Should FOM Be Eliminated?

After the Supreme Court ruled in favor of NCUA's field of membership rule, the credit union lobby is calling for the end to any membership restrictions for credit unions.

Jim Nussle, President and CEO of the Credit Union National Association, in a recent op-ed called for Congress to eliminate the field of membership (FOM) requirement for credit unions.

Nussle argued that FOM has gone the way of the horse and buggy. He stated that common bond was a tool used to establish the credit-worthiness of members. But today FOM has been replaced by sophisticated modern tools that assess the ability of borrowers to repay their debts.

However, Laurie Stewart, President and CEO of Sound Financial, in an op-ed stated that relaxing field of membership rules is yet another move by the credit union industry and its regulator to create an unlevel playing field between tax-exempt credit unions and taxpaying community banks.

Stewart wrote: "“Eliminating the field of membership requirement is a gross perversion of the mission and purpose of credit unions as conceived by Congress in 1934."

In fact, Congress in 1998 re-affirmed that "a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or the maintenance of an otherwise well-understood sense of cohesion or identity is essential to the fulfillment of the public mission of credit unions."

Stewart further argued that if credit unions want to act like banks, they should operate under the same rules, regulations and regulators as banks do.

In my opinion, if the field of membership requirement is an anachronism, so is the credit union tax exemption.