Credit unions are still learn­ing how to make the most of the agency’s mod­ern­iza­tion of the eld of mem­ber­ship reg­u­la­tions. Here’s what you need to know.

Credit Union Journal - - Contents - BY MICHAEL BARTLETT

It’s hard to ar­gue that any­thing from 2017 had a more sig­nif­i­cant — or will have a more last­ing — im­pact on the credit union move­ment than this year’s changes to NCUA’S field of mem­ber­ship rule. Here’s why it mat­ters.


Con­straints on the abil­ity to ex­pand a credit union’s eld of mem­ber­ship have long been the bane of the in­dus­try, but a rule change that went into e ect ear­lier this year has the power to change that.

Though the Na­tional Credit Union Ad­min­is­tra­tion mod­ern­ized its eld of mem­ber­ship rule at its board meet­ing Oct. 27, 2016, the rule didn’t go into e ect un­til Feb. 6, 2017, and credit unions are still ex­plor­ing how to max­i­mize the new rule.

Among the changes: let­ting com­mu­nity char­ters serve por­tions of a core-based sta­tis­ti­cal area, al­low­ing a CU to avoid the pop­u­la­tion cap of 2.5 mil­lion. Com­mu­nity char­ters can also ap­ply to serve a Com­bined Sta­tis­ti­cal Area, as des­ig­nated by the O ce of Man­age­ment and Bud­get, sub­ject to the pop­u­la­tion cap of 2.5 mil­lion.

CUS also were given the abil­ity to serve a ru­ral dis­trict of up to 1 mil­lion per­sons. There also were up­dates to the de ni­tion of “un­der­served” ar­eas.

Matthew Bil­iouris, NCUA’S acting di­rec­tor of o ce of con­sumer nan­cial pro­tec­tion and ac­cess, helped lead the reg­u­la­tor’s FOM work­ing group. He told Credit Union Jour­nal the new rule has a “broad suite of op­tions” in all three rec­og­nized char­ter types: com­mu­nity, sin­gle com­mon bond and mul­ti­ple com­mon bond.

“We tried to cre­ate a rule that went to a num­ber of di er­ent char­ter types,” he said.

The new rule comes with an “ar­ray of strate­gic op­tions,” that al­low credit unions to shop for the most ad­van­ta­geous FOM for ex­pan­sion pur­poses, he added.

Asked if there are com­mon mis­takes/pain points the agency is see­ing as credit unions be­gin to ap­ply for FOM ex­pan­sion un­der the new rule, Bil­iouris said the agency goes “very far not to re­ject” FOM re­quests, if it can avoid it.

“Our sta works with credit unions as long as they fol­low the rules,” he said. “A credit union might put in a bid to in­crease their eld of mem­ber­ship that ex­ceeds the pop­u­la­tion limit, so we sug­gest a ru­ral dis­trict or an­other path that fol­lows the rules.”

When ap­ply­ing to ex­pand to a com­mu­nity char­ter, Bil­iouris said the chances for ap­proval go up if the plan sup­ports the CU’S abil­ity to do so by ad­dress­ing ex­ist­ing in­fra­struc­ture, in­clud­ing branches, ATMS and shared branches. “We want a good com­fort level you can serve the en­tire area.”

So far, most ex­pan­sion re­quests have been re­lated to com­mu­nity char­ters, but there are a num­ber of other routes CUS can ex­plore, such as as­so­ci­a­tional FOMS, in which peo­ple are el­i­gi­ble to join a credit union via mem­ber­ship in a par­tic­u­lar group.

For ex­am­ple, the $678 mil­lion SCE Fed­eral Credit Union in Ir­win­dale, Calif., ex­panded its eld through the ad­di­tion of a foun­da­tion, while the $709 mil­lion Clark County CU in Las Ve­gas can now ex­tend mem­ber­ship to donors to the lo­cal Na­tional Pub­lic Ra­dio a li­ate, ac­cord­ing to Su­san Mitchell, CEO of the Las Ve­gas-based con­sul­tancy Mitchell, Stankovic & As­so­ciates.

