NCUA Response to Hatch Letter Reveals Permissive Approach to Credit Union Expansion

When considering applications for new associational common bonds since its 2015 rule permitting expansive new fields of membership, the National Credit Union Administration has denied or deferred less than 10 percent of them, NCUA Chairman Mark McWatters said in a March 28 letter released yesterday. The agency has approved nearly 80 percent, with another one in 10 applications pending. McWatters was responding to Senate Finance Committee Chairman Orrin Hatch’s January letter querying NCUA’s response to boundary-pushing by tax-exempt credit unions.

“Instead of outright denial, the NCUA typically defers action on requests the agency cannot approve and, to the extent reasonably possible, offers alternative solutions consistent with the FCUA and the agency’s regulatory framework,” McWatters noted — while adding that the 2015 rule had already provided automatic recognition for 12 association types.

Meanwhile, in response to a question from Hatch about the proposed community charter expansions that NCUA rejects, McWatters said that “NCUA’s tracking system does not distinguish between denials based on the geographic area requested as opposed to other reasons, such as safety and soundness,” thus limiting the agency’s ability to discern where credit unions are pushing field of membership boundaries.

McWatters spent much of the letter stating that eliminating the credit union tax exemption without also addressing the remaining regulatory differences between banks and credit unions “would almost certainly have a detrimental effect on the credit union system and increase losses to the Share Insurance Fund, which could ultimately fall to U.S. taxpayers.” However, American Bankers Association spokesman Jeff Sigmund dismissed these concerns as a red herring from the other issues Hatch had raised in his letter.

“No one wants to eliminate the federal tax exemption for all credit unions — just for the five percent of institutions that enjoy 75 percent of the tax exemption,” said Sigmund. “The fact that NCUA claims that credit unions would need a taxpayer bailout without the tax exemption is extremely troubling and raises more questions than it answers. Maybe if they spent less on stadium naming rights deals and exorbitant executive compensation packages they wouldn’t be in this situation.” For more information, contact ABA’s Brittany Kleinpaste.