by: Peter Rudegeair

Some credit unions that used an aggressive tactic to try to expand their membership rolls were dealt a blow last week: The National Credit Union Administration said the federally chartered credit unions it oversees can’t set up charities and other associations for the sole reason of qualifying virtually anyone to join the credit unions.

Why couldn’t the credit unions simply do business with whomever they wanted in the first place? It’s because by law these nonprofit financial institutions serve only members, who are linked by one or more “common bonds.” As nonprofits, credit unions enjoy tax advantages that can enable them to pay higher rates on deposits and charge lower rates on loans than many banks.

The NCUA action doesn’t mean, however, that credit unions can’t list membership in a charity or organization—including ones that are open to anyone—as one of the qualifications for membership. A number of very large credit unions do exactly that:

Pentagon Federal Credit Union: Applicants who aren’t members of the U.S. military and don’t qualify on other grounds can join PenFed by joining and paying around $15 in nonrefundable membership dues to either Voices for America’s Troops, a nonprofit subsidiary of the Military Officers Association of America, or the National Military Family Association.

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