Public hearings will be required on some CU charter requests under final rule

The NCUA Board and staff discuss field-of-membership rule changes that are scheduled to take effect Sept. 1.

In what is a first for the federal regulator of credit unions, a final rule approved Thursday by the agency will subject some community-based federal credit union applications to public hearings. The final rule takes effect Sept. 1.

The final rule, approved unanimously by the two-member National Credit Union Administration (NCUA) Board, provides the following:

  • An applicant for an original community charter, conversion, or expansion may opt to submit a narrative to establish the existence of a well-defined local community instead of being limited to a presumptive statistical community. (An appendix to the final rule presents 13 criteria applicants can use to support their requests.)
  • The NCUA Board will seek comments from the public and hold a public hearing for narrative applications where the proposed community exceeds a population of 2.5 million people.
  • For communities that are subdivided into metropolitan divisions, the agency board will permit an applicant to designate a portion of the area as its community without regard to division boundaries.

Two of the above provisions were included in a 2016 proposed rule on community chartering. The middle one, addressing the need for a public hearing for applications involving communities exceeding a population of 2.5 million people, is modified from what was contemplated in the proposed rule.

According to NCUA staff, the agency has never held a public hearing where interested parties essentially may testify on a charter.

Meanwhile, the final rule does not include a provision proposed in 2016 that would have raised up to 10 million the population limit on a proposed community consisting of a statistical area “or portion thereof.”

NCUA says Thursday’s final rule is consistent with a March 29, 2018, federal district court ruling in a suit brought against the agency by the American Bankers Association (ABA). In that ruling, the judge upheld two provisions and vacated two other provisions of the agency’s 2016 final FOM rule on community charters.

Frank Kressman, the agency’s associate general counsel, noted in Thursday’s open board meeting that in one of the judge’s rulings, the court “seems to favor fields of membership that NCUA scrutinizes” and for which it “has to make a case-by-case judgment based on the facts and circumstances.”

The public hearing provision, the “heavy burden” of proof called for in the use of a narrative approach and other safeguards in the final rule, in staff’s view, ensure the final rule “fully complies with the court’s judgment,” he said.

The rule also ensures stakeholders, including bankers and banking associations, the opportunity to comment and air their views in any public hearing held on an application, staff and board members noted.

The 2016 FOM rule portions vacated in the March court order were a provision that allowed any individual portion of “combined statistical area” to be treated as belonging to a local community that can be served by a credit union as long as it contained no more than than 2.5 million people; and one raising to 1 million people the population limit for rural districts.

NCUA and ABA are appealing the court’s rulings. Meanwhile, NCUA told the court in April that it would not grant any new community charters under the vacated rule provisions while the court’s order is in effect. It also said it instructed affected credit unions during this time not to accept any new members who would only be eligible for membership under those provisions. It also said it would not require credit unions to de-list members who became members on or before April 4, 2018.

Federal Register notice of final rule