ICBA - Publications - The Mythology of the Credit Union Common Bond

The Mythology of the Credit Union Common Bond

DECEMBER 6, 2002


The Mythology of the Credit Union Common Bond

The mythology is that credit unions are exempt from federal taxation and regulations because they serve a small group of people who have a "common bond." Yes, and Santa Claus stops at each and every house on Christmas eve.

The credit union's friendly regulator this week took additional steps that hopefully will give an incentive to fair-minded members of Congress to explore today's realities-that credit unions want their special breaks while serving an ever-broader and more affluent customer base.

The NCUA's newest membership proposal expands the definition of "local community" for purposes of community charters to include residents of "any city, county, or smaller political jurisdiction, regardless of population size." Under the proposal, "local community" also includes any metropolitan statistical area (MSA), or part of it, with fewer than one million people. Political jurisdictions with populations up to 500,000 (up from 200,000) also are included. The proposal allows credit unions to seek charters for even larger areas, but stricter documentation is required.

The proposal also expands the classification of occupational credit unions to include individuals who produce similar products or services, or who share the same profession or trade. This would enable credit unions to serve individuals in the same occupational field even though they work for different companies.

Multiple-group credit unions are currently permitted to expand into areas in "reasonable proximity" to an existing "service facility." The NCUA proposal allows the "reasonable proximity" requirement to be satisfied by wholly-owned ATMs and by shared service centers in which the credit union has an interest. Thus, if a credit union wanted to add a new group to its membership, it could do so by installing an ATM nearby.

Credit union powers and charters today bear little resemblance to what Congress envisioned when it chartered credit unions in 1934. Congress created credit unions to provide credit to "people of small means" who had a "common bond" of employment, association or community. Congress granted credit unions tax-exempt status in consideration of their restricted mission and limited scope. In 1998 Congress effectively eliminated the "common bond" requirement, allowing credit unions to serve the general population. The 1998 law also gave credit unions access to the commercial lending market.

The most recent NCUA proposal is not consistent with the statutory mission of credit unions. You may send your own comments to Becky Baker, Secretary to the Board, NCUA, 1775 Duke Street, Alexandria, Virginia 22314-3428. Comments will be due 60 days after publication in the Federal Register.