Mitchell noted one big fo­cus has been on serv­ing the un­der­served. “If you want to get NCUA to ap­prove your ex­pan­sion re­quest to reach those un­der­served, I rec­om­mend that you thor­oughly study the de ni­tion as that will fa­cil­i­tate the ap­proval process.”

In ad­di­tion, Mitchell rec­om­mended CUS doc­u­ment how they will go about reach­ing un­der­served con­sumers. “This will come in handy when you have fu­ture di­a­logue with ex­am­in­ers as they will ques­tion the ser­vices and qual­ity of your port­fo­lios.”


DEXSTA Fed­eral Credit Union was char­tered in 1937 as Dupont Ex­per­i­men­tal Sta­tion Fed­eral Credit Union to serve the nan­cial needs of the com­pany’s em­ploy­ees and their fam­ily mem­bers. It con­verted to a com­mu­nity char­ter in 2002, serv­ing all of New Cas­tle County, Del.

Be­cause of the unique ge­og­ra­phy of Delaware, the north­ern tip of the state is next to the ex­treme north­east cor­ner of Mary­land. Jerry King, pres­i­dent and CEO of the $274 mil­lion CU, told Credit Union Jour­nal res­i­dents of both Kent County, Del., and Ce­cil County, Md, fre­quently vis­ited DEXSTA branches seek­ing to be­come mem­bers, but had to be turned away be­cause they were not res­i­dents of New Cas­tle County. It also was an is­sue with po­ten­tial in­di­rect lend­ing deal­ers.

Nowhere was the prob­lem more acute than in the city of Smyrna, Del., which is ac­tu­ally strad­dles two coun­ties, New Cas­tle and Kent.

“NCUA will not award a com­mu­nity char­ter to an en­tire state, but there are only three coun­ties in Delaware,” King said. “We have branches through­out New Cas­tle County, the south­ern part of which is ad­ja­cent to Ce­cil County, Mary­land. We were, of course, look­ing

to grow and to add new mem­bers.”

DEXSTA sub­mit­ted its ap­pli­ca­tion to add the two coun­ties on July 13. It was ap­proved on Nov. 27. As part of the ap­pli­ca­tion, the CU had to sub­mit a timetable for no­ti­fy­ing new mem­bers. King said the first step was a staff meet­ing to ed­u­cate the team about the plan, fol­lowed by a press re­lease. DEXSTA is ad­ver­tis­ing in a num­ber of lo­cal news­pa­per and ra­dio sta­tions.

“We will not im­me­di­ately be build­ing branches,” King said. “We have a num­ber of elec­tronic op­tions, in­clud­ing home bank­ing, mo­bile bank­ing and re­mote de­posit. In a year or two we might en­ter­tain ex­pand­ing our phys­i­cal pres­ence, but right now we do have branches nearby.”

Ac­cord­ing to King, adding the two new coun­ties to the CU’S FOM means at­tain­able growth while also pro­vid­ing ac­cess to con­sumers of mod­est means. In­deed, DEXSTA is in­volved in Delaware’s fi­nan­cial lit­er­acy pro­gram in in­ner city schools, and is com­mit­ted to ex­pand­ing to the new ar­eas in its field.

“Over­all, we are look­ing to grow as a full-ser­vice fi­nan­cial in­sti­tu­tion,” he said. “We are very, very ex­cited for the op­por­tu­nity that comes with this char­ter ap­proval.”


Sam Brownell, founder of Cu­col­lab­o­rate in Washington, D.C., said his com­pany has cre­ated soft­ware that iden­ti­fies growth op­por­tu­ni­ties un­locked through the up­dated un­der­served area ex­pan­sion reg­u­la­tions.

Leagues in six states have con­tracted with Cu­col­lab­o­rate to pro­vide their mem­ber CUS with ac­cess to the com­pany’s web-based soft­ware — Ne­braska, New Jer­sey, Utah, Hawaii, Mon­tana and Mary­land and D.C. The tool is avail­able to both leagues and credit unions through Cu­col­lab­o­rate’s website:­col­lab­o­

Brownell told CU Jour­nal the com­pany orig­i­nally formed 3 years ago as a website where credit unions could re­view tech­nol­ogy providers in a Yelp­like fash­ion. He even­tu­ally founded a new com­pany that gen­er­ated con­sumer-fac­ing maps show­ing which CUS a per­son could join. That led to a data­base show­ing fields of mem­ber­ship, which led to soft­ware that of­fered iden­ti­fi­ca­tion of merger can­di­dates, as well as busi­nesses that are not served by a spe­cific CU.

