Recent Alerts Regarding Associational Field of Membership Compliance
Increased attention has recently been paid to associational field of membership by regulators. In April, 2013, the California Department of Business Oversight issued a monthly bulletin reminding credit unions that “anyone can join” advertisements violate California FOM laws. While the DBO has not expanded on that bulletin more formally, we expect that the topic will be the subject of examinations in the future.
The NCUA has now followed suit with Letter to Federal Credit Unions 13-FCU-03 (available here), in which the NCUA outlines the requirements for associational FOM groups, and the prohibitions against deceptive advertising.
Of course, ensuring that marketing departments are clear regarding the prohibition on “anyone can join” advertisements is important as a result of these communications from both state and federal regulators.
In addition, though, credit unions with associational FOM segments, especially those relying on those FOM segments for indirect lending or other key initiatives, should be closely examining those FOM groups to ensure that they meet current NCUA requirements. Of the seven bullet points in the NCUA’s Chartering and FOM Manual (also here), there are two major categories: (1) corporate governance formalities, and (2) activities. Your credit union should remind associations in its FOM that to continue to obtain credit union services for their members, the associations must maintain those governance formalities: Bylaws, annual meetings, elections, regular Board meetings, membership lists, etc. To the extent your credit union can, it should also encourage associations to have robust inter-member interactions—events, newsletters, meetings, and other shared activities all contribute to a picture of the type of association that meets the NCUA’s requirements.
Note also that the NCUA calls the seven bullet points “factors.” In our experience, the NCUA often looks to see that all seven are met. At a minimum, associations should ensure that they have annual meetings, payment of dues, and voting rights. These will strongly contribute to the NCUA’s totality of the circumstances test.
Also important is the application process to add FOM segments. An inaccurate application, or an application that suggests a local character for a nationwide group, could result in a conflict with the NCUA. The form for adding FOM groups can be deceptively simple.
Such due diligence and maintenance of associational FOM groups will be particularly necessary in light of the following sentence in the NCUA’s guidance: “NCUA’s Office of Consumer Protection has begun conducting quality control reviews of federal credit unions that may be improperly using associations to sign up members without a common bond.”
We have recently seen examination reports and letters from the NCUA requiring credit unions to stop adding members through questionable associations, and even to divest of members added through such channels. While the NCUA does not have jurisdiction over an association itself, remember that the NCUA does have control over whether an FCU can retain that association in its FOM.
What credit unions should watch for, though, is whether the NCUA or a state regulator is questioning why members might want to join a particular association. Even for an association with local character and local causes, persons in other areas of the country might wish to support those causes or participate in those activities for any number of reasons. Our office believes strongly that the regulators should not be in the business of questioning the motivations of individual consumers in choosing their associational connections.
If your credit union has associational groups in its FOM and has questions about their operations, or if the NCUA is reviewing or has reviewed your FOM and is taking issue with groups, don’t hesitate to call Steven Balian or Tim Oppelt at SW&M for assistance.