NCUA legal opinion: ‘Reasonable proximity’ not a mileage issue

A June legal opinion from the federal credit union regulatory agency notes that the “reasonable proximity” requirement under the Federal Credit Union Act doesn’t set a maximum distance between the location of a group that wants to be served and the location of the credit union that would serve it.

The June 10 opinion, signed by National Credit Union Administration (NCUA) Acting General Counsel Frank Kressman, states that consistent with the statute and legislative history, the NCUA has always viewed “reasonable proximity” as including a geographic component, “but the NCUA will continue to assess this geographic component on a case-by-case basis free of a mileage limit.”

The opinion notes that the agency board, in its first iteration of the NCUA chartering manual following enactment of the 1998 Credit Union Membership Access Act, determined that “numerous inequities” would arise from using distance factors. “While mileage limitations often facilitate regulatory decisions, frequently, they are artificial and cause unfair results simply because of small geographic differences. Accordingly, mileage limitations were deemed inappropriate and not advisable. Essentially, the service area means that a member can reasonably access the service facility. In rural areas, this may include distances encompassing several counties. In a densely populated area, it may be a portion of a city,” it stated.

A second opinion, dated June 16, considers whether an FCU member service representative is barred by the act from inputting data into the institution’s automated loan underwriting system (ALUS) and then disbursing funds if the ALUS, not the member rep, approves the loan. With the right controls and safeguards in place, the FCU Act “does not prohibit such a scenario,” the letter notes.

The opinion focuses on an FCU Act provision that states that no individual can both approve a loan application and disburse the loan funds. “NCUA’s long held interpretation is that the purpose of this provision is to segregate loan approval and disbursement duties of the loan officer to decrease the incidence of fraud, embezzlement, and errors,” the letter states. “We continue to interpret § 1761c(b) of the FCU Act in this way.”

Legal opinion: Reasonable Proximity Analysis

Legal opinion: Automated Loan Underwriting System – Segregation of Duties for Loan Officers