Dennis Dollar on Field of Membership

By Dennis Dollar

The question is often asked if field of membership still matters to credit unions today.

After all, some say, credit unions have already pushed FOM to the limits.  Between community charters, associational SEGs and underserved areas, those same folks say that every credit union already has all the FOM potential they will ever need.

In reality, the need for FOM growth will cease when the need for credit union capital, earnings and financial stability ends.

You cannot separate a viable FOM from safety and soundness.  If a credit union cannot grow through its FOM to achieve the diversification of business and the economy of scale necessary to be competitive in an incredibly challenging marketplace, it cannot maintain its long-term safety and soundness.

Capital comes from earnings.  Earnings come from the spread on products and services offered by a credit union to its members.  The members come from potential members.  Potential members come from a credit union’s field of membership.

To compete effectively, growth is crucial.  Diversification is essential.  FOM drives both.

Some Positive Options

The new NCUA field of membership rules that went into effect February 2017 offer some positive options for federal credit unions to consider as they evaluate FOM growth potential for their strategic future.  Many states have followed suit through their parity provisions and some even go further than NCUA in their FOM flexibility.

The ability to expand community charters beyond a metropolitan statistical area (MSA) into a combined statistical area (CSA) as long as the additional counties are contiguous and the total population does not exceed 2.5 million is a very good option for community chartered federal credit unions to consider.

The improved process for defining and serving underserved areas and the ability to serve SEGs of entire office, retail or industrial complexes (rather than signing up the individual businesses within them one by one) are very progressive steps for SEG-based multiple common bond federal credit unions.

The approval to serve honorably discharged veterans for any federal credit union that has an established military component to its existing FOM is another improvement in the rules that benefits both credit unions and those who served our nation.

Long Overdue

The NCUA Board, with just two members who unanimously acted in a bipartisan manner to approve this rule, deserves commendation for this long overdue modernization.

Could they have gone further within the law?  No question.  There were no population caps or concentration of facilities matrixes on underserved areas from 1999 to 2010.  So, since this rule maintains those provisions, the changes are more modest than they could have been.
But credit unions cannot allow the perfect to be the enemy of the good.  And this is a good FOM rule with some very position provisions for federal credit unions and the state credit unions in those states with parity or beyond.

As long as strategic diversification and managed growth are important to credit unions as they always will be, enhanced FOM opportunities are vital.

The new NCUA FOM rules are a progressive step toward regulatory modernization as it relates to credit union growth.  More members from all walks of life will be positively impacted and more communities will be strengthened through the expansion of credit union service that these new rules provide.

Dennis Dollar served on the NCUA Board from 1997-2004 and as NCUA Chairman from 2001-2004.  He can be reached at ddollar@dollarassociates.com.