jumped by 41 basis points to 1.52 percent and by 7 basis points to 1.04 percent, respectively.

Net charge-offs are up $930 million from a year earlier to $4.4 billion. The net charge-off rate was up 7 basis points from a year ago to 53 basis points.

NCUA also noted that credit unions with at least $500 million in assets continued to outperform smaller credit unions.

Read the press release.
Review Financial Trends Report.

Saturday, December 3, 2016

University Federal Credit Union Sponsors University's Rooftop Playfield

University Federal Credit Union (UFCU), Salt Lake City, Utah, has sponsored a playfield at the University of Utah.

The University Federal Credit Union Playfield was made possible through a lead gift from the UFCU.

The playfield is located on the top of a four-level parking structure in the middle of campus.

In addition, the credit union made a generous contribution to the George S. Eccles Student Life Center, which created the UFCU The Core workout center.

The dollar amount of the contributions were not disclosed.

Read the press release.

Friday, December 2, 2016

Is the Washington-Baltimore-Arlington, DC-MD-VA-WV-PA Combined Statistical Area A Well-Defined Local Community?

The National Credit Union Administration (NCUA) Board is proposing to quadruple the population threshold of a presumptive community charter consisting of a statistical area or a portion thereof served by a federal credit union (FCU) to 10 million.

The Board defines a statistical area as being comprised by a Combined Statistical Area or a Core-Based Statistical Area (CBSA). A CBSA is either a Metropolitan or Micropolitan Statistical Area.

For example, if the proposed population threshold of 10 million is approved, this would allow an FCU to serve a statistical area as a well-defined local community (WDLC) with a population that is greater than the population of 41 states and the District of Columbia.

In addition, the proposal would qualify 20 additional Combined Statistical Areas as presumptive WDLCs. This means that all but two Combined Statistical Areas would qualify as presumptive WDLCs.

Under the proposal, the Washington-Baltimore-Arlington, DC-MD-VA-WV-PA Combined Statistical Area would qualify as a presumptive WDLC.

The Washington-Baltimore-Arlington, DC-MD-VA-WV-PA Combined Statistical Area has an estimated population of approximately 9.6 million people. This is below the proposed 10 million population threshold.

The region encompasses one county in southern Pennsylvania, portions of the eastern panhandle of West Virginia, central and southern Maryland including part of the eastern shore, the District of Columbia, and northern Virginia.

It includes six Metropolitan Statistical Areas and two Micropolitan Statistical Areas.

This region has numerous trade areas, multiple taxing authorities, and multiple political jurisdictions.

In my opinion, the Washington-Baltimore-Arlington, DC-MD-VA-WV-PA Combined Statistical Area is hardly a local community; but rather a region.

Thursday, December 1, 2016

NCUA Should Not Rubber Stamp Narrative Model for Community Charter

The National Credit Union Administration (NCUA) Board is proposing to resurrect the narrative model to demonstrate that a community that a federal credit union (FCU) wishes to serve is a well-defined, local community (WDLC).

Until 2010, NCUA required that an FCU applying a community charter submit a narrative for NCUA approval demonstrating that the residents of the proposed community had common interests and interaction. The Board abandoned the narrative requirement in favor of an objective model that gave credit unions the choice between two presumptive WDLC models -- a single political jurisdiction or a statistical area.

The Board is now proposing to allow an FCU to submit a narrative to demonstrate that the community it proposes to serve qualifies as a WDLC based upon common interests and interaction among the area’s residents.

NCUA noted that its pre-2010 experience with community charter applications has identified 13 criteria that were most useful and compelling to demonstrate common interests and interaction.

The thirteen criteria are:
  • Presence of a Central Economic Hub;
  • Community-wide Quasi-Government Agency Services;
  • Governmental Designations with Community;
  • Shared Public Services and Facilities;
  • Hospitals and Major Medical Facility Services;
  • College and University Enrollment;
  • Multi-Jurisdictional Mutual Aid Agreements;
  • Organizations’ and Clubs’ Membership and Services;
  • Newspaper Subscriptions;
  • Attendance at Entertainment and Sporting Events;
  • Local Television and Radio Audiences;
  • Community-wide Shopping Patterns; and
  • Geographic Isolation.
According to the proposed rule, “[a]n area need not meet all of the narrative criteria to qualify as a local community; rather, the totality of circumstances within the criteria a credit union elects to address must indicate a sufficient presence of common interests and interaction among the area’s residents.”

However, NCUA has an obligation to examine not only those factors that support the presence of common interests and interaction in the proposed community; but also, those factors that do not support the presence of common interests and interaction. To exclude factors that would rule against the presence of common interests and interaction would bias the agency’s analysis. As a federal judge opined: “NCUA must critically analyze the facts provided in the application to ensure that incomplete and erroneous information does not lead to an improper conclusion.”

In conclusion, NCUA should not “rubber stamp” information provided by an FCU showing interaction and common interests of residents. To augment its analysis, the NCUA Board should seek comment from the public on whether the proposed community is a WDLC.

Read the proposed rule.


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