I was not in the industry when credit unions pulled off one of the great lobbying feats in modern history and got Congress to pass the Credit Union Membership Access Act. By getting Congress to overturn a Supreme Court decision, credit unions were allowed to grow. Without its passage, membership restrictions would have continued to strangle the industry to death.
Today, we are at another crossroads. We may not have a Supreme Court decision to rally around, but what we do have is an increasingly antiquated legal structure that, if not fundamentally altered in the next few years, could once again strangle the industry.
What I’m talking about, of course, are Fields of Membership restrictions designed in an age when banking was limited to geographically defined communities and workers gathered in factories and buildings where they needed to be able to deposit and cash their paychecks on a Friday night. Today, paychecks are automatically deposited, checks are deposited remotely, bills are paid online and loans from anywhere in the country are a click away. The modern day financial institution is morphing from a brick and mortar location into a virtual platform. Fewer and fewer members are going to care about or understand FOMs and they are not about to give their local credit union a hometown discount.
Fortunately, many people already realize this fact. The NCUA Board has an FOM Taskforce and at a recent meeting members Metzger and McWatters mused excitedly about the possibility of expanding the reach of credit unions by reinterpreting regulations to reflect modern realities.
This is a great start, but NCUA can only stretch its regulations so far to accommodate greater flexibility. Community credit unions are limited by Congress to well-defined “local” communities. There are already credit unions serving associations and occupations on a national level, but as NCUA made clear by recently tightening associational membership requirements, associations are not the gateway to the type of charter flexibility all credit unions need.
There is no other option but to start the long hard slog of advancing legislation to reshape the federal charter in a way that gives credit unions greater flexibility to serve a larger scope of members. Impossible, you say? In the immortal words of Rocco Lampone, the go-to henchman for the Corleone family, this would be difficult not impossible. Besides, the industry really has no choice.
First, we have a good argument on our side. No financial institution should have to compete in a 21st century world with a charter designed almost eighty years ago. Second We have the advantage of viable state charters to prod Congress to act. It’s not a coincidence that NCUA is taking up FOM reform just as states like New York pass legislation giving credit unions greater flexibility to mix and matc FOMs. If federal law isn’t changed, more and more credit unions are going to have the option of flipping to friendlier state charters.
One final thing for credit unions to keep in mind is that income inequality is getting more and more attention. All of the announced presidential candidates agree that income inequality is a problem even if they vehemently disagree about how to be deal with it. Our politicians need to be reminded that, in an age of squeezed incomes when every cent really does matter, consumers need access to the cost effective financial products offered by credit unions and credit unions need easier access to consumers.
Difficult? Yes but not impossible.