“We are try­ing to help credit unions of all field of mem­ber­ship types ex­pand,” Brownell said. “The times we have been most help­ful is fig­ur­ing out what ar­eas they can serve. Some­times it is coun­ter­in­tu­itive. If a credit union is serv­ing three coun­ties and wants to add a fourth, it can­not un­less it adds a cou­ple more coun­ties. That hap­pens with un­der­served ar­eas.”

Ac­cord­ing to Brownell, NCUA ap­plies var­i­ous math­e­mat­i­cal tests to FOM ex­pan­sion ap­pli­ca­tions, in­clud­ing a con­cen­tra­tion-of-fa­cil­i­ties test. “Be­cause it is dif­fi­cult for credit unions to an­a­lyze what is avail­able to them, they miss out on op­por­tu­ni­ties,” he said. “There is a lot of ‘what if’ anal­y­sis. If you at­tempt to add un­der­served ar­eas the num­bers are very com­pli­cated. There are a lot of mov­ing parts, so if you are try­ing to cal­cu­late it man­u­ally it is easy to miss an op­por­tu­nity.”

“We help pick an area that passes the math­e­mat­i­cal re­quire­ments of NCUA while find­ing an area that fits the credit union’s busi­ness plan,” he added.

For credit unions that are con­sid­er­ing con­vert­ing to a com­mu­nity char­ter, Brownell said they should look at the new rules con­cern­ing mul­ti­ple-com­mon-bond char­ters and how they can reach out to un­der­served ur­ban ar­eas.

“If you look at how com­mu­nity char­ters work, the math is de­fined by peo­ple who live there, while if you get peo­ple who work in an area they might live in many dif­fer­ent ar­eas. A com­mu­nity char­ter, on the other hand, of­ten works bet­ter for ru­ral un­der­served ar­eas.”

For ex­am­ple: if a CU is try­ing to serve a city that has less than 1 mil­lion peo­ple in its metropoli­tan area, Brownell said it is bet­ter to add a ru­ral dis­trict ex­pan­sion. Per the new FOM rule, the pop­u­la­tion in the area in ques­tion needs to stay un­der 1 mil­lion and the pop­u­la­tion den­sity needs to stay un­der 100 peo­ple per square mile.

“One credit union we worked with wanted to serve Min­neapo­lis, but it was a ru­ral-based credit union. It had to add coun­ties that were ex­tremely ru­ral with ur­ban ar­eas to bal­ance the equa­tion and keep the pop­u­la­tion den­sity down,” he ex­plained. “It is not the eas­i­est process to go through, but it is help­ful to fig­ure out if it is worth the time and money to pur­sue.”

“We help find the largest num­ber of ways for some­one to join a credit union,” he added.

To do that, credit unions need to be look­ing at all of the op­tions un­der the new rule, in­stead of be­ing wed­ded to one par­tic­u­lar char­ter.

“A lot of credit unions are not con­sid­er­ing ev­ery op­tion, and are not aware of the op­por­tu­ni­ties each op­tion pro­vides,” he said. “In dif­fer­ent states there are dif­fer­ent ways to max­i­mize the field of mem­ber­ship, but what we keep com­ing back to is an un­der­served area ex­pan­sion. When peo­ple hear the word ‘un­der­served’ they think of peo­ple with bad credit, but when you look at cen­sus tracts many af­flu­ent ar­eas are con­sid­ered un­der­served – such as down­town Washington, D.C. With gen­tri­fi­ca­tion, more and more ur­ban ar­eas are becoming af­flu­ent but are still counted as un­der­served based on num­ber of fi­nan­cial in­sti­tu­tions, me­dian in­come and other fac­tors counted by the CDFI.”

Delaware-based DEXSTA FCU re­cently was ap­proved to ex­pand its com­mu­nity char­ter.

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