Letter reminds credit unions that new membership rules with new ‘service area’ meaning take effect Oct. 14

With an impending date of changes to membership rules coming in just under three weeks, federal credit unions were reminded by their regulator Monday that they may use a new definition of a service area for expanding the group of who can belong to their institutions.

In a letter to federal credit unions, the National Credit Union Administration (NCUA) said, as of Oct. 14, prospective and existing federal credit unions seeking a community charter may use a “Combined Statistical Area” (CSA) or portions of that areas defined in federal rules as the basis for defining their proposed service area without documenting how a CSA’s residents interact or share common interests.

In July, the NCUA Board adopted a final rule (in a unanimous vote) that would once again allow a federally chartered credit union to seek to serve CSA as a “well-defined” local community if that area has a population no greater than 2.5 million persons. That rule was adopted following a long court battle over a lawsuit brought by the banking industry challenging the agency’s membership rules for credit unions. In August 2019, a federal appeals court reversed a lower court decision that found in favor of the bankers’ lawsuit. Earlier this year, the U.S. Supreme Court refused to consider the bankers’ appeal of the August decision – and the agency’s rules were allowed to stand. The final regulation that takes effect next month was meant to clarify the agency’s membership rules, which NCUA said “will facilitate greater access to safe and affordable financial services for all Americans.”

In the letter (20-FCU-03), NCUA said the final rule will also clarify that an applicant credit union must provide the NCUA with the business rationale used to define a CSA or Core-Based Statistical Area (CBSA) “if the defined area does not include an area’s largest county or named city.”

“Applicants should outline the rationale in the submitted business and marketing plan,” the letter states. “The new provision ensures federal credit unions avoid potentially discriminatory practices when establishing a proposed service area.”

The letter also notes that NCUA has contacted credit unions that had been affected by the lawsuit, confirming that the agency has reinstated the CSA or portions of it that was previously approved.

“The NCUA will also proceed with processing credit union applications for a community charter, expansion, or conversion based on a CSA or CBSA (or a portion thereof) that were placed on hold during the litigation,” NCUA stated.

Amended Field of Membership Application Requirements for Combined Statistical Area and Core-Based Statistical Area